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X  o 


EURAL     CREDITS 


JOINT  HEARINGS 

BEFORE   THE 

SUBCOMMITTEES  OF  THE 
COMMITTEES  ON  BANKING  AND  CURRENCY 

OF  THE  SENATE  AND  OF  THE 
HOUSE  OF  REPRESENTATIVES 

CHARGED  WITH  THE  INVESTIGATION 
OF  RURAL  CREDITS 


Sixty-third  Congress,  Second  Session 


PRINTED   FOR   THE   USE    OP   THE   SENATE   COMMITTEE 
ON  BANKING  AND   CURRENCY. 


WASHINGTON 

GOVERNMENT  PRINTING   OFFICE 

1914 


SUBCOMMITTEE  OF  THE  COMMITTEE  ON   BANKING  AND  CURRENCY, 
I'M  TED  STATES  SENATE. 

HENRY  F.  HOLLIS,  New  Hampshire,  Chairman. 

BLAIR  LEE,  Maryland. 

COE  I.  CRAWFORD,  South  Dakota. 

SUBCOMMITTEE  OF  THE  COMMITTEE  ON  BANKING  AND  CURRENCY, 
HOUSE  OF  REPRESENTATIVES. 

ROBERT  J.  BULKLEY,  Ohio,  Chairman. 
WILLIAM  G.  BROWN,  West  Virginia.  J.  WILLARD  RAGSDALE,  South  Carolina. 

CLAUDE  U.  STONE,  Illinois.  BVERIS  A.  HAYES,  California. 

HARRY  H.  SELDOMBIDGE,   Colorado.  FRANK  P.  WOODS,  Iowa. 

CLAUDE   WEAVER,  Oklahoma.  EDMUND  I'LATT,  New  York. 

a 


9,05/ 

U.5A5 

LIST  OF  WITNESSES. 

Pago. 

Ady,  Abel,  Klamath  Falls,  Oreg 429,  964 

Alexander,  H.  Q. ,  physician  and  farmer,  Matthews,  N.  C 280 

Allen,  Frederick  H.,  New  York,  N.  Y 969 

Atkeson,  T.  C,  farmer,  Morgan  town,  W.  Va 260 

Badow,  Gerard,  M.  J.,  journalist,  Chicago,  111 570 

Bathrick,  Hon.  Ellsworth  R. ,  Member  of  Congress  from  Ohio 858 

Breitung,  Edward  N.,  mining  engineer,  Marquette,  Mich 319 

Brooks,  Prof.  T.  J.,  Agricultural  and  Mechanical  College  of  Mississippi 240 

Coulter,  John  Lee,  secretary  United  States  Commission  to  Investigate  and 

Study  Rural  Credits 151,  830 

Cunningham,  John,  farmer,  Granville,  Ohio 599 

Doak,  W.  B.,  farmer,  Clifton  Station,  Va 662 

Daniel,  T.  dishing,  financial  writer,  Washington,  D.  C 764 

Fischer,  George,  secretary  Northwest  Land  &  Home  Builders'  Union,  Redfield, 

S.  Dak 134 

Fletcher,  Duncan  U. ,  Senator  from  Florida 1 

Hill,  John  Sprunt,  Durham,  N.  C 442 

Hulings,  Hon.  Willis  J.,  Member  of  Congress  from  Pennsylvania 947 

Ingalls,  Hon.  Sheffield,  lieutenant  governor  of  Kansas,  Atchison,  Kans 784 

Jones,  Gordon,  president  United  States  National  Bank,  Denver,  Colo 608,  682 

Jordon,  Hon.  Harvie,  member  United  States  Commission  on  Rural  Credits 557 

King,  Will  R.,  chief  counsel  Reclamation  Service,  Washington,  D.  C 940 

Lane,  Hon.  Harry,  Senator  from  Oregon 928 

Lennox,  John,  Colorado  Springs,  Colo 305,  313 

Mobley,  H.  S. ,  farmer,  Prairie  Grove,  Ark 686 

Morris,  Arthur  J. ,  lawyer  and  banker,  Norfolk,  Va 717 

Moss,  Hon.  Ralph  W. ,  Member  of  Congress  from  Indiana 69,  889 

Myrick,  Herbert,  president  Orange  Judd  Co.,  Springfield,  Mass 513,  965 

Norris,  Hon.  George  W. ,  Senator  from  Nebraska 915 

Norton,  Hon.  Patrick  D.,  Member  of  Congress  from  North  Dakota 952 

Ousley,  Clarence,  editor,  Fort  Worth,  Tex 405 

Quick,  Herbert,  editor,  Springfield,  Ohio 799 

Robinson,  Leonard  G.,  general  manager  Jewish  Agricultural  Industrial  Aid 

Society,  New  York,  N.  Y 537 

Ryan,  William.  A.,  comptroller,  Reclamation  Service,  Washington,  D.  C 932 

Scudder,  S.  D.,  banker,  New  York,  N.  Y 217,438,825 

Shibley,  George  H.,  director  American  Bureau  of  Political  Research.  Wash- 
ington, D.  C 777 

Southgate,  Thomas  S. ,  merchant,  Norfolk,  Va 650 

Van  Cortland ,  Robert  B. ,  retired  banker  and  farmer 494 

Von  Engelken.  F.  J.  H.,  farmer,  East  Palatka,  Fla 339 

Williams,  H.  Martin.  Washington,  D.  C 949 

&*kU,.  $«*U,  "  "       JU<U~J*  .  .  -  -      ni  J 


30 


RURAL   CREDITS. 


FEBRUARY  16,   1914. 

United  States  Senate, 

Washington,  D.  C. 

The  subcommittees  assembled  in  joint  session  at  10.30  o'clock 
a.  m.,  Hon.  Henry  F.  Hollis  presiding. 

Present:  Senator  Lee  and  Messrs.  Bulkier,  Brown,  Stone,  Seldom- 
ridge,  Weaver,  Hayes,  Woods  and  Piatt. 

Present  also:  Senator  Robert  L.  Owen,  chairman  of  the  Senate 
Committee  on  Banking  and  Currency. 

Senator  Hollis.  Senator  Fletcher,  will  you  state  your  connection 
with  the  subject  of  rural  credits  up  to  this  time,  for  the  record? 

STATEMENT    OF    HON.    DUNCAN    17.    FLETCHER,    A    SENATOR 
FROM  THE  STATE  OF  FLORIDA. 

Senator  Fletcher.  Mr.  Chairman  and  gentlemen  of  the  committee: 
As  president  of  the  Southern  Commercial  Congress,  I  had  some  cor- 
respondence with  Mr.  David  Lubin,  the  American  delegate  to  the 
International  Institute  of  Agriculture,  with  headquarters  in  Rome, 
Italy,  and  Mr.  Lubin  brought  this  subject  to  my  attention,  and  I 
invited  him  to  come  to  our  next  convention  in  Nashville,  Tenn.,  in 
April,  1912,  to  discuss  the  subject  there. 

Mr.  Lubin  replied  that  if  we  would  get  the  consent  of  the  State 
Department  granting  him  leave  of  absence  and  assemble  representa- 
tives of  the  different  States,  and  give  him  a  week  there,  he  would  be 
glad  to  come;  that  he  did  not  feel  like  he  could  cross  the  ocean  merely 
to  make  a  speech  at  the  convention.  It  was  a  good-sized  undertak- 
ing, but  we  started  into  do  that,  and  finally  we  got  leave  of  absence, 
throught  Secretary  Knox,  for  Mr.  Lubin,  and  we  succeeded  in  assem- 
bling representatives  from  27  States  in  Nashville;  and  Mr.  Lubin 
came  and  brought  all  the  data  that  he  had  been  collecting  for  years, 
practically  ever  since  he  succeeded  in  establishing  that  international 
institute  of  agriculture,  which  was  hi  1905;  and  they  spent  six  days 
in  Nashville,  studying  the  subject  there  under  the  guidance  of  Mr. 
Lubin. 

And  at  our  convention  Mr.  Lubin  delivered  his  address,  and  a  reso- 
lution was  adopted  calling  on  the  Southern  Commercial  Congress  to 
assemble  a  commission,  to  be  composed  of  two  qualified  and  repre- 
sentative men  from  each  State,  if  possible,  for  the  purpose  of  going 
to  Europe  and  studying  the  various  systems  in  operation  in  those 
countries  for  the  benefit  of  agriculture  primarily. 

It  was  a  good,  big  contract,  but  the  resolution  was  adopted  by_  our 
convention,  and  we  went  to  work  to  carry  it  out  as  far  as  possible. 
I  rather  protested  at  the  time  that  the  commission  was  too  large. 

37031—14 1  1 


2  RURAL    CREDITS. 

1  thought  it  would  I  e  difficull  to  get  so  man^  together,  in  the  first 
place;  and  then,  in  the  next  place,  I  thought  it  would  be  unwieldy; 
but  Mr.  Lubin's  idea,  which  1  think  turned  out  to  he  a  good  one, 
was  that  the  purpose  would  he  to  educate  two  capable  men  in  each 
State,  and  when  they  saw  these  systems  in  operation  and  observed 
what  was  going  on  they  would  be  aide  to  come  lack  home  and  tell 
their  people  about  those  systems  and  keep  up  the  work  in  that  way 
throughout  the  various  States. 

We  took  the  matter  up  with  the  National  Grange  and  the  Farmers' 
Union  and  other  agricultural  organizations,  and  they  approved  the 
plan.  We  then  also  suggested  provisions  in  the  platforms  of  the 
various  political  parties  as  they  met,  the  Republican  convention  at 
Chicago  and  the  Progressive  convention  at  Chicago,  and  then  we  went 
to  the  Democratic  convention  at  Baltimore;  and  planks  were  written 
in  the  platforms  of  the  parties  favoring  this  plan  for  investigating 
this  subject  in  those  European  countries  where  agricultural  finance 
has  obtained  a  high  development,  and  has  wrought  great  benefits  to 
the  people  of  those  countries,  and  to  agriculture  in  particular. 

We  also  took  the  matter  up  with  the  governors  of  the  various  States, 
and  they  were  in  accord  with  the  idea.  We  prepared  bills  for  the 
legislatures  that  met  after  our  convention.  Some  of  the  States  did 
not  have  their  legislatures  meet  before  the  commission  had  to  go,  but 
other  States  did. 

We  figured  out  that  it  would  cost  $1,200  for  each  delegate.  And 
we  had  various  applications  by  people  wTho  wanted  to  go  on  the  trip 
and  enjoy  the  privileges  and  that  sort  of  thing  accorded  the  commis- 
sion, but  wTe  wanted  men  who  were  seriously  bent  on  working  out  an 
adaptation,  if  possible,  of  those  systems  to  conditions  in  this  coun- 
try. 

And  so  we  were  not  looking  for  men  who  were  willing  to  pay  their 
own  expenses,  but  we  wanted  the  States  to  furnish  the  money,  or 
organizations,  farmers'  unions,  and  societies  of  that  kind,  so  as  to 
identify  these  men  with  the  work,  and  have  them  feel  that  they  were 
responsible  to  these  States  and  to  the  people  of  their  States,  and  have 
them  go  with  a  determination  to  accomplish  results. 

Some  of  the  States  passed  special  laws — California,  Oregon,  and 
Washington.  I  think  Ohio  appropriated  $2,400  for  two  delegates. 
Some  of  the  governors  had  funds  in  contingent  accounts  which  they 
could  employ  and  have  provided  means  in  that  way.  Other  dele- 
gates raised  the  necessary  money  through  the  farmers'  organizations, 
commercial  bodies,  and  the  like. 

So  that  on  the  26th  of  April  last  the  representatives,  including  two 
delegates  from  each  of  35  States,  left  Xew  York.  I  may  say  that  in 
the  meantime  certain  Canadian  Provinces  had  applied  for  permission 
to  join  us,  and  wTc  had  delegates  from  five  Canadian  Provinces  as 
members  of  the  commission,  and  they  sailed  from  New  York  on  the 
26th  of  April.  1913,  and  went  direct  to  Rome,  Italy,  where  they  were 
received  by  the  King  and  Queen. 

And  in  the  meantime  Mr.  Lubin  had  arranged  with  the  delegates 
to 

Mr.  Hayes  (interposing).  The  International  Institute  of  Agricul- 
ture? 

Senator  Fletcher.  Yes,  the  International  Institute  of  Agriculture, 
which  is  participated  in  by  53  nations,  by  the  way.     Delegates  from 


RURAL   CKEDITS.  6 

these  various  countries  had  outlined  a  program  and  made  arrange- 
ments in  advance  for  this  commission. 

In  the  meantime,  there  was  an  amendment  put  on  the  agricultural 
appropriation  bill,  which  was  approved  March  4,  1913,  which  pro- 
vided for  a  commission  of  seven  to  be  appointed  by  the  President, 
to  cooperate  with  this  American  commission  being  assembled  by  the 
Southern  Commercial  Congress  in  this  study.  And  that  commis- 
sion was  appointed,  and  five  of  the  members  of  the  commission 
joined  the  American  commission  in  New  York,  and  sailed  with  them, 
and  cooperated  with  them  throughout  the  investigation. 

Two  members  of  the  United  States  commission,  Senator  Gore  and 
myself,  were  unable  to  go  on  account  of  the  tariff  bill  and  other 
matters  pending,  and  the  five  remaining  members  of  that  commis- 
sion, consisting  of  Representative  Moss,  Dr.  J.  L.  Coulter,  Dr.  Ken- 
yon  L.  Butterfield,  Mr.  Harvie  Jordan,  and  Dr.  Clarence  J.  Owens, 
represented  the  United  States  commission  and,  as  I  say,  cooperated 
with  the  American  commission  in  that  investigation. 

Senator  Hollis.  Senator  Fletcher,  I  understand  that  it  is  a  fact 
your  interest  in  the  subject  of  rural  credits  arises  largely  from  the 
fact  that  you  are  a  member  of  the  Committee  on  Agriculture  and 
Forestry  of  the  Senate  ? 

Senator  Fletcher.  No. 

Senator  Hollis.  You  say  it  was  not  on  account  of  your  connec- 
tion with  that  committee  that  you  were  particularly  interested  in 
the  subject? 

Senator  Fletcher.  No;  it  was  largely  because  of  this  move- 
ment which  originated,  as  I  have  stated,  with  the  Southern  Com- 
merical  Congress,  of  which  I  am  president.  I  am  not  a  member  of  the 
Committee  on  Agriculture  and  Forestry. 

Senator  Hollis.  I  thought  you  were. 

Senator  Fletcher.  No;  I  was,  however,  elected  by  the  American 
commission  chairman  of  that  commission,  and  also  elected  by  the 
United  States  commission  chairman  of  that  commission. 

Senator  Hollis.  Yes. 

Senator  Fletcher.  So  that,  as  chairman  of  both  commissions,  I 
have  been  pretty  closely  identified  with  the  movement.  And  we 
received  reports  here  in  Washington  constantly,  while  the  commis- 
sion was  pursuing  its  investigation.  Every  week  we  would  have 
letters  from  the  members  of  the  commissions  in  Europe,  and  we  kept 
up  with  them  pretty  well  in  that  way.  And  since  then  the  commis- 
sions have  joined  in  a  report  which  is  found  in  Senate  Document  214, 
setting  forth  these  various  systems  as  they  found  them  in  operation  in 
some  14  European  countries. 

That  report  is  not  entirely  complete.  There  are  other  matters  r.o  be 
submitted  by  the  commission  which  will  form  part  2  of  that  report. 

And  then  the  report  of  the  United  States  commission  is  found  in 
Senate  Document  380,  which  sets  forth  our  conclusions  in  regard  to 
long-term  land  mortgage  credit;  and  also  there  is  attached  to  that 
report  the  suggested  bill  which  we  have  submitted,  both  in  the 
Senate  and  in  the  House;  and  the  United  States  commission  is  now 
at  work  on  the  other  part  of  the  problem,  the  short-term  or  personal 
credit  phase. 

Senator  Hollis.  Senator  Fletcher,  you  have  introduced  Senate 
bill  2909,  entitled  "A  bill  to  provide  for  the  establishment,  operation, 


4  RURAL   CREDITS. 

management,  and  control  of  a  national  rural-banking  system  in  the 
United  States,  and  for  other  purposes"? 

Senator  Fletcher.  Yes. 

Senator  Hollis.  Will  you  please  tell  the  committee  how  v<»u  came 
to  prepare  that  bill,  Senator  Fletcher,  and  all  about  it  \ 

Senator  Fletcher.  That  bill  was  introduced  in  August,  as  I 
recall. 

Senator  Hollis.   it  was  introduced  August  9,  1913,  was  it  not? 

Senator  Fletcher.  Yes,  sir;  and  as  I  stated  at  the  time,  of 
course  I  have  been  at  work  on  the  matter  quite  actively  ever  since 
the  commission  sailed.  We  had  some  other  material  before  that; 
for  instance,  Mr.  CahilTs  report,  which  is  made  a  Senate  document, 
and  which  gave  me  considerable  data  to  work  on  in  that  connection. 
I  got  information  and  assistance  from  every  source  I  could  from  the 
farmer's  standpoint.  I  knew  something  of  the  farmer's  problems 
from  persona]  experience  and  observation. 

Mr.  Hayes.  Excuse  me,  Senator  Fletcher,  but  what  is  the  number 
of  the  Cahill  report  ? 

Senator  Fletcher.  The  Cahill  report  is  Senate  Document  No.  17. 
This  is  it  [indicating]. 

And  I  had  be?n  studying  the  subject,  with  the  help  of  that  report 
and  other  documents;  and  I  introduced  this  bill  as  I  said,  at  the 
time,  not  as  the  final  word  on  the  subject,  but  »n  order  to  keep  the 
subjsct  before  Congress  and  before  the  country  as  far  as  possible 
and  as  being  my  first  impressions  regarding  the  subject. 

Of  course  that  bill  Is  still  pending;  and  it  differs  from  the  bill  as 
finally  reported  by  the  commission,  in  some  material  respects. 

For  instance,  it  provided  for  the  organization  of  local  banks  in 
communities  by  farmers,  and  then  the  organization  by  local  banks 
of  a  State  central  bank;  and  the  organization  of  the  United  States 
central  bank,  through  these  State  central  banks,  and  the  final 
issuing  of  the  bonds  by  the  United  States  central  bank. 

My  impression  at  that  time  was  that  that  would  standardize  the 
farm-land  bonds  and  secure  a  lower  rate  of  interest  and  a  wider  mar- 
ket, not  only  in  this  country,  but  abroad,  and  that  the  objection  to 
central  banks  as  commercial  institutions  would  scarcely  obtain,  in 
my  view,  in  the  case  of  a  central  bank  of  this  kind. 

But  the  commission  dealing  with  the  matter  thought  we  ought  to 
get  away  from  the  central  bank  proposition,  so  that  the  present  bill 
as  reported  varies  in  that  respect  from  the  first  bill. 

Senator  Hollis.  Pardon  me.  Senator  Fletcher,  but  the  second  bill 
that  ypu  referred  to  was  introduced  in  the  Senate  January  29,  1914, 
and  i^  Senate  bill  4246,  and  the  title  of  it  is  "A  bill  to  provide  for 
the  establishment,  operation,  and  supervision  of  a  national  farm- 
land bank  system  in  the  United  States  of  America,  for  the  creation  of 
depositories  for  postal  savings  and  other  public  funds,  and  for  other 
purposes."     Is  that  not  correct? 

Senator  Fletcher.  Yes.  Another  idea,  I  might  say,  which  I  had 
in  introducing  S.  2909  was  that  I  felt  it  important  to  impress  as  far 
as  I  could  on  tin-  Senate,  and  also  on  the  House,  what  seemed  to  me 
a  fundamental  idea  that  ought  to  be  considered  in  connection  with 
tho  then  pending  Federal  reserve  act.  A  certain  effort  was  being 
mad( ,  as  you  will  recall,  to  extend  the  provisions  of  that  act  so  as  to 
me<t  the  needs  of  the  farmer,  and  in  studying  this  subject  I  became 


RURAL    CREDITS.  5 

thoroughly  convinced  that  it  is  utterly  impossible  to  provide  in  a 
commercial  banking  system  for  the  requirements  of  those  engaged 
in  agriculture. 

Mr.  Hayes.  Do  you  not  think  it  would  be  unsafe  to  try  to  do  so  ? 

Senator  Fletcher.  Absolutely.  And  I  was  a  little  afraid  that  we 
were  going  to  try  to  go  too  far  in  the  then  pending  measure  in  that 
direction,  realizing,  as  of  course  all  Congress  did,  the  importance  of 
making  these  provisions  as  far  as  possible  to  meet  the  needs  of  agri- 
culture; yet  it  seemed  to  me  that  some  of  them  were  losing  sight  of 
the  principle  that  commercial  banks  can  not  possibly  have  their  funds 
tied  up  in  long-term  loans  or  provide  for  such  accommodations  in  a 
financial  way  as  the  farmer  ought  to  have. 

And  for  that  reason  I  wanted  to  get  that  idea  as  far  as  possible 
before  Congress.  I  wanted  to  make  as  broad  and  liberal  provisions 
as  could  be  safely  made  for  agriculture,  but  I  felt  we  needed  a  sup- 
plemental system  to  take  us  all  the  way. 

Now,  perhaps  in  this  matter  we  should  have  a  starting  point  and 
gradually  lead  up  to  what  we  have  done. 

The  act  of  1864,  establishing  our  banking  system,  was  based  on  the 
Ohio  statute,  and  it  provided  for  a  commercial  system.  It  was  never 
intended  to  be  and  is  not  capable  of  being  made  to  meet  the  needs 
of  the  farmer. 

In  the  second  place,  it  discriminated  against  him  by  prohibiting 
loans  on  real-estate  security.  The  effect  was  to  place  a  ban  on  real 
estate  as  a  basis  of  credit.  This  being  the  farmer's  chief  asset,  the 
system  absolutely  discriminated  against  him  in  its  operation. 

The  result  has  been  that  the  farmer  has  been  obliged  to  depend 
upon  the  factor,  the  merchant,  and  the  money  lender  to  obtain  what 
accommodations  he  required,  and  to  make  the  best  financial  arrange- 
ments that  he  could;  with  the  further  result  that  high  prices  were 
charged  him,  enormous  profits  were  made  at  his  expense,  and  bur- 
densome interest  charges  and  exactions  were  put  upon  him;  and 
with  the  result,  further,  that  his  earnings  were  largely  consumed  in 
that  way.  His  net  returns  were  small,  and  with  no  prospect  of 
growing  larger. 

Discouragement  faced  every  young  man  growing  up  on  the  farm; 
hard  work  and  the  most  meager  remuneration  were  in  store  for 
him.  It  was  impossible  to  improve  rural  conditions;  there  was  no 
money  to  do  it  with.  No  wonder  occupying  owners  decreased  in 
number  and  tenants  increased,  and  a  steady  flow  set  in  to  the  cities 
and  towns.  The  greatest  and  most  important  industry  of  the  coun- 
try, the  one  upon  which  we  all  depend  for  our  food,  clothing,  and 
shelter,  was  not  merely  neglected  and  left  unprovided  for,  as  far  as 
our  financial  system  was  concerned,  but  was  given  a  severe  blow 
and  discriminated  against. 

Strange  to  say,  this  has  been  continued  all  these  years  until  the 
good  year  1913,  and  until  the  passage  of  that  great  measure,  to  my 
mind  unsurpassed  in  importance  and  benefits  to  the  country  by  any 
law  put  on  the  statute  books  since  the  War  between  the  States — the 
Federal  reserve  act. 

Now,  there  is  no  longer  that  ban  on  real  estate  as  to  loans  by 
national  banks.  Now  the  farmers  have  some  opportunity  to  get 
personal  accommodations  in  the  way  the  nature  of  his  business  calls 
for.     To  be  sure,   this  is  limited.     No  commercial  system  can  be 


D  RURAL   CREDITS. 

made  to  moot  tho  requirements  of  agriculture.  The  commercial 
bank  must  be  ready  lo  respond  to  all  of  its  liabilities  on  demand, 
and  therefore  can  not  have  its  deposits  or  its  capital  and  surplus 
tied  up  on  loans  on  real  estate  running  for  years;  neither  can  it  have 
its  funds  invested  in  securities  which  can  not  be  readily  converted 
into  cash. 

Consequently  while  tho  Glass-Owen  Acl  (oi  tho  Federal  reserve 
act)  goes  as  far  as  can  be  safely  gone  in  providing  for  loans  on  real 
estate  and  for  redisoounting  six-months'  paper,  there  is  a  very  con- 
siderable and  very  important  ground  not  covered  by  our  banking 
and  currency  system,  even  as  amended. 

1  therefore  believe  that  in  order  to  meet  the  needs  of  our  farmers 
and  provide  for  the  necessary  requirements  of  agriculture  in  a  financial 
way  we  must  supplement  existing  systems  by  providing  for  a  system 
of  farm-land  banks,  so  empowered,  supervised,  and  managed  that 
the  credit  resources  of  the  farmers  can  be  made  available,  to  the 
end  that  money  can  be  got  at  cheaper  rates,  on  long  terms,  with  the 
privilege  of  paying  on  account  of  the  principal  as  the  interest  is  paid, 
for  the  purpose  of  acquiring  homos,  improving  and  developing  the 
farm,  and  discharging  existing  liens  drawing  unreasonably  high  rates 
of  interest.  In  addition  to  this,  a  further  system  of  rural  credit 
banks  intended  to  promote  cooperation  and  enable  the  members 
to  utilize  their  collective  credit  resources  to  meet  the  temporary  needs 
as  they  recur  in  producing  the  crops,  would  be  most  advantages. 

Neither  of  these  needs  is  fully  met  by  the  Federal  reserve  act.  In 
the  first  place,  the  amount  allowed  to  be  loaned  on  real  estate  is 
wholly  insufficient  to  give  full  relief  to  the  farmers.  There  would 
probably  be  available  for  five-year  loans  on  real  estate  some 
$200,000,000  under  that  act.  The  farmers  of  the  country  owe  some 
$6,000,000,000,  nearly  half  of  which  is  secured  by  morgtages  on  their 
land.  You  can  readily  see  that  there  is  a  very  wide  gap  between 
$200,000,000  and  $2,000,000,000. 

Senator  Hollis.  Do  you  not  mean  $6,000,000,000? 

Senator  Fletcher.  I  just  named  $2,000,000,000  as  the  amount 
secured  by  mortgages  on  land. 

Senator  Hollis.  Yes;  I  see. 

Senator  Fletcher.  This  gap  should  be  abridged.  Not  only  that, 
but  our  farmers  are  in  need  of  more  money  for  development  purposes, 
and  it  would  be  in  the  nature  of  an  investment  rather  than  incurring 
a  debt,  if  they  could  get  it  at  sufficiently  low  rates  of  interest  and  have 
the  privilege  of  paying  back  it  out  of  the  earnings  of  the  farm  from 
year  to  year. 

Mr.  Weaver.  May  I  ask  you  a  question,  Senator  Fletcher? 

Senator  Fletcher.  Yes;  certainly- 

Mr.  Weaver.  Do  you  think  that  these  commercial  banks  are  going 
to  lend  the  8200,000,000  to  the  farmers?  Now,  while  the  law  allows 
them  to  do  that,  it  is  a  matter  of  option  with  them,  and  they  are  not 
compelled  to  do  so;  do  you  think,  as  a  matter  of  practice,  that  they 
will  loan  the  money  to  the  farmers  on  five  years'  time? 

Mr.  Hayes.  On  real  estate? 

Senator  FLETCHER.  I  doubt  if  there  will  be  much  money  loaned  in 
that  way. 

Mr.  Hayes.  Do  you  think  there  will  be  any  I 


RURAL    CREDITS.  7 

Senator  Fletcher.  But  the  main  thing  is  that  that  provision 
does  away  with  the  idea  in  the  original  banking  act  that  real  estate 
is  not  a  proper  security  for  loans. 

Mr.  Hayes.  Well,  for  commercial  loans,  would  you  not  agree  with 
that  proposition  that  they  are  not  proper  security  for  commercial 
loans  ? 

Senator  Fletcher.  Yes;  I  think  there  is  something  in  that,  but, 
at  the  same  time,  I  believe  that  the  effect  of  the  prohibition  in  the 
law  was  harmful  to  the  farmers  of  the  country,  because,  naturally, 
money  lenders  and  financial  institutions  would  feel  that  if  the  Gov- 
ernment itself  provided  that  institutions  operated,  controlled,  and 
supervised  under  its  direction  should  not  accept  real  estate  as  security 
it  threw  a  sort  of  suspicion  on  it  with  other  people,  and  they  charged 
higher  rates  of  interest,  and  all  that  sort  of  thing,  whenever  they  did 
make  loans  on  real  estate. 

I  quite  agree  that  there  is  a  very  grave  doubt  whether  a  great  deal 
of  money  will  be  available  to  the  farmer  under  that  plan;  but  still 
it  is  a  long  step  in  the  right  direction. 

This  consideration  ought  to  be  shown  the  12,000,000  people 
engaged  in  that  industry — I  mean  the  consideration  of  allowing 
them  to  have  the  privilege  of  paying  back  these  loans  and  getting 
their  money  at  reasonable  interest.  But  we  need  credit  provision 
for  considerably  more — also  for  development  purposes — than  the 
present  debts  of  the  farmers. 

Objection  is  sometimes  urged  that  we  are  finding  a  way  to  make 
it  easy  for  the  farmer  to  go  in  debt.  There  can  be  no  kind  of  doubt 
about  his  being  already  in  debt. 

Let  me  read  you  what  Judge  Horace  Bagley,  of  Towner,  N.  Dak., 
says.  He  has  taken  great  interest  in  this  subject,  and  I  appreciate 
his  suggestions  and  views.  We  had  considerable  correspondence, 
and  he  sent  me  this  statement,  which  speaks  for  itself.  I  got  his 
permission  to  use  it,  and  I  submit  it  here  as  an  illustration  of  con- 
ditions in  this  country,  which  are  by  no  means  confined  to  North 
Dakota.  There  are  three  letters  from  Judge  Bagley,  which  I  would 
like  to  insert  in  the  record  as  a  part  of  my  remarks,  including  a 
statement  from  him  as  to  conditions  in  North  Dakota.  I  will  not 
stop  to  read  them  unless  the  committee  so  desires. 

The  main  thing  is,  he  says,  the  debts  of  the  farmers  in  that  county, 
which,  he  says,  is  typical  of  that  part  of  the  country,  are  about  equal 
to  the  assessed  value  of  the  farmers'  property,  and  they  are  paying 
very  large  interest  charges  on  the  debts  which  they  have. 

Senator  Hollis.  These  letters  will  be  incorporated  in  the  record 
as  a  part  of  your  testimony,  Senator  Fletcher. 

(The  letters  referred  to  are  as  follows:) 

Towner,  N.  Dak.,  August  IS,  191S. 
Hon.  D.  U.  Fletcher, 

Washington,  D.  C. 
Dear  Sir:  I  have  followed  with  great  interest  and  pleasure  your  efforts  on  behalf 
of  a  better  system  of  rural  credit.     I  take  this  opportunity  to  assure  you  that  your 
labors  are  appreciated  in  this  far  Northern  State  fully  as  much  as  they  can  be  in  Florida. 
A  long  experience  as  a  country  banker  and  as  a  farmer  convinced  me  years  ago  that 
the  rural  problem  is  purely  an  economic  one,  the  solution  of  which  lies  along  the  lines 
you  are  so  ably  following. 
Yours,  very  truly, 

Horace  Bagley, 
County  Judge,  McHenry  County,  N.  Dak. 


8  RURAL    CREDITS. 

Towner,  N.  D.,  August  28,  191S. 
Hon.  Duncan  U.  Fletcui  b, 

United  States  Senate,  Washington,  D.  C. 

Dear  Sir:  In  reply  to  yours  of  August  18  in  the  matter  of  rural  credits,  I  inclose 
you  herewith  a  set  of  ligures  prepared  by  me  relative  to  the  above  matter,  as  the 
same  applies  to  our  local  situation.  I  think  the  situation  in  McHenry  County  is 
typical  of  the  general  situation  throughout  central  and  western  North  Dakota. 

The  figures  as  1  give  them  are  either  official  or  are  based  on  a  careful  estimate. 
Abstracters  and  others  to  whom  I  have  shown  them,  agree  that  the  totals  are  under 
rather  than  over  the  actual  amounts.  I  have  taken  $1,000  as  the  average  first  mort- 
gage real  estate  loan.  The  abstracters  inform  me  that  a  loan  of  this  size  has  been  an 
exception  for  the  past  three  years,  and  that  the  average  now  is  between  $1,500  and 
$2,000. 

The  amount  due  local  banks  is  taken  from  the  August  9  reports,  as  published  in 
the  local  papers,  and  indicates  that  my  estimate  of  chattel  mortgage  indebtedness 
at  $2,500,000  is  conservative.  Practically  all  the  indebtedness  due  banks  is  secured 
by  chattel  mortgages.  And  in  addition  to  such  bank  indebtedness  is  the  very  large 
sums  due  the  machine  companies,  horse  dealers,  local  merchants,  and  money  loaners. 
In  my  opinion,  the  present  indebtedness,  other  than  real-estate  mortgage  indebted- 
ness, is  close  to  $3,500,000,  and  $2,500,000  is  the  amount  thereof  upon  which  interest 
is  annually  paid,  the  $1,000,000  representing  the  sum  which  will  be  liquidated  this  fall. 

These  figures  indicate,  of  course,  that  many  of  our  farmers  are  past  all  help  by  any 
scheme  of  credit.  But  a  very  large  number  of  them  are  still  solvent,  and  will  gladly 
and  successfully  make  the  needed  change  to  a  better  system  of  farming  if  they  can 
secure  credit  on  anything  like  a  reasonable  basis.  If  the  present  system  continues, 
it  is  perfectly  evident  that  the  bulk  of  these  still  solvent  farmers  will  likewise  fall 
into  the  same  bottomless  pit  as  their  fellows. 
Yours,  very  truly, 

Horace  Bagley. 

[Inclosure.] 

Statistics  relative  to  mortgages  and  other  indebtedness,  McHenry  County,  N.  Dak. 
[Compiled  from  official  records  of  said  county,  Aug.  22,  1913.] 

I. 

Population,  1910: 

Total 17,  627 

Rural 14,757 

Families,  1910: 

Ratio  to  population per  cent .  .  5.  6 

Total 3, 147 

Rural 2,  635 

Acres  assessed  for  taxation,  1912 1, 132,  248 

Assessed  valuation,  farm  lands.  1912 $4,  852,  509 

Average  valuation  per  acre,  1912 $4. 28 

Assessed  valuation,  personal  propertv,  1912: 

Total $1,  380, 888 

Rural $1,  010,  076 

Average  assessed  valuation,  per  rural  family.  L912,  total $2,225 

II. 

Real  estate  mortgages  recorded.  Aug.  22.  1907,  to  Aug.  22,  1913 12,  359 

Real  estate  mortgages  of  record  Aug.  22,  1913 >  9,  269 

First  real  estate  mortgages  of  record.  Aug.  22,  1913 '4,  634 

Average  amount  first  real  estate  mortgages >  $1,  000 

Total  first-mortgage  indebtedness '$4,634,000 

Average  first-mortgage  ind<-btednesB  per  rural  family |1,  758 

Average  interest  rate  per  annum,  first  real  estate  mortgage per  cent. .  0.  09 

Total  interest  paid  per  annum,  first  real  estate  mortgage $411, 114 

Average  annual  interest  paid  per  rural  family,  real  estate  mortgage $158 

'  Estimated. 


EURAL    CEEDITS.  y 

III. 

Chattel  mortgagee  filed  Aug.  22,  1907,  to  Aug.  22,  1913 39,116 

Chattel-mortgage  indebtedness  Aug.  22,  1913 . . '  $2,500,000 

Average  chattel  mortgage  indebtedness  per  family $794 

Average  interest  rate  perannum,  chattel-mortgage  indebtedness. per  cent. .  0. 12 

Total  annual  interest  paid  per  annum,  chattel-mortgage  indebtedness $300, 000 

Average  annual  interest  paid  per  total  family,  chattel-mortgage  indebted- 
ness   $95 

IV. 

Number  national  banks,  McHenry  County 2 

Number  State  banks,  McHenry  County 25 

Total  bank  capital,  McHenry  County $397,  000 

Total  bank  loans,  statement  Aug.  9,  1913 2$1, 938,000 

Average  indebtedness  to  banks  per  family $615 

V. 

Total  real  estate  and  chattel-mortgage  indebtedness $7, 134,  000 

Total  average  real  estate  and  chattel-mortgage  indebtedness,  rural $2,  552 

Total  average  interest  paid  on  all  indebtedness,  per  annum,  rural $253 

Average  cost  renewing  real  estate  mortgages $10 

Total  cost  renewing  real  estate  mortgages,  6  years $46,  340 

Annual  cost  renewing  real  estate  mortgages $7,  772 


Towner,  N.  Dak.,  September  5,  1913. 
Hon.  Duncan  U.  Fletcher, 

United  States  Senate,  Washington,  D.  C. 

Dear  Sir:  Yours  of  September  1  in  re  rural  credits  plan  at  hand,  and  I  thank  you 
for  the  same. 

I  shall  be  glad  to  have  you  use  the  data  I  sent  you  in  any  way  you  see  fit.  I  believe 
it  is,  on  the  whole,  entirely  reliable  and  will  bear  investigation. 

Not  only  are  our  farmers  not  accommodated  with  loans  at  the  time  and  in  the 
amounts  they  need  them,  but  such  loans  are  looked  upon  by  the  average  banker  as 
a  great  favor  to  the  farmer  and  are  only  extended  upon  the  terms  and  in  the  amounts 
the  banker  sees  fit. 

I  have  taken  the  first  50  mortgages  filed  on  and  after  November  1,  1912.  and  find 
that  in  such  50  mortgages  the  crop  was  given  as  security  in  26,  machinery  in  16, 
cattle  in  12,  and  horsesin  23.  I  have  taken  the  first  50  mortgages  filed  on  and  after 
April  1,  1913,  and  find  that  the  crop  was  given  as  security  in  11,  horses  in  31,  cows 
in  12,  and  machinery  in  14.  It  is  obvious  that  the  proportion  of  crop  security  fell  off 
in  the  April  mortgages  for  the  reason  that  such  security  was  exhausted  and  would  be 
worthless. 

Several  years  ago  I  became  acquainted  with  the  German  and  Danish  cooperative 
credit  systems  through  our  farmers  of  those  nationalities  and  have  been  greatly  inter- 
ested in  the  subject  ever  since  that  time.  In  1912,  I  spoke  to  an  audience  of  over 
3,000  people  at  a  farmers'  picnic,  for  nearly  an  hour  upon  this  subject  and  aroused 
great  interest.  Inquiries  have  been  coming  pretty  steadily  since  that  time,  and  num- 
ber of  substantial  farmers  in  various  townships  have  offered  to  take  the  initiative  in 
the  organization  of  township  banks. 

You  and  I  both  realize,  of  course,  the  difficulty  of  organizing  farmers'  cooperative 
societies  of  any  kind.  The  first  step  in  the  successful  organization  of  such  societies 
is  financial  independence.  Your  bill  seems  to  furnish  the  material  for  securing  such 
independence,  and  I  believe  it  can  and  will  be  used  for  that  purpose. 

I  have  distributed  the  envelopes  which  you  sent  me  and  can  use  more  of  them  to 
good  purpose. 

Yours,  very  truly, 

Horace  Bagley. 

i  Estimated. 

2  Practically  all  bank  indebtedness  is  secured  by  chattel  mortgages  and  is  included  under  IIT. 


10  RURAL    CREDITS. 

Senator  Fletcher.  Judge  Baglev  gives  a  list  of  the  mortgages 
from  the  records  in  his  county  and  from  other  data,  which  I  think 
quite  material  as  illustrative  of  the  point  as  to  the  present  condition 
of  tho  farmers. 

1  have  here  letters  from  nearly  every  State,  which  would  make  a 
voluminous  record  if  printed,  showing  that  the  farmers  to-day  are 
paying  all  the  way  from  6  per  cent  per  annum  to  2  per  cent  a  month 
interest  on  tho  money  they  need  to  borrow — when  they  can  get  it  at 
all. 

In  the  Eastern  States  and  the  middle  Northwest  farmers  can  get 
loans  on  their  farms  at  times  as  low  as  6  per  cent  per  annum,  but 
they  must  make  the  note  secured  by  the  mortgage  payable  on  demand 
or  at  some  short  period  within  winch  it  would  be  impossible  for  them 
to  earn  it. 

Senator  IIollis.  If  you  will  pardon  me,  Senator  Fletcher,  I  would 
like  to  interject  that  in  my  State  we  have  a  law  recently  passed  that 
exempts  from  taxation  mortgages  on  New  Hampshire  land  at  a  rate 
of  5  per  cent  or  less.  That  has  resulted  in  putting  the  rate  of  interest 
on  real  estate  loans  down  to  5  per  cent  in  all  our  savings  banks,  and 
as  a  result  it  has  done  great  good.  I  will  say  that  all  mortgages  are 
taxable  and  the  land  also  is  taxable;  that  is  pretty  close  to  double 
taxation,  but  that  is  the  rule  in  my  State. 

Senator  Fletcher.  Yes.  May  I  inquire  if  those  mortgages  are 
for  any  great  length  of  time,  or  are  they  payable  on  demand  ? 

Senator  IIollis.  They  are  almost  invariably  payable  on  demand; 
but  our  savings  banks  are  mutual  savings  banks  and  the  deposits 
come  largely  from  the  same  population  that  borrows;  and  I  have 
never  known  a  farmer  to  be  foreclosed  without  being  given  ample 
opportunity.  In  fact,  I  have  not  known  any  of  the  farmers  to  be 
foreclosed.  I  am  a  trustee  of  a  savings  bank  with  $12,000,000  de- 
posits, a  pretty  large  mutual  savings  bank.  We  contribute  our 
services  free,  all  the  officials  except  the  treasurer  and  the  secretary. 
And  while  the  notes  are  made  payable  on  demand,  I  have  never 
known  any  foreclosure  to  be  made.  So  it  works  out  very  well  in  our 
section  of  the  country. 

Senator  Fletcher.  Well,  of  course,  it  would  be  very  risky  for 
farmers  generally  to  have  their  mortgages  payable  on  demand;  and 
whereas  there  may  not  be  foreclosures — of  course  the  banks  are 
interested  in  having  their  funds  out  at  interest — still  it  is  in  their 
power  to  foreclose,  and  for  that  reason  it  does  not  quite  meet  the 
situation,  it  seems  to  me.  Even  though  the  interest  rate  is  low, 
there  are  disadvantages  to  the  farmer  in  that  system. 

Senator  IIollis.  And  I  will  say,  in  addition,  Senator  Fletcher, 
that  our  banks  do  not  like  to  loan  on  local  farm  lands;  they  seem 
very  much  to  prefer  to  loan  on  western  farm  lands,  where  the  loan 
comes  through  some  agent,  to  accommodating  the  local  farmer. 

Senator  Fletcher.  Yes 

Senator  IIollis.  I  have  myself  noticed  that.  And  I  have  myself, 
in  a  number  of  cases,  insisted  that  they  must  loan  to  the  local  farmers 
if  the  security  was  good.     Of  course,  there  is  that  disadvantage. 

Mr.  Platt.  Your  mutual  savings  banks  are  not  allowed  to  loan  on 
western  mortgages,  are  they  '. 

Senator  IIollis.  Yes,  they  are  in  my  State 


RURAL    CREDITS.  11 

Mr.  Platt.  They  are  not  allowed  to  do  so  in  my  State.  Our  mort- 
gages are  all  made  on  local  farm  lands  and  run  for  two  or  three  years, 
but  they  allow  them  to  run  on  indefinitely.  They  are  never  fore- 
closed, at  least  very  rarely. 

Senator  Fletcher.  Again,  the  farmer  must  pay  for  the  abstract, 
drawing  the  papers,  commissions  to  agents,  and  the  like,  averaging 
about  2  per  cent  more. 

A  letter  from  Missouri  gave  an  actual  transaction  which  the  writer 
recently  had,  showing  that  a  farmer  wanted  to  borrow  $1,000  and  that 
his  farm  was  worth  $10,000.  The  loan  was  made  through  an  agent, 
and  the  net  amount  the  farmer  received  was  $908;  and  $92,  nearly 
10  per  cent,  went  for  commissions  and  expenses. 

A  letter  from  Oklahoma  says  that  farmers  pay  2  per  cent  a  month 
as  interest  and  often  can  get  no  money  for  operating  purposes  at  all. 
These  are  not  exceptional  cases. 

We  must  stop  this  discrimination  against  the  foundation  of  all  our 
industries.  We  must  provide  a  means  for  utilizing  their  credit 
resources,  and  making  their  assets  liquid.  As  Mr.  Lubin  would  say, 
give  them  the  dynamic  dollar  instead  of  the  static  dollar.  We  must 
provide  a  way  for  relieving  the  burdens  on  our  farmers  of  excessive 
interest  charges,  expensive  machinery  for  obtaining  accommodation, 
and  of  the  difficulties  often  insurmountable,  of  supplying  their  proper 
and  legitimate  needs. 

Think  of  an  industry  enduring  such  burdens  all  these  years,  and 
suffering  such  discrimination,  and  accepting  such  denials,  in  which 
nearly  one- third  of  our  population  is  engaged,  which  has  assets 
estimated  to  be  worth  40  billions  of  dollars  and  yielding  annual 
products  worth  nearly  10  billions  of  dollars  on  the  farm. 

Very  properly  our  farmers  insist  that  they  have  endured  and  have 
been  patient  long  enough.  They  are  entitled  to  be  fairly  considered 
in  the  financial  scheme  of  the  Nation. 

The  commission  appointed  by  the  President  to  study  this  subject 
and  get  all  the  light  on  it  possible,  from  the  experience  and  practices 
of  the  older  countries  of  Europe,  believes  that  it  has  a  plan  which  is 
sound  in  principle  and  workable  in  practice  for  supplying  the  capital 
requirements,  the  investment  needs  of  the  farmer,  involving  long- 
term  low  interest  and  an  amortization  feature.  I  now  refer  to 
Senate  Document  380. 

Senator  Hollis.  Senator  Fletcher,  just  a  moment.  As  long  as 
these  hearings  are  to  be  published,  and  we  want  them  to  be  as  useful 
as  possible,  will  you  not  explain  right  there,  for  the  benefit  of  readers, 
what  amortization  is  ? 

Senator  Fletcher.  Amortization  means  the  payment  on  account 
of  principal  at  the  interest  periods. 

For  instance,  we  will  say  that  under  this  bill,  if  the  bonds  provide 
4  per  cent  interest — or  rather,  if  the  farmer  is  to  pay  4  per  cent  inter- 
est— there  is  provision  made  for  not  exceeding  1  per  cent  for  adminis- 
tration charges  by  the  bank.  In  Europe,  I  believe,  that  is  a  good 
deal  less.  In  some  countries,  probably,  it  is  as  low  as  0.35  of  1  per 
cent,  and  probably  generally  will  not  exceed  0.60  of  1  per  cent.  We 
provide  that  it  shall  not  exceed  1  per  cent  here,  covering  all  expenses 
of  administration. 


JL2  RURAL    CREDITS. 

Then  there  is  a  provision  here  that  the  mortgage  shall  show  pre- 
cisely what  the  farmer  is  to  pay  in  the  way  of  interest,  in  the  way  of 
expenses,  and  in  the  way  of  amortization.  That  is,  suppose  he  pays 
0.50  per  cent  for  amortization.  That  applies  on  his  principal.  It 
differs  from  a  sinking  fund  that  is  ordinarily  provided  for  taking  care 
of  bonds  in  that  the  amortization  payment  is  credited  on  the  mort- 
gage when  it  is  made,  so  that  there  is  not  any  doubt  but  what  the 
farmer  receives  credit  for  that  payment  on  the  principal  at  the  time 
it  is  made;  that  is  wherein  it  differs  from  the  ordinary  sinking  fund. 
It  is  a  payment  on  the  principal  at  the  interest  period  of  whatever 
amount  may  be  agreed  upon.  Perhaps  he  will  pay  1  per  cent  on  the 
principal.  Of  course,  the  whole  thing  will  be  paid  oft  in  a  less  time 
the  more  he  pays  for  amortization. 

Xow,  we  propose  to  follow  this  with  a  report  and  recommendations 
respecting  the  personal  or  short-term  credit  for  temporary  or  recur- 
ring needs.  This  will  be  based  upon  the  principle  of  cooperation,  the 
utilization  of  the  collective  credit  resources  for  the  benefit  of  each. 

The  subject  divides  itself  into  two  great  phases: 

First.  To  provide  long  time,  or  land  mortgage  credit,  to  take  care 
of  the  farmer's  capital  requirements,  such  as  completing  the  purchase 
of  the  farm,  improving  and  equipping  the  farm,  and  paying  off 
existing  liens. 

Second.  Short-term  or  personal  credit,  to  take  care  of  the  tem- 
porary requirements  for  preparing  the  land  and  cultivating  the  crops 
and  harvesting  them. 

The  first  is  the  primary  step  to  improve  our  agricultural  conditions, 
and  precedes,  naturally,  the  development  of  personal  credit. 

The  establishment  of  a  system  of  farm-land  banks  is  a  means  for 
accomplishing  this  purpose. 

Since  Senate  Document  No.  380  is  accessible  to  all,  what  I  might 
say  on  that  subject  in  a  general  way  would  be  largely  a  repetition  of 
what  is  there  set  forth,  and  I  take  it  that  all  I  should  do  is  to  draw 
your  individual  and  careful  attention  to  what  is  there  said. 

In  the  introduction,  Part  I,  page  9,  the  discussion  of  "land  mort- 
gage or  long  term  credit,"  Part  II,  page  15;  the  statement  inter- 
Ereting  the  accompanying  bill,  page  27;  the  detailed  review  of  the 
ill,  page  34;  and  the  bill  itself,  pages  53  to  73. 

Now,  there  are  some  views  of  a  minority  of  the  American  com- 
mission which  are  quite  pertinent  and  suggestive  which,  if  the  com- 
mittee pleases,  I  will  submit  for  incorporation  in  your  record.  They 
are  not  yet  published,  but  are  sent  to  me  as  chairman  of  both  com- 
missions. I  do  not  know  whether  the  committee  cares  to  do  that  or 
not. 

Senator  IIollis.  If  you  think  that  will  be  useful,  Senator  Fletcher, 
it  will  be  incorporated  in  the  record.  We  are  inclined  to  accept  your 
judgment  on  that. 

Senator  Fletcher.  These  minority  views  are  submitted  by  Mr. 
Gordon  Jones,  Mi-,  von  Engelken,  and  some  other  members  of  the 
American  commission.  Dr.  Coulter,  do  you  know  how  many  signed 
that  minority  report  ? 

Dr.  Coulter.  I  think  there  were  8  or  10.  I  have  a  letter  from 
Mr.  Gordon  Jones,  stating  that  he  wants  to  make  two  or  three  minor 


RUKAL    CEEDITS.  13 

corrections  in  that  report,  and  that  he  will  forward  a  corrected  oopy 
of  it  as  soon  as  he  can. 

Senator  Fletcher.  Well,  some  8  or  10  members  of  the  American 
commission  submitted  this  minority  report. 

Senator  Hollis.  Then  such  matter  as  you  may  hand  to  the  sten- 
ographer in  this  connection,  Senator  Fletcher,  will  be  printed  as  a 
part  of  these  hearings. 

Senator  Fletcher.  Of  course,  it  is  understood  that  these  gentle- 
men who  signed  these  minority  views  are  members  of  the  American 
commission,  hot  of  the  United  States  commission.  The  United 
States  commission  are  united  in  their  report,  as  shown  in  Senate 
Document  380.  But  I  thought  it  might  be  well  to  insert  in  these 
hearings  the  views  of  these  8  or  10  gentlemen  on  the  Ameircan  com- 
mission, as  throwing  light  on  the  subject. 

Mr.  Gordon  Jones  is  a  banker  of  Denver,  Colo.,  and  Mi-,  von 
Engelkan,  of  Florida,  is  a  native  of  Germany,  a  highly  educated  and 
capable  man  and  quite  familiar  with  conditions  both  in  Germany 
and  in  this  country;  he  is  a  farmer.  And  I  feel  like  getting  all  the 
light  we  possibly  can  from  every  source,  whether  it  is  favorable  to 
my  bill  or  to  the  commission  bill  or  any  other  bill  is  immaterial  to 
me;  what  I  want  is  light  on  the  subject  wherever  I  can  find  it;  and 
I  think  it  would  be  well,  if  the  committee  agrees,  to  put  this  in  as  the 
views  of  those  gentlemen  on  this  subject.  They  went  to  Europe, 
and  they  studied  the  subject  along  with  the  other  members  of  the 
American  commission. 

Mr.  Bulkley.  Has  there  been  submitted  any  majority  report  of 
the  American  commission  ? 

Senator  Fletcher.  The  American  commission  has  not  submitted 
any  bill  at  all;  they  decided  not  to  submit  a  bill;  but  their  report  is 
found  in  Senate  Document  214. 

Mr.  Hayes.  That  is  a  very  voluminous  document. 

Senator  Flecher.  Yes;  and  that  will  be  followed  up  by  some 
further  observations  and  additional  data;  but  they  have  not  recom- 
mended any  bill;  they  decided  not  to  recommend  any  bill. 

Mr.  Weaver.  When  will  we  get  that  supplemental  report? 

Dr.  Coulter.  That  has  already  been  provided  for;  261  is  now  in 
final  page  proof,  and  can  probably  be  printed  to-day. 

Senator  Fletcher.  That  will  complete,  then,  the  American  com- 
mission's report — Document  214. 

In  addition  to  that,  I  have  a  letter  here  from  Col.  Ousley,  of  Fort 
Worth,  Tex.,  who  was  a  member  of  the  commission. 

Mr.  Weaver.  Is  that  Clarence  Ousley? 

Senator  Fletcher.  Yes. 

Mr.  Weaver.  He  is  a  newspaper  man. 

Senator  Fletcher.  Yes.  He  was  dealing  in  this  letter  with  my 
bill  (S.  2909)  which  I  had  asked  him  to  criticize;  and  he  has  made 
some  valuable  suggestions  on  the  subject;  and  it  is  not  a  very  long 
letter,  and  if  the  committee  would  permit  it  to  be  printed,  it  might 
add  something  of  considerable  value. 

Senator  Hollis.  The  letter  will  be  printed  in  the  record  at  this 
point. 


14  RURAL    CREDITS. 

(The  letter  referred  to  is  as  follows:) 

Fort  Worth,  Tex.,  August  27,  191S. 
Senator  Duncan  U.  Fletcher, 

Washington,  D.  C. 

My  Dear  Senator:  I  have  just  had  time  since  my  return  to  carefully  consider 
your  bill  providing  for  a  national  rural-bank  system. 

I  heartly  approve  the  general  idea,  and  in  responding  to  your  invitation  for  "criti- 
cism and  suggestion,"  I  make  bold  to  submit  the  following  thoughts: 

Page  14,  under  the  title  "Real-estate  loans,"  you  provide  that  the  rural  bank  may 
lend  an  amount  equal  to  its  capital,  surplus,  undivided  profits,  and  50  per  cent  of 
its  time  deposits  on  land  mortgages.  On  page  27,  you  provide  that  the  rural  bank 
shall  invest  an  amount  equal  to  10  per  cent  of  its  combined  capital  and  paid-in  surplus 
in  the  national  rural  bank  and  20  per  cent  in  the  State  national  bank.  Are  not  these 
sections  at  cross  purpose?  Besides,  I  doubt  the  wisdom  of  allowing  the  rural  bank  to 
lend  so  much  upon  farm  mortgages.  In  many  sections  of  our  country,  where  land 
values  are  uncertain  and  there  is  a  tendency  to  speculation  and  exploitation,  I  fear 
that  some  banks  would  be  organized  for  the  particular  purpose  of  developing  real 
estate  and  that  there  would  be  serious  damage  as  a  result  of  collapsed  booms. 

On  page  16  and  elsewhere  you  provide  that  loans  on  real  estate  shall  be  60  per  cent 
of  the  value  at  which  such  real  estate  is  assessed  for  taxation.  In  many  sections  of 
Texas,  and  I  doubt  not  of  other  States,  lands  are  assessed  at  scarecly  more  than  half 
their  market  value,  and  in  some  instances,  indeed,  at  considerably  less  than  half  their 
market  value.  In  such  cases  the  limit  of  loan  would  be  too  low  for  practical  purposes. 
My  opinion  is  that  it  is  sufficient  to  limit  the  loan  to  60  per  cent  of  appraised  value, 
but  to  require  appraisement  to  be  made  under  very  rigid  rule  and  to  be  verified  ana 
approved  by  some  Government  official  or  officials  not  connected  with  the  bank. 
Appraisements  are  made  in  this  manner  by  the  Prussian  Landshaften.  That  is  to 
say,  the  appraisement  by  a  committee  of  the  Landshaft  is  subject  to  revision  by  a 
government  official  acting  independently  and  having  no  relation  whatever  to  the 
Landshaft. 

On  page  21  you  provide-  that  loans  on  farms  shall  be  made  "in  so  far  as  practicable" 
only  for  improvement,  equipment,  or  increasing  the  value  of  the  property.  In  my 
judgment  you  should  make  this  condition  absolute  by  striking  out  the  words  "in  so 
far  as  may  be  practicable."  I  think  there  should  be  no  opportunity  whatever  for  rural 
banks  to  bo  persuaded  to  make  loans  on  anything  but  improvements  or  part  of  the 
purchase  price.  Our  people  are  not  yet  conservative  enough  to  exercise  such  discre- 
tion as  your  bill  allows,  but  they  are  likely  to  be  tempted  into  making  loans  for  other 
than  the  real  purpose  of  the  bill. 

On  page  30  you  provide  that  the  ownership  of  stock  of  the  State  bank  shall  be 
exclusively  in  the  local  banks.  I  submit  for  your  consideration  whether  it  would  not 
be  wise  to  permit  a  minority  of  the  stock  to  be  owned  by  private  individuals  and  to 
safeguard  the  institution  from  selfish  uses  by  requiring  that  the  majority  of  the  stock 
shall  be  owned,  by  the  local  banks.  I  apprehend  that  in  the  establishment  of  this 
system  it  will  be  necessary  to  secure  much  money  from  private  sources.  I  think  there 
are  many  men  in  the  country  who  would  be  willing  to  contribute  with  the  hope  of  a 
reasonable  profit,  and  many  cities  would  contribute  stock  in  order  to  secure  the  loca- 
tion of  the  State  bank.  The  same  suggestion  may  be  applied  also  to  the  national  bank 
or  the  central  bank. 

I  doubt  whether  it  would  be  necessary  for  the  entire  board  of  governors  to  receive 
such  liberal  salaries  as  are  provided  on  page  44.  I  rather  think  that  it  would  be  suffi- 
cient to  compensate  the  president  and  the  vice  presidents  and  to  make  a  modest 
allowance  for  other  members  of  the  board  of  governors. 

If  the  Congress  can  be  persuaded  to  appropriate  any  money  whatever  for  invest- 
ment in  the  national  bank,  I  suggest  that  the  amount  should  be  at  least  a  million  dollars 
instead  of  the  £500,000  as  you  provide.  It  will  be  a  mistake  to  undertake  to  establish 
such  a  system  with  a  small  amount  of  money.  I  suggest  also  that  ample  provision 
should  be  made  in  the  bill  for  organizers  of  local  and  State  banks.  It  will  take  a  tre- 
mendous effort  by  many  skilled  and  efficient  men  to  organize  these  institutions,  and 
it  is  my  opinion  that  such  organizers  should  be  engaged  for  a  period  of  two  to  five  years. 

I  congratulate  you  upon  making  the  effort,  and,  while  I  presume  you  hardly  hope  to 
succeed  at  th<>  present  session  of  Congress,  we  must  make  a  beginning,  and  the  sooner 
we  make  it  the  better. 
Yours,  truly, 

Clarence  Ousley. 


RURAL    CREDITS.  15 

Senator  Fletcher.  Of  course,  I  have  not  specific  authority  for 
offering  either  of  these;  but  I  do  so,  as  I  think  it  will  be  well,  as  I  said, 
to  have  all  the  light  on  the  subject  we  can. 

Now,  if  the  committee  should  be  interested  further  in  my  views, 
expressed  more  in  detail  and  supplying  certain  material  relating  to  the 
subject,  I  may  be  permitted  to  refer  to  a  speech  which  I  made  in  the 
Senate  August  14,  1912;  another  one  made  in  the  Senate  August  9, 
1913;  and  another  one  to  the  conference  of  governors  (S.  Doc.  177), 
and  also  one  which  will  be  found  in  the  Congressional  Record  of 
January  29.  1914. 

Senator  Hollis.  Permit  me  to  interrupt  you  there,  Senator 
Fletcher.  I  think  it  would  be  useful  to  have  at  least  one  of  these 
addresses  of  yours — the  one  that  you  think  covers  the  subject  best  for 
this  purpose — made  a  part  of  the  record.  I  should  like  to  have  it  in 
the  record.  Will  you  give  to  the  stenographer  such  material  of  that 
sort  as  you  think  ought  to  go  into  the  record. 

Senator  Fletcher.  I  will,  Mr.  Chairman,  if  it  is  desirable.  But  the 
record  of  these  hearings  will  show  the  references  to  those  speeches,  so 
that  any  of  the  members  can  read  them  if  desired.  I  thought  that 
would  save  printing  in  the  record:  but  the  committee  may  do  as  it 
likes  about  that.  Perhaps  it  would  serve  to  furnish  extracts  from 
those  speeches  mentioned. 

(The  papers  referred  to  are  as  follows:) 

[Extracts  from  speech  of  Hon.  Duncan  U.  Fletcher,  of  Florida,  in  the  Senate  of  the  United  States,  Aug. 

9,  1913.] 

National  Rural  Banking  System:   Its  Establishment,   Operation,  Manage- 
ment, and  Control. 


as  affecting  agriculture. 

While  the  pending  legislation  is  most  desirable,  it  does  not,  can  not,  and  no  amend- 
ment to  it  could  be  made  to,  supply  the  great  and  pressing  call  for  financial  consid- 
eration by  agriculture. 

In  the  past  Great  Britain  bent  her  energies  developing  her  industries  and  her 
commerce. 

Germany  realized  she  must  provide  food  for  the  people,  including  her  army,  and 
she  looked  after  agriculture  as  well.  In  consequence,  Germany  has  the  most  com- 
plete financial  system  aimed  to  benefit  agriculture  and  under  which  her  farmers 
prosper,  and  without  which  they  would  have  perished.  Raiffeisen  heard  the  call 
in  1849.  The  Landschaften  and  other  plans  were  evolved.  They  are  quite  distinct 
from  ordinary  commercial  banking  institutions. 

In  recent  years  England  has  endeavored  to  remedy  her  oversight.  Her  states- 
men and  economists  saw  the  trouble,  and  legislation  has  been  enacted  in  the  inter- 
est of  agriculture. 

But  the  most  marked  example  of  the  successful  application  of  the  German  idea 
to  local  conditions  is  found  in  Ireland.  In  the  days  of  absent  landlordism  and 
tenancy  that  country  was  noted  for  the  poverty,  distress,  intemperance,  and  dis- 
content of  its  people  and  the  prevalence  of  crime.  Since  the  efforts  of  her  patriots, 
resulting  in  the  act  of  Parliament  constituting  the  development  commissioners  in 
1900,  whereby  the  Government,  by  its  credit  of  11,000,000,000,  has  made  it  possible 
for  those  who  work  the  land  to  own  it,  there  is  bounding  hope,  general  prosperity, 
contentment,  and  progress  on  every  hand,  and  the  jails  are  turned  into  schoolhouses, 
and  the  Irish  lad  no  longer  hurries  from  the  farm.  Under  the  leadership  of  suv.u 
economists  as  Sir  Horace  Plunkett  there  has  come  about  a  real  rural  reconstruction. 
It  is  because  by  some  wise  consideration  shown  those  who  till  the  soil,  enabling 
them  to  have  a  fair  and  square  chance — and  they  have  never  asked  special  favor 
or  special  privileges — life  on  the  farm  is  being  made,  as  it  must  be  in  every  country, 
if  that  country  is  to  prosper,  conspicuously  comfortable,  intellectually  interesting, 
and  socially  satisfying. 


16  RURAL    CREDITS. 

We  must  mil  get  into  Ireland's  former  condition. 

Statistics  show  there  lias  been  an  increase  of  tenants  on  the  farms  of  this  country 
of  some  12  per  cent  since  1880,  a  decrease  of  occupying  owners  in  that  period  of  14 
per  cent.  The  exodus  from  the  farm  is  increasing — our  exports  of  food  products 
rapidly  decreases.  Soon,  at  the  present  rate,  we  shall  not  be  producing  sufficient 
to  Bupply  the  home  demand.  For  instance,  while  our  population  has  increased 
9,000,000  since  1907,  the  number  of  cattle  has  decreased  16,000,000.  Yesterday 
900,000  pounds  of  beef  from  the  Argentine  Republic  was  delivered  in  Washington. 
The  shipment  came  from  Buenos  Aires  via  Liverpool,  and  the  time  required  was 
85  days. 

It  may  be  claimed  that  section  27  of  Senate  bill  2639  will  serve  the  farmer.  To 
a  degree  it  will  be  of  benefit,  but  it  does  not  approach  ample  provision.  It  removes 
the  ban  on  real  estate  as  security  heretofore  existing,  but  the  farmer  can  not  return 
his  capital  in  nine  months.  This  would  give  but  temporary  short-time  accommoda- 
tion. What  the  farmer  wants  is  long-time  loans  at  a  low  rate  of  interest,  with  amor- 
tization feature.  In  this  way  he  can  acquire  a  home,  improve  his  property,  develop 
his  industry,  and  out  of  the  annual  proceeds  pay  off  the  debt  by  installment  reductions. 


COMMERCIAL   BANKING   SYSTEM   NOT   SUFFICIENT. 

You  can  not  provide  for  that  in  any  commercial  banking  scheme.  You  must  have 
a  separate  plan.  In  nine  months  he  might  be  able  to  meet  obligations  incurred  for 
temporary  needs — for  supplies  to  enable  him  to  produce  the  last  crop — but  that  is 
but  a  small  addition  to  the  avenues  now  open  to  him  for  that  purpose.  Besides,  the 
Senator  from  Oklahoma  [Mr.  Owen]  estimates  this  section  would  make  available  for 
loans  on  real  estate  some  $250,000,000.  This  is  an  insignificant  sum  compared  to  the 
demands  of  that  great  industry.  How  great  it  is  may  be  understood  when  we  reflect 
that  over  10,000,000  of  our  people  are  directly  engaged  in  it  and  over  30,000,000  are 
on  the  farms  and  supported  by  them.  Furthermore,  that  the  value  of  the  products 
on  the  farm  last  year  were  $9,400,000,000,  and  it  is  estimated  that  one-third  of  these 
were  consumed  on  the  farms,  leaving  the  remainder  to  be  marketed  and  for  which 
the  consumers  paid  over  $13,000,000,000.  Further,  our  farmers  owe  some  $5,000,- 
000,000,  nearly  three  billion  of  which  is  secured  by  mortgages  on  the  land.  What 
would  two  hundred  and  fifty  million  amount  to  when  it  is  a  question  of  properly 
taking  care  of  that  three  billion,  say  nothing  as  to  the  other  two  billion  secured  by  crop 
liens  and  due  local  merchants? 

I  realize  that  in  some  portions  of  the  country  the  farmers  are  lending  money  to  the 
banks,  enjoying  automobiles  and  other  luxuries.  There  are  many  other  portions  where 
the  farmer  is  having  a  hard  and  miserable  existence.  Excessive  rates  of  interest, 
inability  to  get  capital,  lack  of  credit,  or  other  difficulties  in  no  few  districts  prevent 
his  getting  a  direct  return  from  his  toil,  strive  how  he  will. 

STATUS   OF  AGRICULTURAL  AND   RURAL   LIFE. 

We  must  take  the  average,  as  we  must  deal  with  the  average  man  in  all  our  calcu- 
lations. We  find  that  the  average  farmer  earns,  gross,  $700  per  annum — less  than  $2 
per  day.  With  this  he  must  support  his  family,  educate  his  children,  meet  medical 
bills;  then  he  can  buy  barrels  with  which  to  store  away  the  remainder. 

There  seems  to  be  two  theories  advocated  by  earnest,  conscientious,  able  thinkers, 
respectively: 

Mr.  David  Lubin  contends  the  farmer  is  "behind  the  times  in  the  United  States 
*  *  *  because  he  has  no  cash,  no  open  account.  Give  him  that,  and  he  will  have 
the  rest.  It  therefore  follows  that  the  American  commission  should  first  of  all  find 
out  why  the  European  farmer  has  cash,  has  open  accounts,  and  why  the  American 
farmer  has  not.  Having  found  out  the  why,  it  will  be  easy  enough  for  the  American 
farmer  to  build  up  the  structure  he  should  have  so  as  to  adapt  himself  to  the  needs 
of  the  twentieth  century  and  in  conformity  with  the  progressive  modes  in  operation 
in  the  United  States  in  all  other  fields  of  activity." 

Sir  Horace  Plunkett,  the  Irish  patriot,  economist,  and  publicist,  says: 

"I  hold  strongly  that  until  farmers  have  fallen  into  line  with  the  economic  system 
of  your  and  our  countries  by  organizing  their  business  they  can  not  themselves 
know  the  character  of  the  security  they  have  to  offer,  and  therefore  will  not  have  credit 
to  get  cash  adequate  for  their  requirement." 

He  insists  upon  dealing  with  ''the  problems  of  rural  life  in  its  entirety"  rather  than 
restricting  our  efforts  "to  the  financial  aspect  of  the  problem." 


RURAL    CREDITS.  17 

As  I  understand,  he  contends  that  we  must  first  get  the  farmer  ready  to  utilize 
credit.  He  must  organize  cooperative  societies,  combine  with  his  neighbors,  prepare 
himself  and  his  undertaking  in  order  to  make  effective  and  economical  use  of  the 
credit  which  will  come  to  him,  and  then  a  system  may  be  devised  whereby  he  can 
economically  finance  all  his  operations. 

Both  aim  for  the  same  goal;  both  wish  to  accomplish  the  same  ends;  the  difference 
appears  to  be  in  methods  or  means.  It  seems  to  me  both  may  be  right ;  that  the  result- 
ant, rather,  the  middle  course,  would  be  nearer  the  true  and  the  wise  course.  In 
other  words,  let  us  proceed  with  both  developments  at  the  same  time — cooperation 
to  better  rural  conditions  and  financial  arrangements  pari  passu. 

*  *  *  *  *■  #  * 

The  farmer  must  always  be  the  foundation,  but  that  doe?  not  mean  he  must  be  kept 
beneath  the  surface. 

The  rewards  of  his  labor  are  too  meager.  Experts  say,  upon  an  average,  the  farmer 
gets  only  35  cents  of  the  consumer's  dollar.  The  cotton  grower  gets  the  largest  pro- 
portion of  what  the  consumer  (meaning  the  manufacturer)  pays,  70  per  cent.  The 
vegetable  and  fruit  grower  get  the  smallest  per  cent,  20  per  cent.  This  is  because  cotton 
passes  through  fewer  hands.  He  pays  high  prices  for  the  things  he  buys.  He  pays 
tribute  to  the  manufacturer,  the  middleman,  and  the  financier.  The  poorest  preach- 
ers the  church  sends  to  the  country  meeting  houses.  The  most  inexperienced  and 
inefficient  teachers  the  State  sends  to  the  country  schools.  About  the  cities  and 
towns  the  paved  roads  are  found.  There  is  need  of  centers  for  business  and  social 
gatherings  in  order  to  make  rural  life  more  richly  enjoyable  and  humanely  interest- 
ing. Farming  must  be  made  more  remunerative.  The  returns  do  not  warrant  good 
wages,  hence  the  lowest  wage  is  given  to  farm  labor,  and  hence,  too,  its  decreasing 
quantity  and  quality.  The  farmer  receives  less  for  the  hours  he  spends  in  toil  than 
any  other  worker.  His  work  is  unceasing — is  never  done.  Yet  Adam  Smith  stated 
the  fact  that  "all  wealth  comes  from  labor  applied  to  land." 

The  primitive  values  are  food  and  shelter.  There  is  much  talk  about  universal 
peace— build  up  a  contented  and  prosperous  husbandry  and  you  make  the  greatest 
stride  in  that  direction.  The  farmer  is  for  peace;  he  is  never  a  despoiler.  He  brings 
on  no  wars,  although,  like  the  hunting-shirt  men  under  Jackson,  he  does  the  best 
fighting  when  it  needs  to  be  done. 

We  talk  about  world  disarmament.  Let  a  nation  produce  a  surplus  of  prime  neces- 
sities of  life  which  other  nations  must  come  to  it  to  obtain  or  go  hungry  and  unclothed, 
and  you  have  a  nation  in  position  of  supreme  power. 

I  would  encourage,  not  undermine,  the  policy  of  self-help  and  individual  initiative. 

But  something  must  be  done  to  give  this  oldest  and  really  only  absolutely  necessary 
industry  its  proper  place  in  the  Nation's  economy. 

We  know  that  about  1880  the  cooperative  movement  for  the  benefit  of  agriculture 
became  very  active  in  Germany,  Italy,  Denmark,  France,  and  other  continental 
countries. 

Sir  Horace  Plunkett  and  a  Jesuit  priest,  Father  Finlay,  just  from  his  studies  in 
German  universities,  organized  the  pioneer  society  of  agricultural  cooperation  in 
English-speaking  countries,  the  Irish  Agricultural  Organization  Society,  which  has 
brought  into  existence  all  the  present  societies,  combining  100,000  Irish  farmers, 
giving  an  output  valued  at  £2,500,000  annually.  They  apply  the  cooperative  prin- 
ciple to  agricultural  production,  distribution,  and  finance. 

In  sporadic  instances  that  course  is  pursued  in  the  United  States.  I  have  been 
informed  that  a  cooperative  society  about  Summerville,  S.  C,  saved  last  year  to  its 
members  $7  per  ton  on  the  fertilizers  the  members  used. 

EXPERIENCE   IN   OLDER   COUNTRIES. 

The  three  causes  which  revolutionized  Irish  farming  are  given  as:  Land  purchase, 
whereby  the  farmer  became  the  owner  of  the  land;  technical  education,  whereby  he 
was  taught  to  do  better  farming;  and  agricultural  cooperation,  whereby  business 
methods  were  applied  to  the  industry  and  the  produce  was  disposed  of  to  the  best 
advantage.  The  Irish  Agricultural  Organization  Society  has  successfully  demon- 
strated that  the  cooperative  system  is  capable  of  enabling  the  farmer  to  produce  and 
distribute  efficiently  and  economically,  and  at  the  same  time  to  finance  both  these 
operations.     Credit  societies  have  been  formed  as  auxiliary  to  the  cooperative  society. 

There  are  some  200  rural  banks  in  Ireland.  One  of  the  first  forms  of  cooperation  on 
the  Continent,  and  the  most  useful,  was  cooperative  credit.  No  loss  has  come  to 
any  one'in  their  operation  in  all  the  years  since  Raiffeisen  started  the  plan  in  1849. 

37031—14 2 


18  RURAL    CREDITS. 

In  1884  the  idea  took  fast  hold  in  France  and  the  agricultural  syndicates  were  estab- 
lished and  soon  came  to  ho  considered  veritable  public  utilities. 

To-day  there  are  4,000  syndicates,  having  a  million  members,  representing  5,000,000 
of  the  rural  population  of  France. 

There  are  1,1550  credit  societies  after  the  llail'l'eisen  principle,  having  some  60,000 
members.  There  are  1,500  societies  of  agricultural  credit  under  the  law  of  1894, 
which  inaugurated  a  special  type  of  bank  composed  of  members  of  agricultural 
syndicates. 

These  societies  have  resulted  in  doubling  the  produce  of  the  land,  enabled  the 
farmers  to  meet  the  competition  of  other  countries,  attached  the  people  to  the  soil, 
advanced  the  rural  populal ion  in  prosperity  and  in  economic,  moral,  and  social improv- 
rnent.  An  illustration  of  the  way  cooperation  works  is  this  statement:  The  syndicate 
chartered  steamers  to  carry  strawberries  to  London,  and  growers  doubled  their  profits 
over  what  they  were  when  they  consigned  to  Paris  and  left  Paris  to  sell  to  London. 
Foreign  trade  was  established  in  the  same  way  in  fruits  and  early  vegetables,  to  the 
immense  advantage  of  the  growers. 

In  Germany  there  are  17,000  credit  societies,  with  1,500,000  members.  These  and 
the  Landschaften  and  other  institutions  providing  for  amortization  and  low  rates  of 
interest  on  long-time  loans  have  redeemed  agriculture  in  Germany.  The  German 
farmer  and  the  French  obtain  all  the  money  they  need  under  the  cooperative  credit 
system  at  3  to  4  per  cent. 

The  farmer  must  have  capital.  He  must  provide  for  annually  recurring  require- 
ments. He  must  have  the  means  of  using  his  asset  (land)  to  get  money  as  capital. 
Relief  can  not  come  through  a  system  of  commercial  hanking.  There  is  need  for  a 
special  kind  of  bank,  authorized  to  use  its  credit  to  guarantee  long-term  loans,  so  as 
to  meet  the  farmers'  capital  requirements. 

These  can  not  be  met  by  direct  loans  from  any  bank.  The  railroads  are  financed 
by  the  sale  of  long-term  bonds,  based  on  capitalized  prospects,  rights,  and  property. 
The  farmer  needs  an  institution  to  guarantee  his  bonds  and  make  them  salable;  one 
that  would  furnish  not  only  the  capital  requirements  of  the  farmer,  but  his  annually 
recurring  needs,  naturally  bringing  about  business  methods,  necessitating  organiza- 
tion and  cooperation,  thus  covering  the  en  the  field  of  agricultural  reconstruction 
and  making  conditions  for  ideal  rural  life. 

I  can  not  too  strongly  urge  that  a  special  kind  of  bank,  a  system  separate  and  dis- 
tinct from  commercial  banking,  must  be  established  in  order  to  supply  the  needs  of 
agriculture  and  rural  life. 

The  deposit  of  postal  savings  funds  and  perhaps  the  governmental  funds  with  the 
rural  banks  thus  established  would  be  wise  and  helpful,  enabling  the  banks  controlled 
by  individual  farmers,  familiar  with  the  needs  of  their  communities,  to  make  the 
loans  as  needed. 

The  objection  that  such  facilities  would  encourage  debt  and  extravagance  is 
unsound.  On  the  contrary,  the  effect  would  be  to  lend  hope  to  the  farmer,  brighten 
the  lives  of  the  country  men,  instill  habits  of  thrift  and  economy,  give  open  accounts 
and  savings  accounts,  and  promote  business  methods  so  much  desired,  and  strengthen 
the  independence  and  self-reliance  of  the  rural  population. 

The  experience  of  older  countries  is  contrary  to  the  apprehension  indicated.  By 
the  establishment  of  financial  institutions  primarily  for  the  benefit  of  those  engaged 
in  agriculture  and  by  methods  of  cooperation  in  various  directions  that  industry  has 
perhaps  attained  its  highest  development  in  Germany.  With  an  area  of  208,780 
square  miles — not  as  large  as  Texas  by  an  area  greater  than  Alabama  (53,618  square 
miles) — that  Empire  produces  95  per  cent  of  the  food  required  for  its  67,000,000  people. 

The  contention  may  be  that  an  act  creating  a  rural  banking  system  would  be  class 
legislation.  This  is  not  well  founded.  Agriculture,  commerce,  and  industries  are 
the  three  great  pillars  of  support  and  strength.  The  banking  system  heretofore  in 
force  contemplated  meeting  the  requirements  chiefly  of  the  last  two — commerce  and 
industries.  Agriculture  has  been  left  out  of  the  reckoning.  No  commercial  banking 
provisions  can  supply  the  needs  of  the  farmer  and  must  largely  be  confined  to  com- 
merce and  industries.  The  man  engaged  in  trade  and  the  manufacturer  must  have 
facilities  winch  are  entirely  different  from  those  needed  for  the  farmer.  The  time 
has  come  when  the  chief  stone  of  the  temple  must  be  considered.  We  can  no  longer 
neglect  suitable  financial  provision  for  the  farmer.  Statistics  furnish  argument 
enough  wdien  they  show  the  population  of  the  United  States  increased  from  1900  to 
1910,  21  per  cent,  while  the  number  of  workers  increased  on  the  farm  during  that 
period  only  10.9  per  cent  and  the  workers  in  the  factories  increased  '  1900-1909)  40.3 
per  cent  and  in  the  mines  |  L902-1909)  S3.1  per  cent. 

The  criticism  may  be  made  that  the  proposed  legislation  smacks  of  paternalism. 
Not  at  all.     The  Government  is  asked  for  no  subsidy.     The  postal  savings  must  be 


BURAL    CREDITS. 


19 


deposited  somewhere;  why  not  in  the  rural  banks?  It  simply  means  providing 
by  law  a  means  of  self-help.  Individual  initiative  by  the  farmers  must  be  exercised 
in  order  to  make  the  system  a  success.  The  Government  does  no  more  in  this  matter 
than  it  does  in  respect  to  commercial  banks.  It  gives  opportunity,  furnishes  the 
machinery,  supplies  the  working  tools  or  a  chance  to  get  and  use  them.  Laws  appli- 
cable to  the  sea  are  peculiar  and  different  from  the  laws  in  force  on  land,  because 
the  conditions  are  different. 

The  conditions  of  rural  life  are  not  at  all  the  same  as  conditions  of  life  in  the  cities. 
Laws  governing  commerce  are  not  the  same  as  those  with  respect  to  mining.  The 
proposition  simply  is  to  establish  a  system  of  agricultural  finance  suitable  to  the 
needs  of  those  priests  of  nature  who  live  nearest  the  fountain  of  life  in  the  divine 
economy  and  on  whose  prosperity  the  welfare  of  all  depends. 

It  would  mean  that  agriculture  is  not  to  be  longer  subordinated  to  commerce  and 
industry. 

The  Government  should  play  no  favorites.  The  moral  and  material  upkeep  of 
the  rural  population  is  quite  as  important  as  the  development  of  urban  industries  or 
commercial  expansion.  The  strength  and  health  of  society  depend  on  the  intelligent 
labors  and  well-being  of  the  countrymen. 

We  must  look  after  something  more  than  merely  giving  instruction  how  to  culti- 
vate, produce,  and  market.  We  must  do  those  things  which  will  create  a  social  order 
and  adjust  it  to  human  needs. 

We  can  provide  the  machinery  whereby  the  farmer  can  protect  himself,  and  by  its 
intelligent  use  reconstruct  his  great  industry  and  redeem. rural  life  from  stagnation 
and  decay. 

That  the  time  has  come  for  the  taking  of  steps  of  this  kind  is  clearly  indicated,  I 
think,  by  what  has  been  already  said,  to  which  I  might  add  references  to  a  few  more 
statistics. 

Mr.  President,  I  offer  certain  tables,  which  I  ask  to  have  printed  as  a  part  of  my 
remarks. 

The  Vice  President.  Without  objection,  leave  will  be  granted. 

The  tables  referred  to  are  as  follows: 

Table  1. — -Number  and  percentage  of  farms  of  specified  tenure  in  the  United  States,  1880 

to  1910. 

[From  decennial  census  of  agriculture.] 


Year. 

Number  of  farms 
operated  by- 

Percentage  of  farms 
operated  by- 

Owners.1 

Tenants. 

Owners.1 

Tenants. 

1880 s 

2,984,306       1,024,601 
3,269,728  !     1,294,913 
3,712,408       2,024,964 
4,006,826       2.354.6: 

74.5 
71.6 
64.7 
63.0 

25.5 

1890 2. .   .                    

28.4 

1900 

35.3 

1910...                                        

37.0 

1  Includes  farms  operated  by  owners,  part  owners,  owners  and  tenants,  and  managers. 
1  Not  including  farms  with  an  area  of  less  than  3  acres  which  reported  the  sale  of  less  than  $5  worth  of 
products  in  the  census  year. 
(This  table  can  be  expanded  to  a  showing  by  geographic  divisions  and  States.) 


Table  2. —  Urban  and  rural  population  in  the  United  States,  1880  to  1910. 
[Urban  population  resides  in  incorporated  places  of  2,500  inhabitants  and  over.] 


Year. 

Number. 

Percentage. 

Urban. 

Rural. 

Urban. 

P.ural. 

1880 

1890 

1900 

1910 

14,772,438 
22, 720, 223 
30,797,185 
42,623,383 

35,383,345 
40, 227, 491 
45,197,390 

49,39S.S83 

29.5 
36.1 
40.5 
46.3 

70.6 
63.9 
59.5 
53.7 

Note.— Quotation  from  abstract  of  the  Thirteenth  Census. 

(This  table  can  be  expanded  to  a  showing  by  geographic  divisions  and  States.) 


20 


RURAL    CREDITS. 


Table  3. — Number  and  percentage  of  farms  in  the  United  States  mortgaged  and  free  from 

mortgage,  1890  to  1910. 

[From  decennial  census.) 


Year. 

Number. 

Percentage  of  owned 
farms. 

Mortgaged. 

Free  from 
mortgage. 

Mortgaged. 

Free  from 
mortgage. 

]R90 

886,957 
1,127,749 
1 ,  327, 439 

2,255,789 
2,510,654 
2,621,283 

28.2 
31.1 
33.6 

71.8 

1900 

68.9 

1910 

66.4 

Note.— The  figures  are  for  farm  families  in  1S90  and  for  farms  in  1900  and  1910. 
(This  table  can  be  expanded  to  a  showing  of  geographic  divisions  and  States.) 


Table  4.- 


1890. 
1910. 


-Percentage  of  farm-mortgage  debt  of  the  value  of  the  mortgaged  farms, 
and  1910. 


1890 


rrora  decennial  census.] 


Percentage. 
....  35.5 
....  27.3 


Mr.  Fletcher.  Table  1  has  been  prepared  from  tbe  census  reports  as  far  back  as 
1880,  and  tbe  results  of  these  censuses  with  regard  to  farm  tenure  show  that  the  fraction 
of  farms  operated  by  tenants  has  steadily  increased  from  25.5  per  cent  in  1880  to  37 
per  cent  in  1910. 

It  appears  also  from  this  table  that  the  fraction  of  farms  operated  by  owners  decreased 
from  74.5  per  cent  in  1880  to  63  per  cent  in  1910. 

The  actual  and  relative  urban  and  rural  populations  from  1880  to  1910  are  expressed 
in  Table  2,  and  in  this  table  it  appears  that  the  rural  population  has  declined  from  70.5 
per  cent  of  the  total  population  in  1880  to  53.7  per  cent  in  1910.  Conversely  the  urban 
population  has  increased  from  29.5  per  cent  in  1880  to  46.3  per  cent  of  the  total  popula- 
tion in  1910.  These  figures  do  not  mean  that  the  changes  in  the  relative  proportions 
of  these  two  classes  of  population  have  been  caused  entirely  by  the  movement  from 
country  to  city.  Immigrants  have  tended  more  and  more  to  remain  in  the  cities, 
especially  in  New  England  and  in  the  Middle  States. 

The  censuses  of  1890,  1900,  and  1910  took  account  of  the  number  of  farms  operated 
by  owners  that  were  mortgaged  or  were  free  from  mortgage,  and  the  results  are  expressed 
in  Table  3.  The  fraction  of  farms  operated  bv  owners  that  were  mortgaged  increased 
from  28.2  per  cent  in  1890  to  33.6  per  cent  in  1910. 

The  bulk  of  the  farm-mortgage  debt  is  incurred  to  secure  deferred  payments  and  to 
make  improvements.  This  was  thoroughly  investigated  in  the  census  of  1890.  See 
Abstract  of  the  Eleventh  Census,  pace  243. 

Farms  were  worth  more  per  acre  in  1910,  including  improvements,  than  they  were 
worth  in  1890,  and  because  of  the  increase  in  the  value  of  lands  the  ratio  of  farm- 
mortgage  debt  to  the  value  of  the  mortgaged  farms  declined  from  35.5  per  cent  in  1890 
to  27.3  per  cent  in  1910.     (See  Table  4.) 

The  decline  in  exports  in  the  case  of  wheat  and  most  of  the  packing-house  products 
has  been  marked.     In  the  exports  of  cotton  it  is  true  there  has  been  enormous  increase. 

In  connection  with  an  examination  of  the  trend  of  exports  of  farm  products  it  may 
be  borne  in  mind  that  the  imports  of  agricultural  products  has  been  greatly  increased. 

The  fact  that  agricultural  production  is  not  keeping  pace  with  consumption  is  full 
of  meaning.  This  diminution  of  agricultural  surplus  may  be  partly  due  to  the  effect 
of  unfavorable  climatic  influences  upon  production,  but  it  is  also  due  in  part  to  the 
building  up  of  cities  by  immigration  and  to  the  drift  from  agriculture  to  other  occu- 
pations at  a  faster  pace  than  formerly.  The  movement  from  country  and  farm  to 
city  and  town  exists  and  has  existed  in  all  parts  of  the  United  States,  and  it  every- 
where exceeds  the  contrary  movement,  such  as  it  is. 

Last  year  we  produced  on  our  farms  and  in  our  factories  and  mines  products  valued 
at  $40,000,000,000,  of  which  we  consumed  thirty-eight  billion  ana  exported  two 
billion,  in  round  numbers.  We  imported  and  consumed  commodities  from  other 
countries  of  the  value  of  $1,800,000,000.  The  important  part  cotton  plays  in  the 
balance  I  need  only  suggest. 


RURAL   CREDITS.  21 

ILLUSTRATIONS — RURAL   CREDITS. 

To  be  sure,  there  is  no  "royal  road"  to  success  in  farming  any  more  than  there  is  to 
learning. 

Everything  depends  on  the  individual  farmer — his  industry,  judgment,  and  capa- 
bilities. 

But,  assuming  he  has  the  necessary  sense,  energy,  and  ambition,  he  could  get 
much  further  ahead,  accomplish  much  more,  enjoy  life  to  a  fuller  degree  if  he  ifl 
enabled  to  make  judicious  financial  arrangements  on  terms  two  or  three  times  as 
advantageous  to  himself  as  he  can  now. 

Certainly  it  means  much  to  the  country  if  a  plan  can  be  devised  and  put  into  exe- 
cution whereby  the  worthy  and  industrious  man  may  secure  a  farm  which  lack  of  cash 
or  credit  makes  impossible  to  him  now.  It  would  count  for  the  individual  and  the 
general  good  if  a  way  could  be  found  whereby  the  people  may  be  attached  to  the  soil 
in  contentment,  comfort,  and  prosperity,  whereas  now  they  seek  the  city  for  em- 
ployment yielding  only  a  bare  existence. 

It  would  help  mightily  in  the  well-being  of  society  if  a  plan  of  organization  or  co- 
operation can  be  put  into  use  whereby  the  tenant  can  acquire  a  home  for  himself  and 
become  the  owner  of  the  farm  he  cultivates. 

These  ends  can  be  attained  by  profiting  by  the  experience  of  others  whose  necessi- 
ties compelled  a  solution  of  the  problem  years  ago. 

For  instance,  take  this  illustration  from  a  Danish  mortgage-society  law,  mentioned 
by  the  commission  on  rural  credits  and  betterment:  Members  of  the  company  (farm- 
ers who  have  mortgaged  their  property)  must  pay  a  yearly  amount  of  4  per  cent  inter- 
est, three-fourths  of  1  per  cent  amortization,  and  one-fourth  of  1  per  cent  for  expenses, 
making  altogether  5  per  cent  per  annum,  with  the  result  that  in  47  years  their  debts, 
principal  and  interest,  are  paid  in  full. 

The  American  farmer  mortgages  his  farm  and  pays  from  7  to  10  per  cent  interest  per 
annum.  The  average  rate  of  interest  paid  by  the  American  farmer  to-day  is  7.79  per 
cent  per  annum,  while  the  German  pays  3J  to  4  per  cent,  notwithstanding  interest 
rates  are  generally  higher  there  than  here.  His  mortgage  runs  for  3  to  10  years — no 
matter  what  time — at  the  end  of  which  he  must  pay  the  entire  principal.  Suppose, 
with  renewals,  his  mortgage  runs  12  years.  He  would  pay  90  to  95  per  cent  for  the 
use  of  his  money  for  that  time.  The  Danish  farmer  would  pay  135  per  cent  for  his 
money  for  47  years.  The  American  farmer  would  pay  7.5  per  cent  a  year  for  his 
money — the  Dane  would  pay  2.9  per  cent. 

The  Dane's  loan  is  an  investment.  He  can  afford  to  borrow  money  to  improve  his 
farm  or  purchase  his  farm  at  that  rate.  The  American  is  in  debt  and  mortgaging  his 
home;  the  Dane  is  using  his  credit.  Each  year,  while  paying  only  5  per  cent  on  the 
money  received,  the  Dane  is  getting  out  of  debt.  The  American  is  paying  7  to  10 
per  cent  and  not  reducing  his  debt  a  penny.  At  the  end  of  47  years — -or  less  time  if 
he  chooses  to  pay  more — the  Dane  is  out  of  debt  and  his  premises  are  free.  At  the 
end  of  any  period — even  100  years — the  American  would  owe  the  original  principal, 
his  premises  would  be  encumbered  by  the  mortgage,  although  he  will  have  paid  twice 
as  much  as  the  Dane. 

A  special  imperial  act  provides  for  cooperative  societies  in  Germany.  As  we  have 
seen,  there  are  17,000  cooperative  agricultural  banks  in  Germany,  with  a  total  mem- 
bership of  over  one  and  a  half  millions.  The  loans  outstanding  at  the  end  of  1910  for 
fixed  periods,  together  with  overdrafts,  amounted  to  £93,034,000,  while  the  savings 
deposits  totaled  £92,429,000,  and  the  deposits  on  current  account  amounted  to 
£10,865,000. 

The  late  distinguished  minister  of  finance  in  Prussia,  Herr  von  Miguel,  some  17 
years  ago  said  in  Parliament: 

"This  must  be  our  goal — to  have  a  cooperative  loan  bank  in  practically  every 
parish  of  the  whole  monarchy." 

The  result  is  the  transaction  with  the  German  farmer  is  as  follows:  On  a  loan  made 
at  4  per  cent  is  added  three-fourths  per  cent  for  amortization,  one-fourth  per  cent  to 
cover  operating  expenses  of  the  association,  and  by  paying  this  amount,  a  total  of  5 
per  cent  annually  for  between  40  and  50  years,  the  entire  loan  is  paid  off.  The  farm- 
ers of  this  country  must  be  got  out  of  the  clutches  of  money  lenders,  such  as  demand 
unconscionable  rates  and  terms,  factors  who  charge  outrageous  interest  on  advances, 
merchants  who  sell  him  goods  on  time  at  double  prices,  middle  men  who  take  advan- 
tage of  the  situation  to  despoil  him,  transportation  companies  which  take  all  his 
products  will  bring  him  and  call  for  more.  I  do  not  say  these  practices  are  universal 
or  that  the  farmer  is  commonly  imposed  upon;  but  the  picture  is  quite  too  familiar 
and  at  present  he  is  too  often  helpless. 


22  RURAL    CREDITS. 

Mr.  Owen.  Mr.  President,   — - 

The  Vice  President.  Does  the  Senator  from  Florida  yield  to  the  Senator  from 
Oklahoma? 

Mr.  Fletcher.  I  do. 

Mr.  Owen.  I  understand  that  even  at  the  other  end  of  the  earth,  in  New  Zealand, 
they  have  a  plan  of  lending  money  to  farmers  at  3  per  cent  on  the  principle  of  amor- 
tization, so  that  at  the  end  of  30  years,  on  an  extremely  low  rate  of  interest  a  farmer 
can  acquire  a  home  or  borrow  money  on  the  home,  improve  it,  make  it  more  pro- 
ductive, and  by  the  use  of  easy  credit  produce  the  values  from  the  home  easily  to 
pay  for  its  development. 

I  do  not  know  whether  the  investigators  studied  the  New  Zealand  method  or  not, 
and  I  should  be  glad  to  have  the  report  include  the  New  Zealand  method  of  farm 
land  credits. 

Mr.  Fletcher.  Mr.  President,  the  commission  did  not  visit  New  Zealand,  but  I 
do  not  doubt  that  the  Senator  from  Oklahoma  is  entirely  correct  in  his  statement  of 
the  practice  there.  I  have,  however,  no  information  on  that  subject  through  the 
commission  or  from  any  investigation  which  I  have  made.  I  have  not  any  question 
but  that  the  Senator's  statement  is  correct.  The  system  there  is  similar  to  the  system 
which  has  been  in  existence  and  in  operation  in  Germany  for  a  great  many  years. 

The  farmer,  to  whom  we  must  go  for  what  we  eat  and  wear,  should  and  must  be  a 
free  man,  when  he  is  fit  an  i  does  his  part,  and  not  the  slave  of  grinding  conditions. 
Some  of  these  conditions  can  be  remedied  by  legislation.  We  surely  can  find  a  plan 
adaptable  to  the  circumstances  here  which  will  build  up  the  economic  as  well  as  the 
social  structure  of  rural  life. 

******* 

Any  financial  system  is  insufficient,  inadequate,  and  fails  utterly  in  its  application 
which  denies  to  that  great  industry  lying  at  the  base  of  all  wealth  and  which  must 
prosper  if  there  is  to  be  prosperity,  which  must  make  progress,  if  there  is  to  be  any, 
and  which  must  keep  pace  with  the  times  and  improve  in  method  in  order  to  supply 
the  increasing  demand  of  a  growing  population  just  and  fair  facilities  equal  to  those 
furnished  the  other  great  industries. 

It  is  said  the  farmers'  assets  are  not  Liquid,  therefore  they  can  not  be  utilized,  as, 
for  instance,  goods  moving  in  trade.  I  do  not  dispute  the  claim.  I  simply  say,  then, 
the  farmer  must  have  a  system  or  plan  different  from  the  commercial  plan  suitable  to 
the  proper  demands  of  agriculture.  There  is  a  necessary  relation  between  coopera- 
tion and  organization  among  the  farmers  and  a  banking  scheme  which  must  be  evolved 
in  solving  their  financial  problems.  Credit  is  necessary  to  successful  cooperation. 
Organization  on  a  cooperative  basis  will  make  possible  the  establishment  of  a  system 
of  agricultural  credits.  The  most  eminent  authority  on  German  commercial  and 
agricultural  banking.  Prof.  Reisser,  says,  "Agriculture  requires  a  credit  system 
adapted  to  the  special  nature  of  its  production."  Let  us  have  this  great  economic 
truth  sink  into  our  minds  to  stay.  Let  us  not  ignore  or  blot  it  from  our  memories. 
Fully  cognizant  of  its  meaning  let  us  face  the  problem  in  the  blazing  light  of  that 
truth. 

By  Bulletin  No.  1,  April,  1913,  by  John  Lee  Coulter,  it  appears  that  of  the  total 
loans  made  by  national  banks  only  6  per  cent  are  secured  by  real  estate,  including 
mortgage  owned;  that  of  the  total  loans  made  by  mutual  savings  banks,  42.6  per  cent 
are  so  secured;  that  of  the  total  loans  made  by  stock  savings  banks,  40.6  per  cent  are 
thus  secured;  that  of  the  total  loans  made  by  loan  and  trust  companies,  10  per  cent 
are  thus  secured;  that  of  the  total  loans  made  by  private  banks,  20.5  per  cent  are  thus 
secured. 

As  I  understand,  this  includes  all  real  estate,  and  I  dare  say  a  comparatively  small 
portion  of  the  real  estate  included  is  country  property. 

necessity  for  a  complete  system  of  rural  banking. 

I"  Mr.  President,  in  what  I  have  said  I  have  sought  to  present  a  kind  of  general  survey 
of  the  economic  situation  as  affecting  agriculture  as  an  industry,  a  business,  and  a 
life,  for  it  means  all  of  these. 

Particular  reference  has  been  had  to  pending  and  proposed  legislation  respecting 
what  is  designated  "currency  reform,"  as  related  to  that  situation.  I  have  sought  to 
concisely  state  some  reasons  why  I  regard  it  highly  desirable,  if  not  absolutely  neces- 
sary, that  legislation,  such  as  the  pending  Federal  reserve  bill,  should  be  enacted  into 
law,  and  that  speedily. 

I  have  endeavored  to  point  out  that  our  present  system  of  national  banks  is  a  com- 
mercial system,  incapable  of  meeting  the  needs  of  agriculture. 


RURAL    CREDITS.  23 

I  have  contended  that  the  Federal  reserve  bill  likewise  is  necessarily  limited  to  the 
demands  of  commerce  and  industries.  I  have  attempted,  though  in  "a  cursory  way, 
to  point  out  the  efforts  made  in  other  countries  to  save  agriculture  by  cooperative 
organizations  and  the  establishment  of  banking  and  credit  systems  and  to  suggest  that 
we  profit  by  the  experience  and  example  of  older  countries,  compelled  by  necessity 
to  devise  and  put  in  operation  such  systems  that  agriculture  might  prosper. 

I  have  sought  to  give  a  glance  at  the  status  of  agriculture  in  this  country,  its  impor- 
tance, its  problems,  and  rural  conditions  to-day. 

I  have  particularly  aimed  to  stress  the  disadvantages  under  which  the  farmer  now 
labors  by  reason  of  the  lack  of  proper  financial  facilities,  and  to  point  out  the  necessity 
of  a  separate,  distinct  banking  law  under  which  institutions  will  be  organized  which 
can  be  authorized  and  empowered  to  supply  the  peculiar  needs  of  the  farmer. 

I  contend  that  adequate  banking  facilities  are  necessary  to  the  successful  conduct 
of  any  business;  that  for  this  large  class  of  our  citizenship,  about  one-third  of  our 
population,  and  for  this  great  industry  upon  the  prosperity  of  which  the  welfare  of  the 
Nation  depends,  there  has  been  heretofore  no  sufficient  provision  for  meeting  their 
banking   necessities. 

I  contend  further  their  financial  requirements  can  not  be  sufficiently  provided  for 
except  through  a  special  system  of  rural  banking. 

I  would  like  now  to  be  more  specific,  both  as  to  the  needs  and  the  remedy.  Before 
attempting  to  provide  a  remedy  you  will  want  to  clearly  understand  the  needs. 

The  needs  of  the  farmer,  as  I  conceive  them,  can  be  stated,  in  a  condensed  way, 
under  three  general  heads  as  follows: 

FIRST.   THE   NEED   OF   CAPITAL  TO   ACQUIRE,  IMPROVE,  AND   EQUIP   HIS   FARM. 

The  cost  of  improving  and  equipping  his  farm  is  as  much  a  part  of  the  capital  re- 
quirements of  the  farmer  as  the  cost  of  the  machinery  in  a  cotton  mill  is  a  part  of  the 
capital  cost  of  the  mill.  No  class  of  men  should  be  expected  to  work  without  tools 
or  to  make  bricks  without  straw.  A  certain  amount  of  money  must  be  invested  as 
capital  in  any  business  in  order  to  equip  that  business  and  enable  it  to  earn  proper 
returns.  This  capital  must  be  permanently  invested  or  else  it  must  be  loaned  to  th« 
business  for  a  long  period  on  such  terms  that  the  loan  can  be  repaid  in  small  annual 
installments  out  of  a  portion  of  the  profits  derived  from  the  business.  This  is  felt 
keenly,  too,  when  one  desires  to  purchase  land  and  acquire  a  home  in  the  country. 
A  remedy  means  tenants  will  become  owners. 

SECOND.     BANKING   FACILITIES. 

The  farmer  must  have  available  institutions  which  can  meet  his  temporary  banking 
requirements.  He  must  be  able  to  borrow  for  a  few  months  some  of  the  money  needed 
to  till  the  soil  and  to  harvest  and  market  the  crop.  Like  the  merchant  who  seeks 
temporary  accommodation  to  secure  money  with  which  to  discount  his  bills  and  pays 
back  this  money  out  of  the  proceeds  of  sale  of  the  goods  purchased  therewith,  so  the 
farmer  must  likewise  be  able  to  borrow  temporarily  to  discount  his  bills  for  fertilizer, 
seed,  etc.,  and  for  the  purpose  of  carrying  on  his  business  during  its  nonproductive 
period.  Such  loans  must  run  for  a  few  months,  must  be  repaid  out  of  the  proceeds  of 
the  crop,  and  should  not  properly  be  borrowed  on  a  real  estate  mortgage  on  the  farm 
any  more  than  the  manufacturer's  temporary  accommodations  for  discounting  his 
bills  should  be  borrowed  on  a  mortgage  on  his  plant. 

THIRD.    BUSINESS   METHODS   IN   THE   CONDUCT   OF   HIS   BUSINESS. 

I  The  farmer,  like  the  merchant,  will  ultimately  keep  an  accurate  statement  of  the 
condition  of  his  business,  so  that  he  can  always  ascertain  whether  he  is  operating  at 
a  profit  or  at  a  loss,  and  he  will  cease  depending  on  the  business  man  to  conduct  all 
business  transactions  for  him.  He  will  adopt  business  methods  and  put  them  in 
practice  in  his  own  affairs. 

HOW   THESE   NEEDS   CAN    BE    SUPPLIED. 

If  this  analysis  of  the  farmer's  needs  approaches  accuracy,  the  important  question 
then  is,  How  can  these  needs  be  supplied?  And  it  must  be  remembered  that  these 
needs  have  been  stated  in  the  order  of  their  importance,  and  that,  in  order  to  meet 
the  requirements  of  the  situation,  it  is  necessary  to  provide  some  machinery  for  sup- 
plying these  needs  in  the  order  named. 


24  RURAL    CREDITS. 

FIR8T.    HIS   CAPITAL   NEEDS. 

How  can  the  farmer  secure  capital  for  the  improvement  and  equipment  of  his  farm 
or  for  the  purchase  of  a  farm? 

The  answer  is  obvious.  The  farmer  has  only  one  asset,  viz,  land,  on  the  credit  of 
which  he  can  secure  capital.  lie  must  secure  his  capital  by  borrowing  on  his  land. 
Remembering  that  this  capital  must  be  in  substance  a  permanent  investment,  it  is 
obvious  that  any  loan  on  land,  made  for  the  purpose  of  supplying  the  capital  require- 
ments of  the  farmer,  should  be  a  long-time  loan,  repayable  in  small  annual  install- 
ments set  aside  by  the  farmer  for  thai  purpose  out  of  the  annual  profits  derived  by 
reason  of  the  purchase  or  the  improvements  and  equipment  made  possible  by  the  loan. 
A  loan  of  one  year  or  three  years  or  five  years  will  not  furnish  the  farmer's  capital 
requirements,  because  he  obviously  can  not  repay  it  from  his  profits  in  that  tune. 
No  other  business  could  pay  off  its  capital  investment  within  such  a  period. 

It  is  plain,  therefore,  that  the  best  if  not  the  only  method  of  furnishing  the  capital 
requirements  of  the  farmer  is  the  creation  of  a  long-term  first-mortgage  bond,  secured 
on  his  land,  which  bond  shall  contain  an  amortization  or  sinking-fund  provision,  so 
that  a  small  amount  will  be  set  aside  each  year  sufficient  in  the  aggregate  to  pay  off 
the  bond  when  it  matures.     This  is  analogous  to  the  German  Landschaft  plan. 

Moreover,  the  capital  requirements  of  the  farmer,  like  the  capital  requirements  of 
the  merchant,  manufacturer,  or  the  railroad,  can  not  be  met  by  direct  loans  from  the 
banks.  The  farmer's  loans,  made  to  furnish  his  capital  requirements,  should  run 
from  20  to  50  years.  No  bank  can  loan  money  for  such  a  length  of  time.  The  money 
must  be  borrowed  from  the  investing  public. 

Consequently  the  problem  is  not  only  to  create  such  a  bond,  but  more  than  this, 
it  is  to  create  such  a  bond  in  such  a  way  that  it  will  be  bought  and  traded  in  by  the 
investing  public  on  the  best  terms. 

In  order  to  do  this,  the  bond  must  not  only  be  secured  on  the  land  but  it  must  be 
guaranteed  by  some  financial  institution  or  institutions  of  sufficient  standing  to  satisfy 
the  investor  that  the  bond  is  absolutely  beyond  question.  Just  here  is  where  a  special 
system  of  banks  is  needed,  which  will  be  authorized  to  use  their  credit  in  guaranteeing 
such  bonds  under  restrictions  which  will  reduce  the  risk  of  such  guaranties  to  a  mini- 
mum. Such  banks  must  be  limited  in  their  operations,  so  that  a  guaranty  of  this 
kind  will  not,  under  any  circumstances,  endanger  their  solvency. 

SECOND,   HIS   TEMPORARY   BANKING   NEEDS. 

The  temporary  banking  facilities  needed  by  the  farmer  must  be  supplied  by  local 
institutions  managed  and  controlled  by  his  neighbors,  who  are  familiar  with  his 
needs,  and  who  will  see  that  the  money  borrowed  is  applied  to  the  purposes  for  which 
it  was  obtained.  This  means  that  the  farmer  should  have  available  the  services 
and  resources  of  a  local  rural  bank,  owned  and  managed  by  local  people,  which  will 
collect  together  the  neighborhood  funds  and  make  them  available  for  neighborhood 
purposes.  In  the  system  outlined  in  the  bill  which  I  have  offered,  these  local  rural 
banks  serve  this  purpose,  and  are  also  permitted  to  use  their  credit  to  guarantee  the 
long-term  bonds  of  the  farmer,  and  so  aid  in  supplying  his  capital  requirements,  which 
are  the  first  and  greatest  needs.  This  follows  the  idea  of  the  Raiffeisen  system,  to 
which  I  have  alluded. 

THIRD,    HIS   NEED   OF   BUSINESS   METHODS. 

The  observance  of  business  methods  by  the  farmer  and  the  keeping  of  proper  ac- 
counts can  not  and  could  not  be  enforced  simply  by  legislation.  Business  methods 
will  be  observed  only  where  business  conditions  require  the  observance.  The 
observance  of  business  principles  by  the  farmer  will  be  accomplished  when  the  banks 
which  lend  him  the  money  for  his  temporary  requirements  demand  the  observance 
of  such  practices  and  the  keeping  of  proper  accounts  as  a  condition  of  such  loans. 
The  local  rural  bank  provided  for  in  the  bill  will  induce  the  farmer  to  keep  accurate 
accounts  as  a  condition  to  his  obtaining  the  desired  credit  to  meet  his  annually  recur- 
ring banking  needs. 

HOW   THE    BDLL  MEETS   THESE    REQUIREMENTS. 

The  bill,  through  a  system  of  rural  banks,  limited  as  to  their  operations  and  contain- 
ing the  power  to  use  their  credit  in  guaranteeing  long-term  farm  bonds,  furnishes  a 
means  of  meeting  these  three  essentials  of  any  banking  system  suggested  for  the  rural 
population.  The  rural  banking  board  is  so  constituted  and  given  such  powers  of 
supervision  and  control  as  to  safeguard  all  transactions  and  have  ther system  conform 
to  correct  principles. 


RUKAL    CREDITS.  25 

COMMERCIAL    BANKS    ARE    UNABLE    TO    MEET    THE    REQUIREMENTS    OF    THE    FARMER. 

I  feel  quite  convinced  that  we  can  not  expect  a  system  of  commercial  banking  to 
meet  the  needs  of  the  farmer.  It  is  recognized  all  over  the  world  that  no  commercial 
banks  can  with  safety  be  allowed  to  execute  a  pure  contract  of  guaranty.  A  commer- 
cial bank  can  not  afford  to  guarantee  the  payment  of  long-term  bonds.  Its  assets 
must  be  quickly  convertible  and  must  become  due  and  payable  within  a  short  period. 
By  consensus  of  opinion  it  is  generally  recognized  that  it  is  unwise  for  commercial 
banks  to  lend  money  for  a  longer  period  than  four  months.  It  must  be  in  position  to 
respond  to  any  liability  on  demand. 

FIRST.   CAPITAL. 

As  the  farmer's  capital  requirements  must  be  met  by  long-term  loans  obtained  from 
the  investing  public,  as  the  guaranty  of  these  long-term  bonds  by  some  financial 
institution  is  necessary  to  their  sale,  as  a  commercial  bank  can  not  safely  execute  a 
contract  of  guaranty,  it  is  obvious  that  commercial  banks  can  not  meet  the  farmer's 
capital  requirements. 

SECOND.    TEMPORARY   BANKING   FACILITIES. 

As  commercial  banks  can  not  safely  grant  temporary  credit  for  longer  than  four 
months,  and  as  the  farmer's  requirements  are  for  temporary  accommodations  for  a 
longer  period  (or  until  the  crop  comes  in),  it  is  equally  obvious  that  commercial  banks 
are  not  suited  to  supply  the  annually  recurring  banking  needs  of  the  farmers. 

THIRD.    BUSINESS   METHODS. 

Commercial  banks,  as  a  rule,  are  located  in  cities,  towns,  villages,  or  other  centers. 
They  are  usually  remote  from  the  farmer.  Being  remote,  they  are  unable  to  make 
small  loans  needed  in  the  operation  of  his  business  because  of  the  expense  incident 
thereto  and  because  they  can  not  keep  in  close  enough  touch  to  ascertain  if  the  money 
derived  from  these  loans  is  used  for  the  purposes  for  which  it  was  granted.  The  local 
rural  bank  is  accessible,  convenient,  and  conducted  at  nominal  expense. 


INADEQUATE. 

The  relief  afforded  in  the  bill  is,  moreover,  inadequate.  The  present  mortgage 
loans  on  farms  in  the  United  States  approximate  $3,000,000,000.  In  explanation  of 
section  27  of  the  bill,  the  chairman  of  the  committee  has  said;  in  effect,  that  if  every 
bank  in  the  system  loaned  every  dollar  that  it  could  under  this  provision  there  would 
be  available  about  $250,000,000,  which  is  just  about  one-fourteenth,  or  7  per  cent,  of 
the  present  requirements,  and  is  obviously  inadequate. 

SPECIAL   BANKS   NECESSARY. 

The  conclusion  is  irresistible  that  rural  banking  should  be  provided  for  in  a  separate 
system  from  commercial  banking;  that  rural  banks  should  have  a  special  power  to 
use  their  credit  in  addition  to  their  cash  resources  to  meet  the  needs  of  the  farmer,  and 
especially  in  order  to  aid  the  farmer  to  obtain  capital,  and  should,  on  the  other 
hand,  be  limited  and  restricted  as  to  their  operations  and  activities,  so  that  the  use 
of  their  credit  will  not  impair  their  solvency. 

Some  critics  have  suggested  that  bankers  and  capitalists  would  like  to  facilitate 
the  mortgaging  of  farms  and  issuing  of  bonds  in  the  expectation  that  they  might  eventu- 
ally own  the  farms.  Here,  again,  the  experiences  of  other  countries  is  helpful.  In 
Saxony  85  per  cent  of  the  land-mortgage  bonds  are  held  by  the  people  of  that  Province. 
The  rural  people  themselves  are  the  chief  and,  in  most  instances,  almost  the  exclusive 
owners  of  the  bonds.  The  terms  are  so  favorable  to  the  borrower  as  to  interest,  reduc- 
tions, and  payments  there  can  be  no  excuse  whatever  for  losing  his  land. 

Mr.  President,  I  frankly  say  that  the  bill  I  have  introduced  has  its  weaknesses. 
It  is  not  claimed  to  be  perfect.  It  is  not  the  last  thought  or  the  final  word  on  the 
subject  by  any  means.  It  has  the  merit  of  proposing  something  definite,  and  my  hope 
is  it  will  provoke  discussion  and  lead  to  action  now.  It  seems  to  me  greatly  preferable 
to  have  it  considered  at  this  time  rather  than  have  it  go  over  to  next  session.  It 
ought  to  be  taken  up  and,  if  possible,  considered  and  acted  upon  along  with  the  com- 
mercial-banking bill. 


26  RURAL    CREDITS. 

Mr.  President,  there  is  no  more  imp  irtanl  subject  before  the  people  of  this  country 
to-day  than  the  unsolved  problems  of  rural  life. 

h  is  gratifying  to  note  that  interest  is  being  aroused  on  tlas  subject  and  our  people 
are  stirring  in  an  unprecedented  fashion.  The  highest  country  ideals  mean  the 
highest  civili/.ai  ion. 

If  we  can  Bel  in  mol  ion  agencies  that  will  bring  about  the  highest  type  of  an  advanced 
rural  society,  we  will  have  done  a  most,  useful  public  work. 

If  we  can  start  moving  forces  which  will  develop  the  best  country  life,  we  will 
have  answere  I  the  call  for  genuine  service. 

We  make  a  tre udous  contribution  in  those  directions  when  we  reach  out  our 

hand  to  the  tillers  of  the  toil  and  say,  "We  will  start  with  you  on  the  land;  we  will 
be  with  you  in  the  cultivation,  go  with  you  to  the  market,  and  open  the  way  for  you 
to  finance  your  affairs." 

When  ilia!  is  done,  fair  opportunity  will  widen  the  horizon  and  beautify  the  lives 
of  those  engaged  in  agriculture.  It  will  open  the  way  for  the  betterment  of  rural 
conditions,  even  as  Daniel's  window  opened  toward  Jerusalem. 

******* 

[Extracts  from  address  of  lion.  Duncan  U.  Fletcher  to  the  house  of  governors  at  Colorado  Springs,  Colo., 

A.Ug.  26.  1913.] 

Work  of  the  American  Commission  Respecting  Agricultural  Finance,  Organi- 
zation, Cooperation,  and  the  Betterment  of  Rural  Conditions. 

Gentlemen  of  the  House  of  Governors,  responding  to  the  kind  invitation  of  Gov. 
O'Neal,  as  chairman  of  the  committee  of  governors  on  rural  credits,  to  submit  to  the 
house  of  governors  at  this  meeting  a  preliminary  report  from  the  American  commission 
respecting  its  investigations  of  that  subject  in  Europe,  I  wish  to  express  the  acknowl- 
edgments of  the  American  commission  for  this  consideration  and  to  direct  your  atten- 
tion to  the  fact  that  so  short  a  time  has  elapsed  since  the  return  of  the  commission  any 
report  now  must  be  of  necessity  incomplete  and  general  in  character. 

Permit  me  to  call  to  your  minds  that  last  December,  some  nine  months  ago,  I  had 
had  the  honor,  by  invitation  of  President  Taft,  of  addressing  you  at  the  White  House, 
on  which  occasion  I  sought  to  point  out  the  plan  for  assembling  the  American  commis- 
sion, the  purpose  then  in  view,  including  to  some  extent  tne  scope  of  the  inquiry  we 
expected  to  make,  and  appealed  to  you  for  encouragement  and  support.  I  boldly 
expressed  the  confident  hope  and  belief  that  the  movement  started  by  the  Southern 
Commercial  Congress  in  April,  1912,  through  the  inspiration  and  advice  of  Mr.  David 
Lubin,  American  delegate  to  the  International  Institute  of  Agriculture,  later  joined 
in  by  Ambassador  Herrick  and  others,  would  be  successfully  carried  out.  President 
Taft  and  the  State  Department  became  impressed  with  the  significance  of  the  under- 
taking to  American  agriculture  and  gave  it  their  full  sympathy.  It  is  highly  gratify- 
ing to  report  to  you  that  the  stupendous  task  assigned  to  us  was  accomplished.  Every 
step  was  a  step  forward,  and  every  detail  was  carried  out  precisely  as  planned  with 
preeminent  success.  I  am  grateful  to  you  for  the  assistance  you  rendered.  Some 
States  whose  legislature  met  after  your  Richmond  and  White  House  conferences 
passed  special  acts — I  recall  Ohio,  California,  Oregon,  and  Washington — providing 
for  representation  on  the  commission.  The  Congress  of  the  United  States  passed  a 
joint  resolution  accrediting  the  commission  to  the  foreign  Governments.  The  State 
Department  communicated  this  fact  to  our  diplomatic  officials  in  the  countries  visited, 
and  in  consequence  the  highest  official  recognition  was  extended  the  commission 
throughout  Europe.  Congress  also  provided  in  tne  agricultural  bill  for  a  Federal 
commission  of  seven  to  be  appointed  by  the  President  "to  cooperated  with  the  Ameri- 
can commission"  in  the  study  in  European  countries  of  the  subject  of  rural  credits. 
That  act  was  approved  March  4,  and  the  commission,  on  the  recommendation  of  the 
Secretary  of  Agriculture,  was  appointed  by  President  Wilson,  and  five  of  them  accom- 
panied the  American  commission  on  its  tour  of  investigation  and  engaged  actively 
with  them  in  the  work. 

Without  reciting  further  details  by  way  of  showing  the  widespread  interest  in  the 
subject  and  the  forces  behind  the  cause,  I  am  able  to  state  that  on  the  26th  of  April, 
according  to  our  previous  calculations,  there  sailed  on  the  steamship  Saxonia  for  Italy 
two  delegates  from  each  of  29  States,  named  by  their  governors,  and  from  each  of  four 
Canadian  Provinces  desiring  to  join  us.  Takmg  more  or  less  part  in  the  work,  some 
already  in  Europe  and  some  coming  later,  were  representatives  from  seven  other 
States.  As  stated,  in  addition  and  energetically  cooperating  were  the  five  members 
of  the  United  States  commission  throughout  the  inquiry.  These  commissioners 
returned  on  the  steamship  Cedric,  sailing  from  Queenstown,  and  arriving  in  New 
York  July  26. 


RURAL    CREDITS.  27 

Speaking  now  for  the  American  commission,  which  is  directly  connected  with  the 
States,  I  would  say  the  field  covered  during  its  investigation  in  Europe  was  very 
broad.  The  countries  visited  included  Italy,  Austria-Hungary,  Russia,  Egypt,  Ger- 
many, Denmark,  Switzerland,  France,  Spain,  Belgium,  Holland,  England,  and 
Ireland. 

This  extensive  area  was  covered  by  dividing  the  commission  into  subcommittees 
so  that  considerable  time  could  be  given  to  each  country.  It  must  be  remembered 
that  the  commission  entered  upon  its  study  with  what  prior  knowledge  of  the  subject 
could  be  gained  from  published  works.  Thus  its  task  was  to  correct,  confirm,  and 
readjust  its  book-gained  opinions  and  to  visualize  the  subjects  rather  than  to  conduct 
an  exhaustive  investigation  into  an  entirely  new  field.  Every  facility  was  given  the 
commission  by  the  European  Governments,  and  we  owe  indebtedness  for  their  cour- 
tesies and  assistance,  and  likewise  by  the  farmers'  organizations.  I  desire  to  empha- 
size the  sincere  appreciation  of  the  members  of  the  commission  for  the  services  ren- 
dered it  by  the  American  diplomatic  and  consular  offices,  acting  under  instructions 
issued  by  the  Secretary  of  State,  Mr.  Bryan.  Likewise  the  American  Institute  of 
Agriculture,  through  Mr.  David  Lubin,  American  delegate,  rendered  assistance  by 
arranging  in  advance  the  details  of  the  inquiry,  without  which  it  would  have  been 
impossible  to  cover  the  field  within  the  time  allowed,  if  at  all.  The  organizations 
visited  generously  cooperated  by  having  printed  in  English  programs  and  other  data 
relating  to  the  subjects  to  be  studied  by  the  commission. 

******* 

*  *  *  It  seems  quite  well  established  that  economic  evolution  has  made  organi- 
zation a  necessity  to  farmers.  Cooperation  is  urged  as  a  form  of  organization  which 
would  secure  for  them  at  once  the  highest  business  efficiency  and  the  greatest  social 
strength. 

Cooperative  organizations  should  be  formed  with  a  view,  first,  to  improving  their 
credit  facilities;  secondly,  to  increasing  their  control  over  the  marketing  of  crops  and 
to  strengthening  their  position  as  buyers  and  sellers;  and,  thirdly,  to  establishing  a 
channel  whereby  educational  propaganda  and  work  for  the  improvement  of  country 
life  conditions  may  be  effectively  brought  to  the  individual  and  his  cooperation  and 
participation  in  that  work  secured. 


Credit  is  the  keystone  of  the  organization  proposed.  American  farmers  possess  poten- 
tial credit  of  vast  amount.  The  task  is  to  discover  a  plan  whereby  that  credit  may  be 
made  cheaply  and  easily  available. 

The  credit  requirements  of  farmers  differ  radically  from  those  of  merchants  and 
manufacturers  chiefly  because  returns  from  money  invested  in  agricultural  enter- 
prises are  much  slower,  though  more  certain,  than  returns  from  other  enterprises.  For 
this  reason  in  many  European  countries  financial  systems  have  been  established  de- 
voted exclusively  to  the  interests  of  the  farmers. 

In  the  United  States  the  farmer  is  dependent  upon  a  banking  system  operated  pri- 
marily in  the  interests  of  merchants  and  manufacturers,  which  in  their  nature  are 
dissimilar  to  agriculture. 

European  credit  systems  seem  to  be  of  two  kinds,  those  providing  personal  short- 
time  credit  for  operating  purposes,  and  those  providing  long-time  mortgage  credit  for 
works  of  permanent  development  and  purchase. 

PERSONAL   CREDIT. 

The  most  highly  developed  systems  of  short-time  agricultural  credit  institutions  are 
found  in  Germany.  They  are  in  the  form  of  a  pyramid  composed  of  local  cooperative 
credit  societies,  central  societies  operating  generally  over  a  Province  or  administrative 
district  and  a  main  central  society,  as  the  apex,  at  Berlin. 

Every  farmer  joining  a  local  society  assumes  liability  for  its  debts.  In  other  words, 
he  signs  over  his  credit  to  the  society  and  with  this  collective  liability  or  credit  as 
security  the  society  contracts  loans  and  solicits  saving  deposits.  There  may  also  be 
a  cash  capital  subscribed  or  a  cash  reserve  built  up  to  serve  as  security  in  addition  to 
the  collective  liability,  but  it  is  the  liability  which  forms  the  chief  security.  The 
funds  thus  secured  are  loaned  by  the  society  to  its  members.  A  rate  of  interest  is 
charged  members  on  such  loans  sufficiently  above  the  rate  paid  by  the  society  to 
creditors  so  that  the  margin  will  cover  the  expenses  of  the  bank  and  leave  enough  over 
for  reserves  or  other  purposes. 

In  their  operation  is  it  necessary  to  insure  two  things — first,  that  creditors  shall  be 

{)rotected  in  their  loans,  and,  second,  that  members  shall  be  protected  against  the 
osses  to  which  their  liability  subjects  them. 


28  RURAL    CREDITS. 

The  member?  are  protected  by  placing  every  possible  safeguard  about  the  loans  to 
insure  their  repayment.  This  is  done,  first,  by  admitting  to  the  society  only  persons 
of  good  standing.  Then  it  is  provided  that  loans  shall  be  made  only  for  productive 
purposes,  the  borrower  being  required  to  state  for  what  purpose  he  desires  a  loan. 
Further,  the  territory  of  operations  for  cadi  society  is  limited  to  an  area  wherein  every 
member  knows  every  other  member  and  is  in  position  to  find  out  whether  the  borrower 
is  living  up  to  the  promises  he  has  made  to  the  society.  The  liability  assumed  by 
members  is  depended  upon  to  keep  them  watchful  of  the  affairs  of  other  borrowers, 
and  in  a  rural  community  this  check  is  extremely  effective.  Also,  profits  are  either 
prohibited  or  so  strictly  limited  that  there  is  no  incentive  to  speculation  as  a  means 
to  swell  the  income  of  a  society.  The  officers  of  the  society  are  so  chosen  that  one  set 
or  board  keeps  check  on  the  other.  The  liability  of  all  officers  insures  their  watch- 
fulness. The  general  management  of  the  affairs  of  the  society  is  left  in  the  hands  of 
the  general  assembly  of  all  members.  No  matter  what  stock  ownership  a  member 
may  have,  lie  is  entitled  to  only  one  vote.  His  stock  ownership  is  generally  limited 
to  a  small  amount.  In  this  way  these  societies  are  insured  a  conservative  manage- 
ment and  maintain  a  surveillance  over  all  loans  made  to  members  far  closer  than  that 
maintained  by  the  average  commercial  bank. 

All  such  local  societies  within  a  certain  territory  are  combined  to  form  a  central 
society.  A  central  bank  is  established  which  has,  first,  a  small  cash  capital  sub- 
scribed by  the  local  societies,  and,  secondly,  the  collective  liability  of  its  constituent 
banks  as  capital.  These  central  banks  receive  as  deposits  the  surplus  funds  of  local 
societies  and  loan  them  in  turn  to  other  local  societies.  In  other  words,  they  equalize 
supply  and  demand  between  the  local  banks.  They  are  hardly  more  than  paper 
institutions.  Their  management  is  under  the  control  of  officers  chosen  by  the  local 
societies  through  a  representative  system. 

The  main  central  bank  acts  as  equalizer  for  the  central  banks  above  mentioned. 
The  effect  of  this  pyramiding  of  the  societies  is  to  concentrate  all  of  the  borrowing  and 
investing  for  a  system  in  one  big  institution.  The  deposits,  of  course,  are  taken  in 
by  the  local  societies,  and  as  the  societies  develop  these  form  the  bulk  of  the  sys- 
tem's resources.  In  Germany  such  deposits  have  at  times  formed  over  90  per  cent 
of  all  the  funds  required  for  loans  by  an  entire  system. 

MORTGAGE    CREDIT. 

The  worst  feature  of  the  farm  mortgage  in  the  United  States  is  in  its  individual 
character.  An  investor  buying  a  farm  mortgage  must  determine  the  sufficiency  of 
the  security  offered  by  the  land  upon  which  the  mortgage  is  executed,  must  attend 
to  collections  of  principal  and  interest,  must  see  that  the  taxes  are  paid  and  that 
the  property  is  not  allowed  to  depreciate  in  value  to  a  point  where  the  security  of  the 
mortgage  is  jeopardized.  Obviously  these  responsibilities  placed  upon  the  mort- 
gagee make  it  necessary  that  he  shall  be  in  a  position  to  keep  posted  with  regard  to 
the  land  upon  which  he  has  loaned  his  money.  So  long  as  this  is  true  the  market 
commanded  by  a  farm  mortgage  will  be  restricted.  Life  insurance  companies  con- 
trol practically  the  only  source  of  money  to  which  the  farmer  may  turn  in  disposing 
of  his  mortgage  besides  the  individual  lender  or  his  direct  agent.  The  individual 
lender  controls  the  market.  Therefore  American  farmers  to-day  are  paying  one  rate 
of  interest  in  one  State  and  another  elsewhere.  They  do  not  secure  the  advantages 
which  ability  to  compete  in  a  wide  market  bring,  and  since  their  mortgages  do  not 
form  a  liquid  investment  they  are  required  to  pay  a  higher  rate  than  other  borrowers 
who  do  not  offer,  perhaps,  as  good  security. 

The  second,  and  perhaps  the  greatest,  disadvantage  is  the  limited  time  for  which 
a  farmer  may  borrow  money  on  a  mortgage  and  the  fact  that  he  is  required  to  pay  back 
in  a  lump  sum  the  entire  principal  of  the  loan  at  the  end  of  that  short  time  or  else  con- 
tract a  new  mortgage — that  is,  secure  a  renewal.  An  individual  lender  can  not  be 
expected  to  place  his  money  in  a  nonliquid  investment  for  more  than  about  five  years. 
He  may  grant  a  renewal  of  the  loan,  but  he  must  reserve  the  privilege  of  calling  in  the 
loan  at  the  end  of  that  time  and  may  increase  the  interest.  It  will  require  the  farmer 
who  has  invested  the  money  secured  from  the  mortgage  in  farm  improvements  far 
mora  than  those  live  years  to  realize  the  entire  principal. 

These  disadvantages  will  rest  upon  the  farmer  so  long  as  he  is  obliged  to  sell  his 
mortgage  direct  to  the  investor — in  other  words,  so  long  as  it  is  an  individual  transac- 
tion. In  Europe  a  remedy  for  these  disadvantages  has  been  discovered  which  does 
not  involve  the  Government,  except  in  its  proper  role  as  a  controlling  influence,  and 
which  does  not  jeopardize  the  safety  of  banks  of  deposit. 

The  effect  of  the  European  system  is  to  break  all  connection  between  the  mortgagor 
and  the  mortgagee.     An  institution  is  established  which  appraises  the  land  of  farmers 


RURAL    CREDITS.  29 

desiring  mortgage  loans.  The  loans  are  granted  by  such  institution,  which  retains  the 
mortgage.  Then  mortgage  bonds,  secured  by  the  mortgages,  but  as  the  direct  obliga- 
tion of  the  institutions,  are  issued.  No  one  bond  is  secured  by  one  mortgage,  but 
each  bond  is  a  lien  against  all  of  the  mortgages.  Thus  the  investor  in  place  of  buying 
paper  secured  by  one  farm  and  having  to  determine  what  sort  of  a  farm  that  is,  buys 
a  bond  secured  first  by  a  "pool"  of  mortgages,  and  secondly  by  an  amortization  fund 
created  by  small  payments  made  as  the  interest  is  paid. 

They  are  issued  payable  to  bearer,  are  generally  listed  on  the  exchange,  and  so  form 
a  liquid  asset.  With  these  features  the  bonds  sell  at  far  lower  interest  rates  than 
individual  mortgages.  The  farmers  are  charged  a  rate  sufficiently  above  the  rate 
paid  on  the  bonds  to  clear  a  margin  for  the  institution  to  pay  expenses,  build  up 
reserves,  or  for  other  purposes  as  desired.  But  the  expenses  of  operation  of  such 
companies  are  so  small  in  comparison  with  the  volume  of  business  done  that  this  margin 
of  profit  may  be  taken  by  the  institution  and  still  the  money  can  be  loaned  to  farmers 
much  cheaper  than  they  can  secure  it  for  themselves.  This  is  the  first  advantage 
brought  by  such  institutions — cheaper  interest  rates. 

These  mortgage  bonds  run  for  an  indefinite  period.  Each  year  the  farmers  are 
required  to  pay,  besides  the  interest,  a  certain  percentage  toward  reducing  the  prin- 
cipal of  the  loan.  Thus  if  an  institution  issues  $100,000  of  bonds  and  loans  that  amount 
on  mortgages,  the  mortgagors  each  year  pay  the  institution  $5,000  to  reduce  the  prin- 
cipal of  their  loans.  This  money  is  used  to  buy  up  mortgage  bonds  from  the  market. 
In  20  years  the  entire  issue  of  bonds  would  be  bought  up.  It  is  in  this  way  that  all 
European  mortgage  loans  are  paid  up.  Sometimes  mortgages  run  for  50  or  75  years. 
The  bonds  are  retired  by  lot,  the  company  generally  reserving  the  privilege  to  buy 
them  in  at  par  or  at  a  slight  premium.  Also  the  payments  of  the  mortgagors  are  gen- 
erally the  same  each  year,  a  larger  portion  of  the  sum  going  toward  principal  and  a 
smaller  toward  interest  as  the  principal  is  gradually  reduced.  For  instance,  it  is 
figured  that  a  farmer  having  a  loan  at  4.3  per  cent  and  paying  each  year  6.56  per  cent 
would  wipe  out  his  loan  in  25  years.  This  practice,  called  amortization,  is  of  the 
greatest  value  to  farmers,  for  it  makes  their  payments  on  principal  consistent  with 
their  income  from  money  expended  on  agricultural  improvements.  So  long  as  the 
farmer  meets  these  annual  payments  the  mortgage  will  not  be  foreclosed;  also  the 
interest  rate  can  never  be  raised  during  the  life  of  the  loan. 

Thus  we  see  that  such  a  system  reduces  interest  rates,  makes  the  demands  upon  the 
farmer  consistent  with  his  income,  eliminates  commissions,  protects  him  from  fore- 
closure and  from  an  advance  in  interest  rates.  It  changes  a  mortgage  from  a  burden- 
some debt  to  an  advantageous  form  of  credit — an  investment. 

This  plan  of  mortgage  credit  means  more  money  for  machinery,  more  for  purchas- 
ing new  land  and  for  developing  poor  land.  It  means  fewer  tenants  and  more  owners. 
It  means  better  rural-life  conditions.  Generally,  it  would  be  unprofitable  to  attempt 
to  develop  land  on  money  borrowed  under  such  disadvantageous  terms  as  now  pre- 
vail here.  Not  only  are  the  rates  higher — that  is  the  smaller  part  of  the  problem, 
I  believe — but  the  farmer  is  forced  to  pay  back  his  loan  before  he  can  make  his  farm 
earn  that  amount.  That  is  the  really  great  burden  upon  the  farmer.  That  is  the 
reason,  I  believe,  why  nothing  more  is  done  toward  placing  under  cultivation  the 
abandoned  farm  lands  of  the  East  and  toward  opening  up  the  lands  of  the  West  and 
bringing  more  lands  into  cultivation  in  the  South.  The  example  of  Germany  in  this 
respect  is  most  interesting  to  Americans.  Our  commission  was  told  that  Germany  is 
supporting  to-day  67,000,000  people,  is  producing  95  per  cent  of  the  food  they  con- 
sume, and  has  definite  hopes  of  increasing  that  percentage.  This  is  being  done  on 
land  centuries  old  that  obviously  was  never  particularly  fertile.  They  are  doing 
this  through  three  influences — credit,  cheap  labor,  and  scientific  methods.  Of 
course  cheap  labor,  as  it  is  known  on  the  Continent,  is  not  to  be  considered  m  this 
country  during  this  generation.  I  believe  that  we  have  the  machinery  to  spread 
scientific  methods.  What  we  need  above  all  is  the  credit  necessary  to  bring  those 
methods  to  practical  fruition  upon  the  maximum  number  of  acres.  As  compared  to 
Germany's  record,  we  find  in  the  United  States  the  number  of  tenants  increasing, 
the  farm-mortgage  debt  increasing,  exports  of  foodstuffs  diminishing,  imports  of  such 
products  increasing,  the  movement  from  the  country  to  the  cities  and  towns  augment- 
ing, production  of  food  supplies  approaching  steadily  to  the  point  where  we  will  have 
none  to  export,  and  it  will  soon  become  a  question  of  supplying  the  home  demand. 

It  is  true  there  have  been  rises  in  land  values  and  advances  in  the  price  of  food- 
stuffs, due,  at  least  to  a  large  extent,  to  the  disproportionate  increase  in  population  in 
comparison  with  the  increase  in  agricultural  productiveness.  It  does  not  represent 
sound  agricultural  progress. 


30  RUEAL    CBEDITS. 

BUSINESS   COOPERATION. 

Every  farmer  musl  be  a  business  man  as  well  as  a  producer.  Bis  success  depends 
almost  as  much  upon  his  efficiency  as  a  buyei  and  seller  as  upon  his  efficiency  as  a 
producer,  h  is  in  this  capa<  ify  thai  the  farm'';-  touches  the  highly  organized  com- 
mercial world,  and  i1  is  in  this  contacl  thai  he  has  suffered  most.  Clinging  to  his 
individualism  the  farmer  lias  attempted  to  stand  against  the  organized  forces  of  com- 
merce. In  the  few  instances  in  which  fanners  have  organized,  notably  among  the 
fruit  growers  of  the  Pacific  coasl  and  the  dairy  farmers  of  the  Northwest,  they  have 
demonstrated  the  increased  strength  attainable  through  cooperation.  The  beginning 
of  organization  along  these  lines  has  already  been  made  in  this  country,  and  the 
task  is  simply  to  spread  the  doctrine  broadcasl  and  to  lend  assistance  in  the  prelim- 
inary wort  of  organization.  The  reason  that  farmers  have  not  more  generally  organ- 
ized a  lorn;  these  linos  in  the  United  States  is  that  our  farmers  possess  a  more  intractable 
individualism  than  do  the  farmers  of  European  countries  and  lhat  in  many  sections 
they  lack  the  essential  foundation  for  such  organizations-  credit.  The  advantage 
of  a  cooperative  credil  system  would  be  twofold — first,  it  would  prompt  the  farmers 
to  cooperate,  and.  secondly,  it  would  afford  Ihern  credit  to  make  possible  the  organ- 
ization of  cooperative  buying  and  selling  societies.  I  believe  that  when  the  farmers 
come  to  realize  the  sa<  rifices  they  are  making  to  cling  to  the  hollow  shell  of  an  old- 
fachioned  individualism,  which  has  been  cast  aside  long  ago  by  the  urban  industrial 
classes,  they  will  accepl  this  aew  doctrine.  The  task  now  is  to  afford  them  a  credit 
system  or  plan,  and  with  that  at  their  command  the  other  forms  of  cooperation  would 
follow  from  the  sheer  force  of  their  economic  advantage. 

Although  the  cooperative  purchasing  societies  of  many  European  rural  societies  are 
organized  separately  from  the  credit  societies,  the  cooperation  between  the  two  is 
very  close.  In  fact,  the  purchasing  societies  generally  depend  upon  the  credit  socie- 
ties for  their  very  existence.  The  principle  of  the  cooperative  purchasing  societies 
is  simply  wholesale  purchasing.  Needs  are  estimated  and  contracts  made  for  the 
wants  of  a  community  for  a  year  or  perhaps  longer.  Orders  of  individuals  are  then 
collected  and  forwarded  through  the  societies  to  merchants  or  manufacturers.  Some 
sorts  of  goods  are  bought  outright  and  stored  by  the  societies.  The  greatest  benefit 
from  such  practice  is  only  to  be  secured  through  the  centralization  of  a  system  of 
cooperative  societies,  in  which  case  the  purchases  are  made  upon  a  sufficiently  large 
scale  to  materially  affect  prices.  This  centralization  can  be  very  easily  effected 
through  the  central  societies  organized  by  the  credit  societies. 

I  do  not  mean  to  be  understood  as  advocating  the  organization  of  cooperative 
societies  to  take  the  place  of  our  local  merchants,  who  constitute  a  useful  and  neces- 
sary part  of  the  commerce  of  this  country.  Cooperative  societies  would  have  a  field 
of  their  own,  separate  and  distinct  from  that  now  occupied  by  the  stores  and  shops  of 
our  cities  and  towns.  In  the  purchase  of  manures,  fertilizers,  and  such  supplies  as 
enter  into  or  increase  the  product  of  the  farm  the  cooperative  societies  could  render 
a  great  service  to  farmers  by  demanding  that  all  goods  purchased  conform  to  standard 
specifications,  and  they  could  buy  direct  at  wholesale  prices  certain  supplies,  thus 
giving  the  individual  members  the  benefit  of  the  reduced  cost. 

The  organization  and  operation  of  cooperative  sales  societies  would  depend  upon 
the  sort  of  produce  to  be  sold.  Types  of  cooperative  dairies  and  cooperative  fruit- 
selling  societies  already  exist  in  this  country.  The  formation  of  such  societies  is 
purely  a  question  of  securing  the  most  efficient  business  management. 

However,  it  requires  credit  to  finance  such  societies.  Where  farmers  are  buying  in 
the  spring  on  credit  from  merchants  and  are  selling  the  minute  their  crop  is  harvested 
in  order  to  realize  cash,  thev  can  not  operate  such  societies  without  a  species  of  organ- 
ization by  which  their  collective  credit  can  be  utilized.  This  condition  prevails 
quite  generally  in  the  South.  In  other  sections  the  farmers  have  been  able  to  finance 
such  societies,  but  if  their  credit  facilities  were  improved  it  is  reasonable  to  suppose 
that  the  strength  of  such  societies  would  be  thereby  increased. 

When  thorough  business  cooperation  is  established  in  a  farming  community  and  the 
cooperative  principle  is  accepted,  it  is  almost  certain  that  the  farmers  will  fall  into 
the  habit  of  cooperating  upon  general,  social,  and  civic  lines.  I  believe  chambers  of 
agriculture  organized  in  the  country  districts  would  be  found  of  great  value. 

All  of  this  organization  work  in  European  countries  has  been  carried  on  through 
voluntary  associations.  In  some  instances  the  Governments  for  their  own  ends  have 
attempted  to  control  the  movement,  but  the  results  of  such  control  have  not  generally 
been  regarded  as  satisfactory.  A  close  study  of  the  subject  will  show  that  the  entire 
plan  is  based  upon  the  idea  of  self-help,  ana  public  nursing  is  not  calculated  to  give 
strength  to  such  organizations. 


RURAL    CREDITS.  31 

Organization  along  cooperative  lines  has  been  demonstrated  to  be  of  great  value  to 
the  farmers  in  European  countries,  and  well-directed  work  of  that  kind  ought  not  to  be 
delayed  or  meet  with  indifference  in  the  United  States. 

Permit  me  to  say  further,  individually,  that  in  my  judgment  our  rural  population 
needs  a  financial  plan  or  system  separate  and  distinct  from  a  commercial  banking 
system  to  meet  their  requirements.  They  should  have  facilities  for  short-time  cash 
accommodations  at  reasonable  rates  which  can  be  had  by  cooperative  institutions,  and 
they  should  have  a  plan  or  means  for  obtaining  long-time  loans  at  a  low  rate  of  interest 
with  sinking-fund  or  amortization  feature. 

The  question  of  State  legislation  to  effect  the  establishment,  management,  and  con- 
trol of  such  organizations,  societies,  associations,  or  institutions  will  no  doubt  receive 
your  earnest  consideration. 

Agriculture  can  be  relieved  of  enormous  burdens.  Serious  difficulties  can  be  over- 
come by  proper  procedure.  Our  farmers  do  not  ask  for  special  favors,  but  there  are 
some  problems  which  are  yet  unsolved  and  constitute  obstacles  in  the  way  of  their 
progress.  A  long  step  will' be  taken  when  they  are  in  position  to  finance  their  affairs 
and  introduce  better  business  methods  in  their  operations. 

The  solution  of  these  problems  will  not  only  mean  the  redemption  of  agriculture, 
the  reconstruction  of  rural  life,  but  go  far  toward  reducing  the  high  cost  of  living  and 
relieving  other  burdensome  conditions. 

It  will  mean  not  only  relief  to  the  farmer,  but  the  permanent  enhancement  of  the 
general  welfare. 

******* 

With  such  a  system  of  rural  banks  the  States  Bhould  encourage  the  formation,  not 
of  new  personal  credit  banks,  but  of  cooperative  purchasing,  selling,  and  distributing 
societies,  which  can  get  needed  credit  facilities  from  rural  banks,  and  the  States 
should  urge  farmers  to  aid  in  establishing  the  rural  banks  as  a  means  of  hereafter 
financing  cooperative  societies  where  formed. 

In  my  remarks  on  that  bill,  August  9,  I  endeavored  to  set  forth  the  farmer's  financial 
needs  and  the  methods  by  which  these  may  be  supplied.  I  designated  then  "his 
temporary  banking  needs,"  those  which  correspond  to  what  I  have  herein  referred  to 
as  his  "personal-credit"  needs.  That  is,  his  everyday-life  needs  which  the  Germans 
have  found  can  best  be  provided  for  under  the  Raiffeisen  system. 

I  called  then  his  "capital  needs"  those  which  correspond  to  what  I  term  herein 
his  "mortgage-credit"  needs;  that  is,  to  be  provided  for  by  long-term  bonds  bearing 
a  low  rate  of  interest  with  the  amortization  feature.  The  German  experience  is  that 
a  system  like  the  landschaft  is  the  best  yet  devised  for  this  purpose.  Whether  these 
two  requirements  can  be  provided  for  in  one  measure  and  in  one  system  is  somewhat 
difficult  to  determine,  but  I  believe  the  bill  combines  them  in  a  workable  and  advan- 
tageous way. 

On  the  13th  the  President  gave  a  statement  to  the  press  of  the  country,  in  which 
he  said: 

"Special  machinery  and  a  distinct  system  of  banking  must  be  provided  for  if  rural 
credits  are  to  be  successfully  and  adequately  supplied.  *  *  *  There  is  no  subject 
more  important  to  the  welfare  or  the  industrial  development  of  the  United  States. 
*  *  *  rp}iere  nas  been  too  little  Federal  legislation  framed  to  serve  the  farmer 
directly  and  with  a  deliberate  adjustment  to  his  real  needs.  *  *  *  This  is  our 
next  great  task.  Not  only  is  a  Government  commission  about  to  report  which  is 
charged  with  apprising  the  Congress  with  the  best  methods  yet  employed  in  this 
matter,  but  the  Department  of  Agriculture  also  has  undertaken  a  serious  and  sys- 
tematic study  of  the  whole  problem  of  rural  credits.  The  Congress  and  the  Executive, 
working  together,  will  certainly  afford  the  needed  machinery  of  relief  and  prosperity 
to  the  people  of  the  countrysides,  and  that  very  soon." 

I  have  contended  all  along  that  our  present  banking  and  currency  system  is  framed 
to  serve  commerce  and  the  industries  other  than  agriculture.  For  50  years  it  has  dis- 
criminated against  agriculture.  I  am  convinced  this  was  not  a  deliberate  blow  at 
agriculture,  but  arose  for  the  reason  that  no  commercial  banking  system  can  be  framed 
so  as  to  adequately  serve  agriculture.  We  must  have  a  distinct  system  to  meet  the 
requirements  of  the  farmer. 

In  the  various  States  your  guidance  and  aggressive  efforts  will  count  mightily. 

I  would  not  presume  to  press  on  you  specific  action.     You  will  permit  me,  however, 

to  urge  uniformity  in  any  action  you  may  take  and  a  full  consideration  of  fundamental 

principles  as  a  preliminary  to  any  decision.     It  would  seem  possible  to  simplify  and 

make  uniform  the  land  registration  laws  and  that  certainly  is  greatly  to  be  desired. 


32  RURAL    CREDITS. 

Tin'  same  thing  i.s  true  as  to  the  laws,  practice,  and  procedure  with  respect  to  fore- 
closure of  the  mortgage  lien.  While  devising  a  system  advantageous  to  the  borrower, 
it  must  be  borne  in  mind  that  the  lender  is  to  be  protected  fully. 

The  investing  public  in  this  country  and  from  other  countries  while  willing  to 
accept  a  low  rate  of  interest  will  insist  that  the  security  shall  be  safe  and  readily 
realized  upon  in  case  of  default,  without  delay  or  expense,  and  the  procedure  ought 
to  be  practically  the  same,  no  matter  from  what  State  the  security  comes. 

It  required  40  years  to  thoroughly  establish  the  Etaiffexsen  system  and  demonstrate 
its  wisdom,  but  the  grave  of  that  pioneer  is  a  shrine  and  the  monument  over  it  is  one 
of  the  most  prized  in  all  Germany.  It  will  take  time  to  establish  a  like  beneficient 
system  in  the  United  States,  and  we  can  not  begin  too  soon. 


[Extracts  from  speech  of  Hon.  Duncan  U.  Fletcher,  of  Florida,  of  Jan.  29,  1914,  to  National  League  of 

Commission  Merchants.] 

Land-Mortgage  or  Long-Term  Credit. 

*  *  *  *  *  *  * 

What  do  we  find  upon  the  slightest  investigation?  I  was  perfectly  astounded  when 
I  came  to  dig  into  the  question.  For  50  years  we  have  been  operating  in  this  country 
under  a  banking  and  currency  system  which  was  purely  and  solely  a  commercial 
system,  absolutely  created  and  adapted  and  used  for  the  business  man  and  the  mer- 
chant, the  manufacturer,  and  other  industries  than  agriculture.  It  is  not  that  we  are 
asking  anything  unusual  or  anything  special  for  the  farmer.  I  believe  that  gentleman 
is  pretty  well  known  as  being  opposed  to  special  privileges,  and  he  is  not  asking  any 
favor  in  his  own  case,  but  he  is  asking  for  a  square  deal.  He  is  asking  to  be  put  upon 
the  same  basis  as  those  engaged  in  other  great  industries  in  the  country — nothing  more, 
nothing  less. 

In  that  system,  which  we  created  and  which  the  United  States  Government  estab- 
lished and  which  it  supervised  and  controlled,  it  was  written  in  the  body  of  the  law 
that  no  loans  could  be  made  upon  real  estate.  Real  estate  was  prohibited  as  security 
for  loans  by  every  national  bank  established  under  our  financial  system. 

Now,  what  does  that  mean?  It  meant,  of  course,  that  real  estate,  being  the  farmer's 
chief  asset,  was  absolutely  condemned  as  security  for  loans  in  this  country,  and  he  was 
deprived  of  that  asset  as  a  basis  for  credit. 

Did  you  ever  think  about  it?  It  seems  preposterous,  when  you  stop  to  consider  it, 
that  land,  real  estate,  the  very  basis  of  all  our  wealth,  was  one  thing  that  no  bank 
could  loan  money  on.  That  was  the  one  most  substantial  and  valuable  asset  that  the 
farmer  had,  and  we  have  gone  on  for  50  years  discriminating  against  the  farmer  under 
the  only  system  established  in  this  country. 

What  was  the  effect  of  that?  Naturally,  business  men,  financiers,  would  hesitate  to 
loan  upon  real  estate,  because  they  said  the  United  States  Government  will  not  permit 
its  banks,  which  it  supervises  and  controls  and  directs,  to  loan  upon  real  estate,  we 
better  not  touch  it.  Consequently  that  has  been  a  handicap  and  a  hardship  imposed 
upon  the  agricultural  interests  of  the  country. 

The  farmer  has  been,  generally  speaking,  without  adequate  facilities  for  financing 
his  operations,  and  when  he  had  such  means  he  could  make  them  available  only  on 
such  terms  and  at  such  rates  as  to  be  the  most  burdensome  imposed  upon  any  people 
engaged  in  any  industry.     And  for  50  years,  I  say,  that  has  continued. 

Not  until  the  recent  act  of  Congress,  establishing  the  Federal  reserve  system,  was  it 
permissible  for  national  banks  to  loan  upon  real  estate.  Not  until  the  recent  Federal 
reserve  act  could  his  promissory  note  running  over  90  days  be  classed  as  commercial 
paper  available  for  discount;  because  he  had  no  goods  moving  in  trade  or  that  he  could 
handle  and  turn  over  daily  he  had  to  wait  on  the  seasons.  He  had  his  cash  coming 
when  the  crops  matured,  and  he  could  not  pay  anything  until  then,  whereas  the  mer- 
chant is  able  to  carry  on  his  business  depositing  and  discounting  from  day  to  day. 

Now,  I  am  not  blaming  the  banks  in  that  connection,  because  the  system  was  such, 
that  the  banks  had  to  be  ready  to  meet  the  demands  of  their  depositors  on  the  instant, 
consequently  they  could  not  have  their  money  tied  up  in  long-time  notes  or  loans. 
This  is  true  under  any  commercial  banking  system  standing  alone. 

That  was  the  reason,  a  very  good  reason,  and  it  means  that  system  needs  to  be  sup- 
plemented by  another  system  under  which  the  farmer  can  get  accommodations  to  meet 
his  needs,  and  that  problem  has  been  worked  out  in  Germany.  It  is  not  a  mere 
theory,  it  is  a  practical  demonstration.  For  30  years  they  worked  on  it  over  there, 
and  for  over  50  years  it  has  been  established  and  in  successful  operation,  and  we  may 


RURAL    CREDITS.  33 

learn  something;  from  the  experience  of  other  countries.  They  had  to  do  something  in 
order  to  feed  their  people;  they  had  to  revive  agriculture;  they  had  to  take  care  of 
the  farmer  because  they  had  to  supply  the  food,  and  Germany,  not  as  big  as  the  State 
of  Texas  by  an  area  as  great  as  Alabama,  is  supplying  95  per  cent  of  the  food  to  feed 
68,000,000  people. 

Here  in  the  United  States,  this  great  country  of  ours,  the  best  country  on  the  face 
of  the  earth,  we  are  actually  importing  beef  from  Argentina  and  corn  from  Buenos 
Aires.     For  shame. 

What  do  we  find?  The  tendency  is  from  the  country  to  the  cities  and  towns.  We 
find  the  tenants  increasing  and  the  occupying  owners  decreasing  in  the  country.  We 
find  exports  of  foodstuffs  decreasing  and  imports  increasing.  Is  that  a  safe  and  sound 
condition  for  a  country  to  face?  Do  we  not  know  perfectly  well  that  if  the  farms  of  this 
country  were  idle  for  one  year  that  the  grass  and  weeds  would  grow  in  these  streets, 
and  bats  and  owls  would  inhabit  these  buildings?  You  have  got  to  come  back  to  that, 
you  have  got  to  look  after  the  man  out  yonder  in  the  woods.  We  are  all  dependent 
upon  him. 

We  should  begin,  then,  at  the  very  basis  of  his  operations  because  he  needs  capital, 
just  like  every  other  business  man  needs  capital.  Farming  is  something  more  than  the 
mere  growing  of  stuff.  It  is  a  business,  it  is  an  industry;  and  proper  scientific  farming 
to-day  requires  just  as  much  business  capacity,  just  as  much  judgment,  as  any  other 
business  to  be  successfully  conducted.  It  is  a  business  as  well  as  an  occupation,  as 
well  as  an  industry. 

We  heretofore  regarded  the  farmer  as  not  needing  to  know  about  business  methods 
and  practices,  because  his  business  was  expected  to  be  attended  to  by  his  factor  or 
banker,  while  he  did  the  plowing  and  hceing  and  hard  work  in  the  fields. 

It  is  claimed  that  it  has  got  so  in  some  parts  of  the  country  that  as  the  farmer  rears 
his  family — -one  is  a  bright  boy,  and  he  says  of  him:  "John  here  is  a  pretty  bright 
boy;  he  has  a  bright  mind.  I  am  going  to  send  him  off  to  school  and  will  make  a 
lawyer  of  him  or  a  doctor.  Here  is  one  who  has  a  particular  genius  for  mechanics. 
I  will  send  him  off  to  school.  I  will  make  an  engineer  of  him.  Here  is  Jim,  he  was 
always  lazy,  indolent,  and  thick-headed  and  never  would  learn  anything.  I  will 
keep  him  on  the  farm  and  make  a  farmer  of  him.  " 

Now,  that  has  got  to  stop.  We  are  going  to  prosper  in  this  country.  We  have  got 
to  make  it  worth  while  to  be  a  farmer.  There  must  be  fair  remuneration  for  the  toil 
and  the  chances.  Farming  must  be  placed  on  a  business  as  well  as  scientific  footing. 
Country  life  must  be  made  attractive  socially  and  industrially. 

We  are  not  producing  the  amount  of  foodstuffs  we  could  produce;  we  are  not  taking 
care  of  our  farms;  we  are  letting  them  grow  up  in  weeds  or  waste  away;  we  are  not 
adding  to  the  attractiveness  and  the  beauty  and  the  proper  social  conditions  in  the 
country  as  we  should.     If  we  are  to  prosper,  we  are  not  to  neglect  these  things. 

And  why  should  we?  There  are  12,000,000  engaged  in  agricultural  pursuits.  There 
are  30,000,000  people  directly  dependent  upon  the  farms  for  a  living,  and  we  are  all 
indirectly  dependent  upon  them.  The  estimated  value  of  the  farm  property  of  this 
country  amounts  to  $40,000,000,000. 

Some  people  say,  "Look  here,  you  do  not  need  to  make  it  easy  for  the  farmer  to  go 
into  debt.  You  do  not  want  to  assist  him  in  incurring  any  obligations,  for  he  is  too 
much  prone  to  do  that  now.  We  are  opposed  to  that.  We  do  not  want  any  plan 
whereby  mortgages  will  be  put  on  the  farm  and  sent  up  to  Wall  Street. "  It  was 
charged  recently  that  this  scheme  was  a  Wall  Street  proposition.  Of  course,  the  com- 
plete answer  to  that  is  the  stand  of  the  President  of  the  United  States,  when  he  indorses 
the  very  idea  we  have  been  contending  for.  The  plan  proposed  does  not  encourage 
but  prevents  getting  in  debt. 

But  our  good  friends  who  are  so  solicitous  about  the  farmer  not  getting  in  debt  fail 
to  realize  that  the  farmer  is  already  in  debt.  The  farmers  of  this  country  owe  $6,000,- 
000,000,  according  to  Government  statistics,  $3,000,000,000  of  it  secured  by  mortgages 
on  their  farms;  and  I  have  on  my  desk  in  Washington  stacks  and  stacks  of  letters 
from  people  in  every  State  in  the  Union,  and  especially  from  the  Northwest,  and  in 
many  instances  they  tell  me  that  the  farms  are  mortgaged  up  to  the  assessed  valuation 
of  the  property;  and  if  it  had  not  been  for  the  natural  and  actual  increase  in  the  value 
of  lands  in  this  country  many  of  our  farmers  would  have  been  bankrupt  years  ago. 
It  has  been  simply  the  natural  rise  in  the  value  of  lands  that  has  saved  them. 

Now,  that  is  the  condition.  There  is  no  use  to  try  to  get  away  from  that.  On  that 
$3,000,000,000  they  are  paying  an  average  of  10  per  cent,  including  commissions  and 
expenses — $300,000,000  a  year  in  interest,  nothing  going  to  liquidate  the  principal  at 
all.  If  we  can  do  nothing  more  than  save  the  farmers  of  this  country  $150,000,000 
annually  we  will  have  done  something  worth  while. 

37031—14 3 


34  RURAL    CREDITS. 

But  they  are  paying  that  10  per  cent  on  $(3,000,000,000,  which  means  $600,000,000 
of  interest,  while  here  is  a  possibility  of  saving  $300,000,000  for  the  farmers  of  this 
country  every  year.  Not  only  that,  but  it  means  giving  them  financial  facilities  so 
they  can  go  on  with  their  plans  and  develop  their  properties  and  beautify  their  homes 
and  improve  and  make  desirable  country  life.  We  can  do  this.  It  is  being  done  in 
other  countries;  for  instance,  the  interest  paid  in  Germany  is  3^  to  4$  per  cent  by 
farmers.  The  bonds  based  upon  farm  mortgages  are  sold  in  the  market  at  just  as  high 
rate  as  the  Government  bonds  themselves.  Tliree  and  one-half  to  4£  per  cent  is  the 
interest  at  which  those  people  get  their  money,  and  the  ordinary  commercial  rate, 
I  am  told,  is  as  high  there  as  here. 

The  farmer  finds  this  condition— and  here  is  where  your  work  comes  in,  it  seems  to 
me — the  estimate  is  that  the  value  of  the  farm  products  annually  on  the  farm  amount 
to  $9,500,000,000.  Assuming  that  the  farmers  use  one-third  of  that,  we  have  $6,000,- 
000,000  as  the  value  of  the  annual  product  of  our  farms,  on  the  farms,  going  to  market. 
It  is  estimated  further  that  the  consumers  of  this  country  pay  $13,000,000,000  for 
those  products,  so  that  we  have  $7,000,000,000  disappearing  annually  between  the 
farm  and  the  breakfast  table.  Part  of  it  is  taken  up  in  transportation;  part  of  it  is 
taken  up  in  distribution;  and  there,  I  say,  it  seems  to  me,  is  the  problem  to  which 
this  league  could  well  address  its  splendid  minds — the  solving  of  tnis  as  yet  unsolved 
problem  of  distribution  in  this  country. 

What  is  the  best  way?  The  farmer,  of  course,  can  not  take  his  product  to  the  con- 
sumer. He  can  not  do  that  to  any  considerable  extent,  at  least;  he  can  not  get  in 
touch  with  the  market  places,  but  he  can  get  in  touch  with  honorable  men  like  your- 
selves, who  can  help  save  him  money  on  his  transportation;  who  can  get  the  best  prices 
for  his  products;  and  who  can,  with  him,  and  with  the  means  you  can  command, 
enable  some  of  that  $7,000,000,000  a  year  to  go  to  benefit  the  consumers  of  the  coun- 
try, and  some  to  benefit  the  producers  of  the  country  at  the  same  time. 

A  tremendous  amount  of  money  for  the  farmers,  owing  $6,000,000,000.  We  can 
not  comprehend  what  it  is.  You  may  get  an  idea  of  it  by  this  illustration:  There 
have  been  just  about  1,000,000,000  minutes  since  the  birth  of  Christ,  so  that  the 
farmers  of  this  country  now  owe  $6  for  every  minute  of  the  Christian  era.  You  must 
relieve  that  situation. 

And  here  is  what  the  President  says,  in  his  powerful  address  delivered  on  the  2d  of 
December  to  both  Houses  of  Congress: 

"I  present  to  you,  in  addition,  the  urgent  necessity  that  special  provision  be  made 
also  for  facilitating  the  credits  needed  by  the  farmers  of  the  country.  The  pending 
currency  bill  does  the  farmers  a  great  service.  It  puts  them  upon  an  equal  footing 
with  other  business  men  and  masters  of  enterprise,  as  it  should;  and  upon  its  passage 
they  will  find  themselves  quit  of  many  of  the  difficulties  which  now  hamper  them  in 
in  the  field  of  credit.  The  farmers,  of  course,  ask  and  should  be  given  no  special 
privilege,  such  as  extending  to  them  the  crdit  of  the  Government  itself.  What  they 
need  and  should  obtain  is  legislation  which  will  make  their  own  abundant  and  sub- 
stantial credit  resources  available  as  a  foundation  for  joint,  concerted  local  action  in 
their  own  behalf  in  getting  the  capital  they  must  use.  It  is  to  this  we  should  now 
address  ourselves. 

"It  has,  singularly  enough,  come  to  pass  that  we  have  allowed  the  industry  of  our 
farms  to  lag  behind  the  other  activities  of  the  country  in  its  development.  I  need  not 
stop  to  tell  you  how  fundamental  to  the  life  of  the  Nation  is  the  production  of  its  food. 
Our  thoughts  may  ordinarily  be  concentrated  upon  the  cities  and  the  hives  of  industry, 
upon  the  cries  of  the  crowded  market  place  and  the  clangor  of  the  factory,  but  it  is 
from  the  quiet  interspaces  of  the  open  valleys  and  the  free  hillsides  that  we  draw  the 
sources  of  life  and  of  prosperity — from  the  farm  and  the  ranch,  from  the  forest  and  the 
mine.  Without  these  every  street  would  be  silent,  every  office  deserted,  every  factory 
fallen  into  disrepair.  And  yet  the  farmer  does  not  stand  upon  the  same  footing  with 
the  forester  and  the  miner  in  the  market  of  credit.  He  is  the  servant  of  the  seasons. 
Nature  determines  how  long  he  must  wait  for  his  crops  and  will  not  be  hurried  in  her 
processes.  He  may  give  his  note,  but  the  season  of  its  maturity  depends  upon  the 
season  when  his  crop  matures — lies  at  the  gates  of  the  market  where  his  products  are 
Bold.  And  the  security  he  gives  is  of  a  character  not  known  in  the  broker's  office  or  as 
familiarly  as  it  might  be  on  the  counter  of  the  banker. 

' '  The  Agricultural  Department  of  the  Government  is  seeking  to  assist  as  never  before 
to  make  farming  an  efficient  business,  of  wide  cooperative  effort,  in  quick  touch  with 
the  markets  for  foodstuffs.  The  farmers  and  the  Government  will  henceforth  work 
together  as  real  partners  in  this  field,  where  we  now  begin  to  see  our  way  very  clearly 
and  where  many  intelligent  plans  are  already  being  put  into  execution.  The  Treasury 
of  the  United  States  has,  by  a  timely  and  well-considered  distribution  of  its  deposits, 
facilitated  the  moving  of  the  crops  in  the  present  season  and  prevented  the  scarcity  of 


RURAL    CREDITS.  35 

available  funds  too  often  experienced  at  such  times.  But  we  must  not  allow  ourselves 
to  depend  upon  extraordinary  expedients.  We  must  add  the  means  by  which  the 
farmer  may  make  his  credit  constantly  and  easily  available  and  command  when  he 
will  the  capital  by  which  to  support  and  expand  his  business.  We  lag  behind  many 
other  great  countries  of  the  modern  world  in  attempting  to  do  this.  Systems  of  rural 
credit  have  been  studied  and  developed  on  the  other  side  of  the  water  while  we  left 
our  farmers  to  shift  for  themselves  in  the  ordinary  money  market.  You  have  but  to 
look  about  you  in  any  rural  district  to  see  the  result,  the  handicap  and  embarrassment 
which  have  been  put  upon  those  who  produce  our  food. 

"Conscious  of  this  backwardness  and  neglect  on  our  part,  the  Congress  recently 
authorized  the  creation  of  a  special  commission  to  study  the  various  systems  of  rural 
credit  which  have  been  put  into  operation  in  Europe,  and  this  commission  is  already- 
prepared  to  report.  Its  report  ought  to  make  it  easier  for  us  to  determine  what  methods 
will  be  best  suited  to  our  own  farmers.  I  hope  and  believe  that  the  committees  of  the 
Senate  and  House  will  address  themselves  to  this  matter  with  the  most  fruitful  results, 
and  I  believe  that  the  studies  and  recently  formed  plans  of  the  Department  of  Agri- 
culture may  be  made  to  serve  them  very  greatly  in  their  work  of  framing  appropriate 
and  adequate  legislation.  It  would  be  indiscreet  and  presumptious  in  anyone  to 
dogmatize  upon  so  great  and  many-sided  a  question,  but  I  feel  confident  that  common 
counsel  will  produce  the  results  we  must  all  desire." 

That  is  the  position  of  the  President.  Bills  have  been  prepared.  I  submitted  one 
last  August,  and  that  was  referred  to  a  committee;  but  I  am  not  so  wedded  to  it  that  I 
am  not  perfectly  willing  to  take  any  other  measure  that  will  bring  about  this  relief. 
The  measure  will  provide  for  the  establishment  of  a  system  of  farm-land  banks,  whereby 
the  farmer  can  get  financial  accommodation  for  productive  purposes  on  long  term, 
with  a  low  rate  of  interest  and  with  the  privilege  of  reducing  the  principal  by  small 
payments  as  he  pays  his  interest.  For  instance,  if  he  gets  a  loan  at  4f  per  cent  and 
pays  6f  per  cent  semiannually,  he  will  pay  off  and  discharge  the  entire  debt  hi  25 
years. 

Now,  gentlemen,  I  want  to  appeal  to  you  as  intelligent  business  men,  who  want  to 
see  the  country  prosper  and  grow,  as  it  should  and  as  it  will  in  spite  of  hampered  con- 
ditions, do  not  you  favor  a  proposition  like  that?  If  you  do,  do  not  you  think  it  is 
worth  while  to  indorse  it  by  some  resolution  which  would  have  its  weight  in  Congress? 
I  think  it  will  help  if  you  will  favorably  consider  it. 

I  have  in  as  condensed  way  as  possible  endeavored  to  outline  the  origin  of  this 
movement  and  the  extent  and  scope  of  it  and  to  indicate  how  this  great  economic 
question  of  rural  credits  ought  to  be  dealt  with.  The  Federal  reserve  act  does  not  and 
could  not  be  made  to  meet  the  situation.  No  strictly  commercial  banking  system  can. 
A  supplementary  system  is  required.  The  Federal  reserve  act  goes  as  far  as  safety 
would  permit.  But  under  the  privilege  to  loan  on  farm  lands  not  over  $200,000,000 
would  be  available.  This  amount  would  be  decidedly  inadequate  to  serve  the  in- 
terests of  agriculture.  The  rediscounting  privilege  is  so  restricted  as  to  be  of  somewhat 
uncertain  value  and  surely  is  insufficient.  A  wise  system  of  agricultural  credit  will 
undoubtedly  be  a  highly  effective  instrument  of  economic  and  social  conservation. 

I  am  going  to  leave  the  subject  with  you  with  this  further  thought: 

England  might  take  first  place  in  the  naval  world,  Germany  might  take  first  place  in 
the  military  world,  but  the  United  States  takes  first  place  in  the  commercial  world. 
And  that  is  more  important  than  the  other  two,  for  the  simple  reason  that  peace  lasts 
longer  than  war.  And  that  nation  which  is  in  that  position,  supreme  in  its  commerce 
and  its  trade,  is  in  position,  without  bullying,  to  dictate  in  peace  or  in  war.  Its 
weapon  is  trade,  and  it  will  not  likely  need  any  other.  That  nation  which  produces  a 
surplus  of  the  prime  necessities  of  life,  which  other  nations  must  come  to  it  to  get  or 
go  hungry  and  naked,  is  in  position  of  supreme  power — and  that  nation  is  the  United 
States.  So  long  as  that  condition  continues  her  position  is  assured  while  civilization 
endures. 

Senator  Fletcher.  In  that  connection,  Mr.  Chairman,  I  would 
like  to  say  that  the  minority  views  of  certain  members  of  the  Ameri- 
can commission  will  be  printed  as  a  part  of  Senate  Document  261,  and 
may  be  found  there.  I  find  that  I  have  not  a  corrected  copy  of  the 
minority  views  available;  and  it  will  hardly  be  practicable  to  get  it  in 
time  to  have  it  inserted  in  this  record. 

I  have  here  a  table,  prepared  by  Dr.  A.  L.  Butt,  of  Adairville, 
Ky.,  which  may  be  of  interest  in  this  connection.  It  is  called 
"Amortization  table,"  which  he  says  is  the  result  of  a  study  of  years 


36 


RURAL    CREDITS. 


on  this  subject;  and  it  gives  the  idea  pretty  dearly  what  is  meant 
1>;  th"  amortization  feature  in  these  mortgages  according  to  his 
plan. 

Senator  Hollis.  Without  objection,  that  will  be  incorporated  in 
the  record. 

(The  paper  referred  to  is  as  follows:) 

Amortization  table  for  note  or  bond  of  $1,000. 
[Rate  of  interest,  4£  per  cent;  annual  payment,  $67,439;  time,  25  ; 


War. 

Principal. 

Interest. 

Principal 

retired 
each  year 
or  period. 

Total 

amount  re- 

tired  up  to 

end  of  each 

year  or 

period. 

Unpaid 
principal 

at  end  oi' 
each  year 
or  period. 

1 

81,000.00 

$45.00 

S22.  44 

$22.  44 

$977.  .V, 

2 

977.56 

43.99 

23.45 

45.89 

954.11 

3 

954. 11 

42.93 

24.50 

70. 39 

929.61 

4 

929.61 

41.83 

25.60 

95.99 

904.01 

5 

904.01 

40.68 

26.76 

122.  75 

877.25 

6 

877.25 

39.48 

27.96 

150. 71 

S49.29 

7 

849.29 

38.22 

29.22 

179.93 

S20.07 

8 

S20.  07 

36.90 

30.54 

210.  47 

789. 53 

9 

789. 53 

35.53 

31.91 

242.  38 

757. 62 

10 

757. 62 

34.09 

33.35 

275.  73 

724.  27 

11 

724.  27 

32.59 

34.85 

310. 5S 

689. 42 

12 

689. 42 

31.02 

36.41 

346.99 

»;53. 01 

13 

653. 01 

29.39 

38.05 

385.04 

614.96 

14 

614. 96 

27.67 

39.77 

424. 81 

575. 19 

15 

575. 19 

25.88 

41.56 

466. 37 

533.  63 

16 

533.  63 

24.01 

43.  43 

509. 80 

490.  20 

17 

490.20 

22.06 

45.38 

555. 18 

444.82 

18 

444.82 

20.02 

47.42 

602.60 

397.40 

19 

397.40 

17.88 

49.56 

652. 16 

347.84 

20 

347. 84 

15.65 

51.79 

703. 95 

296.05 

21 

296.05 

13.32 

54. 12 

758.07 

241.93 

22 

241.93 

10.89 

56.55 

814. 62 

185.38 

23 

185. 38 

8.34 

59.10 

873. 72 

126. 28 

24 

126.  28 

5.68 

61.75 

935.  47 

64. 53 

25 

64.53 

2.90 

64.53 

1,000.00 

(l) 

1,000.00 

1  Nothing. 

Senator  Fletcher.  Some  of  the  results  which  may  reasonably  be 
expected  to  follow  from  the  proposed  legislation  may  be  given  as — 

(1)  Supplying  those  engaged  in  agricultural  pursuits  with  capital 
for  the  development  and  improvement  of  the  industry. 

(2)  Affording  financial  facilities  for  temporary  needs  to  increase 
production  and  obtain  supplies. 

(3)  To  make  available  the  credit  resources  of  farmers  for  produc- 
tive purposes,  for  acquiring  homes,  and  for  refunding  existing  in- 
debtedness, all  at  much  more  favorable  rates  of  interest  and  on  teims 
adapted  to  the  nature  of  the  industry. 

(4)  To  hold  in  the  community  the  money  made  there,  and  afford 
depositories  where  savings  can  be  kept  and  put  in  circulation.  It  is 
claimed,  for  instance,  that  80  per  cent  of  the  farm-land  bonds  in 
Saxony  are  held  by  residents. 

(5)  To  bring  outside  capital  to  places  where  it  is  needed.  Mr. 
Lubin  states  that  the  land-mortgage  bonds  in  Germany  are  quoted 
as  high  and  find  as  ready  a  market  as  the  Government  bonds.  Per- 
haps this  varies.  In  some  localities  they  are  not  so  high  and  are  not 
in  such  good  demand,  but  in  some  instances  I  think  they  are  even 
higher. 


RURAL    CREDITS.  37 

(6)  Enable  the  farmer  to  use  the  credit  which  he  should  have, 
because  of  abundant  resources,  which,  under  present -conditions,  he 
can  often  avail  himself  of,  if  at  all,  only  at  a  ruinous  cost. 

(7)  Introduces  at  a  vital  point  the  tremendously  valuable  principle 
of  cooperation  into  our  rural  life. 

(8)  Induce  organization  among  our  farmers  in  their  own  interests 
and  lead  to  self-help,  independence,  and  self-reliance. 

(9)  Tend  toward  solving  the  problem  of  economic  distribution,  and 
benefit  both  the  producer  and  consumer. 

(10)  If  the  French  farmer  can  get  the  money  he  needs  at  3^  per 
cent  and  the  German  farmer  at  4  per  cent,  there  is  no  good  reason  why 
our  farmers  should  pay  8  to  24  per  cent,  and  the  principle  funda- 
mental to  all  mortgage  banks  of  Europe  is  the  one  proposed  here, 
distinguishing  farm-land  banks  from  commercial  banks — (1)  the  issue 
of  bonds  based  on  the  collective  value  or  security  of  many  individual 
mortgages  on  real  estate;  and  (2)  compulsory  amortization — all  under 
Government  supervision. 

(11)  Tenants  will  become  owners. 

(12)  Agriculture  will  become  more  remunerative  and  rural  life 
more  attractive;  good  roads,  telephones,  rural  free-delivery  mail, 
social  life,  improved  machinery  when  needed,  broader  markets, 
intensive  cultivation  when  advisable,  education,  will  all  be  advanced 
by  the  general  increase  of  facilities  and  betterment  of  conditions. 

If  you  have  further  time,  Mr.  Chairman,  perhaps  it  would  be  better 
to  occiip}^  it  by  questions  and  answers. 

Senator  Hollts.  Senator  Fletcher,  I  would  like  to  ask  you  one  or 
two  questions  and  the  others  very  likely  do  also. 

Do  you  think  it  is  advisable  at  this  session  to  attempt  anything 
more  along  the  lines  you  have  indicated  than  the  rural  credits  bill? 
That  is,  do  you  think  we  had  better  attempt  any  legislation  looking 
to  a  cooperative  credit  system  ? 

Senator  Fletcher,  Well,  I  will  say  frankly,  Mr.  Chairman,  ray 
impression  at  first  was,  and  that  I  attempted  to  do  in  Senate  bill 
2909,  to  provide  for  both  the  long-term  land-mortgage  credit  and 
the  personal  or  short-term  credit  features  in  one  bill.  Our  commis- 
sion thought  it  not  wise  to  do  that,  and  I  finally  became  convinced 
that  if  both  were  attempted  perhaps  it  was  better  to  have  them  in 
separate  measures,  and  the  more  I  went  into  the  subject  and  con- 
ferred with  my  associates,  particularly  the  subcommittee,  Congress- 
man Moss  and  Dr.  Coulter,  while  we  were  engaged  in  preparing  this 
report,  Document  380,  the  more  I  became  impressed  with  the  notion 
that  the  present  system,  probably,  and  especially  after  the  passage 
of  the  Federal  reserve  act,  and  our  country  banks  as  they  are  organ- 
ized now,  had  better  be  left  to  take  care  of  that  personel  credit 
feature;  and  I  felt  that  the  country  banks  might  oppose,  in  the  first 
place,  legislation  along  that  line,  and  their  opposition  would  count 
pretty  heavily  against  us.  And  then  I  believe  the  country  banks— 
and  what  I  have  said  I  did  not  mean  at  all  to  appear  as  criticizing 
the  banks,  any  of  them,  either  State  or  National,  and  what  sugges- 
tions I  have  made  in  that  direction  as  showing  the  system  to  be  insuffi- 
cient to  meet  the  needs  of  agriculture,  is  not  a  criticism  at  all,  in 
fact,  but  it  is  a  statement  of  fact  regarding  the  system,  and  what 
must  obtain  under  a  commercial  system.  The  banks  have  done  the 
best  they  could,  no  doubt,  and  it  may  be  that  the  local  banks  now, 


38  RURAL    CREDITS. 

especially  with  this  provision  for  rediscount  under  the  Federal  reserve 
act,  will  be  able  to  take  caro  reasonably  of  that  personal  or  short- 
credit  feature  that  we  will  report  on  a  little  bit  later.  However, 
if  wo  can  do  it,  I  think  it  would  be  well  to  go  on  with  both  of  these 
measures  now,  as  long  as  we  have  got  the  subject  up;  and  one  some- 
what involves  the  other,  and  a  study  of  one  involves  a  study  of  the 
other,  I  think,  to  some  extent,  and  one  is  supplemental  of  the  other. 
I  am  inclined  to  think  that  if  we  can  do  so  we  ought  to  proceed  with 
both  of  them. 

Senator  Hollis.  Do  you  not  think  that  the  long-term  feature  and 
the  short-term  feature  ought  to  be  incorporated  in  one  bill,  if  we  can, 
so  as  not  to  have  them  overlap  ? 

Senator  Fletcher.  I  say  that  was  my  first  impression,  but  I  have 
rather  changed  my  view  about  that,  and  I  am  inclined  to  think  that 
perhaps  they  ought  to  be  separated. 

Senator  Hollis.  You  would  not  have  separate  banks,  would  you? 

Senator  Fletcher.  Yes;  separate  banks  and  a  separate  system. 
Of  course,  the  State  banks  that  are  now  existing  could  perhaps  reor- 
ganize or  come  in  under  that  sort  of  a  system,  but  the  idea  would 
be  under  that  system  personal  or  short-term  credit  banks  would  be 
organized  in  various  communities,  wherever  the}7  are  needed,  by  10 
or  more  farmers  getting  together.  Perhaps  the  capital  need  not  be 
over  $2,000  or  $3,000  to  meet  local  needs.  Then,  after  a  certain 
number  of  these  banks  are  organized,  they  should  be  tied  up  with 
some  central  bank — we  call  it  "central,"  although  that  is  not  a  very 
popular  name;  you  might  call  it  a  "federated"  bank — in  the  State 
where  these  banks  are  organized,  and  that  bank  would  become  a 
member  bank  of  the  Federal  reserve  system,  and  in  that  way  the 
farmers'  bank  is  tied  up  with  the  present  Federal  reserve  system. 
Of  course  with  a  number  of  banks  in  the  State,  the  federated  bank, 
representing  all  these  banks  and  created'  by  these  local  banks  would 
have  a  capitalization  of  $25,000  or  more,  so  that  it  would  be  entitled 
to  become  a  member  under  the  present  act. 

Mr.  Platt.  Would  you  have  to  amend  the  Federal  reserve  act  in 
order  to  allow  that  to  be  done? 

Senator  Fletcher.  Would  we  have  to  do  that  ? 

Mr.  Platt.  Does  the  Federal  reserve  act  not  provide  that  no 
member  bank  can  give  the  privileges  of  this  system  to  any  non- 
member  bank,  at  the  present  time? 

Senator  Fletcher.  Well,  this  central  bank  would  be  entitled  to 
membership,  entitled  to  become  a  member  of  that  system.  It  does 
not  need  to  make  all  of  these  local  banks  members  at  all,  but  the 
local  banks  will  do  business  through  that  central  bank.  I  hardly 
think  it  would  be  necessary  to  amend  the  Federal  reserve  act. 

Mr.  Platt.  I  supposed  the  purpose  of  that  provision  in  the  Fed- 
eral reserve  act  was  just  exactly  that,  to  prevent  any  member  bank 
from  allowing  nonmember  banks  to  do  business  with  the  Federal 
reserve  system  through  any  member  bank. 

(■  Senator  Hollis.  They  might  make  loans  directly,  while  they  would 
not  be  entitled  to  the  discount.  I  think  it  could  he  worked  out  that 
way. 

Senator  Fletcher.  Yes.  We  have  not  fully  agreed  on  the  recom- 
mendations regarding  personal  credits  yet.  We  have  not  finished 
our  report,  and  there  may  be  things  that,  of  course,  we  will  have  to 


RURAL    CREDITS.  39 

make  harmonize  with  the  present  aet.  I  am  not  sure  that  we  would 
have  to  amend  it  in  any  way.  That  is  just  what  we  had  in  mind  in 
reference  to  these  personal-credit  banks,  to  have  them  organized  by 
farmers,  and  then  the  banks  themselves  organize  a  main  bank,  a 
larger  bank,  with  larger  capital,  in  the  same  State,  and  that  that  bank 
might  become  a  member  of  the  Federal  reserve  system. 

Mr.  Brown.  Senator,  would  not  the  mortgages  securing  the  long 
term  loans  be  prejudicial  and  destroy  the  security  of  the  borrower 
more  than  the  short-term  loan?  That  is,  would  it  not  affect  his 
credit  ?     What  security  is  offered  in  your  bill  for  the  short-term  loans  ? 

Senator  EYetcher.  We  would  not  loan  on  real  estate  at  all. 

Mr.  Brown.  I  see. 

Senator  Fletcher.  It  would  be  the  indorsement  on  the  paper  by 
members.  These  banks  would  do  business  with  the  members  of  the 
bank  entirely  and  would  not  loan  on  real  estate. 

Mr.  Brown.  No,  but  the  borrower,  having  put  in  his  real  estate  to 
secure  the  long-term  loan,  as  security  to  secure  a  long-term  loan, 
would  not  that  affect  his  credit  in  securing  a  short-term  loan,  because 
his  property  was  already  mortgaged  ? 

Senator  Fletcher.  I  do  not  think  so.  I  think,  on  the  other 
hand,  if  his  long-term  loan  was  rather  in  the  nature  of  an  investment, 
as  we  believe  it  would  become,  where  the  terms  were  such  as  he 
ought  to  have,  he  would  be  in  better  position  to  pay  off  his  personal 
obligations  than  if  he  did  not  have  the  long-term  loan. 

Senator  Owen.  He  would  have  a  productive  property,  hi  your 
opinion,  from  which  he  could  make  the  arrangements  necessary  to 
pay  a  short-term  loan  ? 

Senator  Fletcher.  Exactly. 

Mr.  Hayes.  Senator,  I  judge  from  your  statement  that  you  regard 
the  long-term  loan  as  vastly  more  important  than  the  short  term  ? 

Senator  Fletcher.  I  do. 

Mr.  Hayes.  Let  me  ask  you  another  question:  Do  you  think  it 
would  be  an  easy  matter  to  induce  cooperative  banking,  along  the 
lines  in  operation  in  Europe,  among  the  farmers  of  this  country? 
Do  you  not  think  it  is  going  to  take  a  good  deal  of  time  and  a  lot  of 
education  ? 

Senator  Fletcher.  I  think  that  is  very  largely  true,  Hr.  Hayes. 
I  think  it  is  going  to  take  time.  It  took  nearly  40  years  to  establish 
the  system  in  Europe,  I  believe. 

Mr.  Hayes.  Therefore  it  follows  that  your  suggestion  that  the 
system  should,  if  possible,  be  kept  separate,  and  perhaps 

Senator  Fletcher  (interposing).  Yes,  and  that  is  another  point 
in  favor  of  keeping  them  separate,  I  think. 

Mr.  Hayes.  Yes. 

Senator  Fletcher.  We  provide  in  this  bill  we  have  introduced, 
you  know,  for  a  cooperative  feature  ? 

Mr.  Hayes.  Yes,  I  know. 

Mr.  Woods.  Senator,  how  about  the  expenses  in  running  two 
systems  compared  to  the  overhead  expenses  in  case  that  they  were 
united;  would  it  not  be  larger? 

Senator  Fletcher.  It  seems  to  me  so,  and  that  was  one  reason  I 
first  thought  that  they  ought  to  be  contained  in  the  same  measure; 
but  I  am  a  little  afraid  that  the  expenses  of  supervision  under  the 


40  RURAL    CREDITS. 

two  separate  systems  will  be  greater  than  they  would  be  under  one 
system. 

Mr.  Hayes.  Would  it  be  absolutely  necessary  that  there  should  be 
two  supervisions  ? 

Senator  Fletcher.  We  will  have  to  provide  for  supervision,  of 
course. 

Mr.  Hayes.  Yes,  supervision;  but  the  same  officials,  the  same 
head,  could  supervise  both  systems. 

Senator  Fletcher.  Yes,  that  may  be.  But  that  was  one  thought 
that  I  had  on  the  subject,  that  we  were  going  to  run  into  expenses 
by  having  two  systems;  but  I  do  not  know  that  that  would  neces- 
sarily follow. 

Mr.  Hayes.  I  do  not  think  it  need  to. 

Mr.  Woods.  Awhile  ago  I  understood  you  to  suggest  that  the  plan 
proposed  by  the  commission's  report  is  the  same,  practically,  as  the 
plan  now  in  force  in  foreign  countries. 

Senator  Fletcher.  Well,  no;  I  would  not  say  that.  It  is  really 
an  American  plan.  It  is  different  from  any  other.  It  is  neither  the 
Landschaften,  nor  is  it  the  Schulze-Delitzsch.  nor  is  it  the  Credit 
Foncier,  but  we  have  got  some  ideas  from  all  of  them. 

Mr.  Woods.  Do  you  propose  any  Government  aid  in  any  way  ? 

Senator  Fletcher.  No;  none  at  all. 

Mr.  Woods.  Is  there  any  other  Government  that  has  established 
such  a  system  that  does  not  get  Federal  aid  in  some  form  or  other  ! 

Mr.  Hayes.  The  Landschaften  does  not. 

Senator  Fletcher.  A  great  many  of  them  do  not  have  Govern- 
ment aid. 

Mr.  Woods.  Take  the  two  classes  of  loans,  in  some  form  or  other, 
do  they  not  get  Government  aid  ? 

Senator  Fletcher.  Under  the  French  system  there  is  Government 
aid,  and  in  some  States  in  Germany  there  is  to  some  extent  Govern- 
ment aid,  but  that  does  not  obtain,  as  you  suggest,  Mr.  Hayes,  in  the 
Landschaften  system. 

Mr.  Hayes.  In  the  French  system,  Senator,  the  Government  aid 
is  not  extensive.  It  only  amounts  to  something  like  $2,000,000, 
except  the  deposits — the  Government  carries  deposits. 

Senator  Fletcher.  Yes;  about  82,000,000,  I  think. 

Mr.  Hayes.  That  is  all:  nothing  serious. 

Mr.  Woods.  The  deposits  are  an  aid,  are  they  not  ? 

Mr.  Hayes.  Sometimes.  Sometimes  they  are  not.  They  are  not 
steady,  of  course. 

Senator  Fletcher.  Here  we  provide  for  exemption  from  taxation, 
double  liability  of  stockholders,  we  provide  for  Government  super- 
vision. Each  one  of  these  banks  will  have  a  fiduciary  agent  of  the 
Government,  having  joint  control  of  the  mortgages  that  are  the  foun- 
dation of  the  bond,  and  in  that  way  the  Government  supervises  the 
operation  of  the  system. 

Mr.  Woods.  Do  you  think  that  exemption  from  taxation  is  a 
proper  plan  ? 

Senator  Fletcher.  I  do.     I  think  that  is  very  important. 

Senator  Hollis.  Senator  Fletcher,  do  you  think  of  anything  fur- 
ther that  you  want  to  add  before  any  general  questioning? 

Senator  Fletcher.  No;  I  do  not  know  of  anything  further. 


RURAL    CREDITS.  41 

Senator  Hollis.  Mr.  Bulkley,  have  you  anything  especially  you 
Mould  like  to  ask  the  Senator?  . 

Mr.  Bulkley.  No;  I  do  not  care  to  question  him  now. 

Senator  Hollis.  Is  there  anyone  else  who  wants  to  ask  the  Senator 
some  questions  ? 

Senator  Fletcher.  This  subject  is  quite  fully  covered  in  this 
report,  Senate  Document  380. 

Mr.  Weaver.  I  want  to  ask  a  few  questions. 

Where  is  the  money  coming  from  to  establish  this  system  of  banks  ? 
I  mean,  suppose  that  it  seems  to  be  a  good  proposition  for  people  to 
invest  money  in  bank  stock,  there  is  no  provision  of  any  kind  for 
Government  aid.  Now,  the  Federal  reserve  bank  system  does  make 
a  contingent  provision  for  Government  aid.  For  instance,  it  pro- 
vides that  if  this  system  of  banks  is  not  inviting  enough  for  them  to 
come  into  it,  and  a  sufficient  number  do  not  come  into  it  to  establish 
the  system,  the  Government  itself  shall  buy  the  stock,  shall  take 
the  stock,  and  individuals  may  subscribe  to  the  stock.  Is  that 
not  correct.  Senator  Owen,  that  individuals  may  subscribe  to  the 
stock  if  the  different  national  banks  can  not  or  do  not  go  into  it  on 
a  scale  large  enough  to  establish  it  and  then  if  the  banks  of  the  coun- 
try and  individuals  do  not  furnish  enough  money  to  buy  the  stock, 
that  then  the  Government  itself  will  buy  the  stock?  What  would  be 
the  objection  of  a  system  or  proposition  of  contingent  Government 
aid;  that  is,  Government  aid  depending  upon  the  fact  that  if  it  does 
not  appear  attractive  enough  for  outside  capital  to  invest  in  it  and 
give  it  a  start  and  make  it  a  success,  what  is  the  objection  to  the 
Government  helping  establish  a  system  of  agricultural  credit? 
While  I  do  not  believe  in  giving  special  favors  to  the  farms  or  special 
benefits  to  any  class,  they  certainly  ought  to  be  on  the  same  basis  of 
Government  favoritism  as  commercial  banks,  it  seems  to  me. 

Senator  Hollis.  If  you  will  pardon  me,  Senator,  I  can  clear  up 
the  Federal  reserve  act  part  of  that.  I  was  responsible  for  that 
myself,  having  the  Government  take  stock  in  case  the  banks  did  not 
take  it  and  the  public  did  not  take  enough  to  make  it  workable.  I 
did  not  do  it  wnith  any  idea  that  the  Government  would  do  it,  but 
merely  to  show  the  banks  that  we  meant  business,  and  if  they  kept 
their  talk  about  staying  out  we  were  going  to  put  it  through  any- 
how. I  do  not  think  it  is  altogether  defensible,  but  it  seemed  to  be 
a  good  thing  to  do,  a  politic  thing  to  do,  perhaps,  at  that  time,  and 
I  should  be  sorry  to  have  that  provision  of  the  Federal  reserve  act 
made  an  argument  for  doing  the  same  thing  here,  although  I  think 
likely  it  will  turn  out  to  be  the  best  thing  to  do.  But  I  want  to  say 
that  I  was  responsible  for  it,  and  I  did  not  do  it  with  any  idea  that  it 
would  ever  be  availed  of.     I  do  not  think  it  will  be. 

Mr.  Weaver.  I  think  that  is  one  of  the  most  salutary  provisions 
in  the  entire  bill. 

Senator  Hollis.  I  thought  it  was  fair  to  Senator  Fletcher  to  ex- 
plain that.     I  would  be  very  glad  to  hear  his  views. 

Senator  Fletcher.  Of  course,  in  answering  the  first  part  of  the 
question,  where  the  money  is  to  come  from  to  start  these  banks, 
they  are  all  share  banks.  That  is,  they  are  not  merely  and  purely 
cooperative  institutions,  you  understand,  but  the  stock  is  sold  and 
the  proceeds  of  the  stock  become  the  capital  upon  which  they  do- 
business,  and  that  is  where  the  money  comes  from. 


42  RURAL    CREDITS. 

Senator  Owen.  The  situation,  I  think,  that  Mi*.  Weaver  had  in 
view,  probably  was  that  if  the  stock  did  not  find  a  market,  then 
what  ? 

Senator  Fletcher.  Well,  I  see.  Of  course  if  they  can  not  sell  the 
stock  they  can  not  organize  the  bank.     That  is  all  there  is  to  that. 

Senator  IIollis.  It  is  just  like  starting  a  cooperative  creamery. 
Unless  the  public  spirit  is  strong  enough  in  the  community,  if  the 
community  docs  not  need  it  enough  so  that  someone  is  willing  to 
take  the  risk  and  furnish  the  money,  they  can  not  have  it.  Then, 
Mr.  Weaver's  idea  is  whether  you  think  it  would  be  advisable  for  the 
Government  to  do  it. 

Senator  Fletcher.  I  do  not  feel  inclined  to  have  the  Govern- 
ment have  any  more  to  do  with  it  than  simply  supervise  it. 

Mr.  Platt.  If  the  Government  should  do  that,  they  would  fall  in 
line.  It  would  have  a  tendency  to  make  the  banks  fall  in  line 
whether  they  want  to  or  not. 

Senator  Fletcher.  Yes.  I  am  rather  opposed  to  Government 
aid.  I  do  not  think  they  ought  to  fall  back  on  the  Government  at 
all.  I  am  a  great  believer  in  the  principle  of  self-help  and  self-reli- 
ance, and  I  believe  the  farmers  can  organize  these  banks  where  they 
need  them,  and  they  will  do  it  because  they  have  the  resources  to 
do  it  with. 

Mr.  Hayes.  I  think  they  will  too. 

Mr.  Seldomridge.  What  is  the  smallest  capital? 

Senator  Fletcher.  $10,000. 

Mr.  Seldomridge.  And  with  a  capital  stock  of  $10,000,  what 
would  be  the  loaning  power  '. 

Senator  Fletcher.  Fifteen  times  that. 

Mr.  Seldomridge.  Fifteen  times  ? 

Senator  Fletcher.  Fifteen  times. 

Mr.  Seldomridge.  xVt  $150,000? 

Senator  Fletcher.  They  could  issue  bonds  to  that  amount. 

Mr.  Seldomridge.  To  the  amount  of  $150,000? 

Senator  Fletcher.  Yes. 

Mr.  Seldomridge.  What  interest  would  these  bonds  bear  \ 

Senator  Fletcher.  Well,  of  course,  that  depends.  The  mort- 
gage shall  not  draw  more  than  1  per  cent  more  than  the  bonds.  That 
1  per  cent  is  to  be  the  maximum  for  administration  purposes. 

Mr.  Seldomridge.  Do  you  think  it  would  be  possible  to  provide 
by  legislation  for  an  equalization  of  interest  throughout  the  country, 
or  do  you  look  for  it  to  be  different  ? 

Senator  Fletcher.  I  look  for  a  different  interest  charge.  In  this 
bill  wc  provide  for  the  banks  in  each  State,  and  the  bank  of  one  State 
is  limited  to  that  territory  for  its  business;  it  can  not  do  business  in 
another  State.  That  is  because  of  the  different  State  laws  regarding 
registration,  regarding  titles,  regarding  foreclosure  proceedings,  re- 
garding exemptions,  taxes,  and  all  that  sort  of  thing.  We  have  to 
have,  I  think,  the  bank  in  one  State  confined  to  business  in  that  State, 
and  the  bonds  to  be  issued  will  be  bonds  from  that  State,  you  know. 
I  should  think  perhaps  that  the  interest  rate  will  vary  in  different 
States.  I  do  not  think  we  can  expect  that  the  same  interest  will 
obtain  all  over  the  country.  Eventually,  however,  let  me  say,  I 
believe  that  this  rate  of  interest  will  become  largely  equalized  be- 
cause if,  for  instance,  in  your  State  you  have  to  sell  your  bonds  at  6 


RURAL    CREDITS.  43 

per  cent,  and  in  another  State,  like  Illinois,  for  instance,  4  per  cent, 
naturally  the  Illinois  bonds  will  not  find  the  market  that  the  6  per 
cent  bonds  will,  but  eventually  there  is  going  to  be  a  sort  of  equaliza- 
tion. 

Mr.  Seldomridge.  The  point  I  have  in  mind  is  this,  will  the  ten- 
dency be  to  raise  the  price  of  bonds  in  the  States  where  the  lower 
rates  of  interest  prevail  or  will  it  be  the  tendency  to  bring  down  the 
prices  of  bonds  in  the  States  where  the  higher  interest  would  prevail  ? 
In  other  words,  if  the  farm  bonds  in  Colorado  are  selling  at  say  6  per 
cent,  and  Illinois  bonds  selling  for  4  per  cent,  would  there  not  be  a 
tendency  to  raise  the  Illinois  bonds,  and  would  they  not  be  obliged 
to  increase  the  rate  of  interest  in  these  States  where  the  lower  rates 
prevail  in  order  to  find  a  market  for  their  bonds? 

Senator  Fletcher.  I  do  not  think  that.  I  think  the  tendency 
will  be  the  other  way,  to  lower  the  rates  everywhere,  because  these 
bonds,  according  to  the  experience  in  European  countries — and  we 
have  every  reason  to  believe  that  will  be  the  case  here — will  be 
found  safe  investments,  absolutely,  and  the  people  will  want  them, 
and  the  local  people  are  going  to  take  them  largely. 

Mr.  Seldomridge.  Of  course  a  higher  rate  of  interest  will  natur- 
ally prevail  in  all  the  States  where  there  is  less  development  of  farm 
property  and  where  the  farms  may  not  be  quite  so  secure. 

Senator  Fletcher.  Where  their  crops  are  more  or  less  uncertain, 
and  where  they  have  drouths,  and  all  that  sort  of  thing,  it  may  be 
they  will  have  a  higher  rate  of  interest  to  pay. 

Mr.  Seldomridge.  What  will  be  the  security  back  of  these  farm 
bonds  ?     What  is  the  security  provided  for  ? 

Senator  Fletcher.  Mortgages  on  lands,  appraised  by  competent 
appraisers,  and  the  loans  not  exceeding  50  per  cent  of  the  appraised 
value.  Fifty  per  cent  of  the  value  of  improved  lands  and  40  per  cent 
of  unimproved  lands. 

Mr.  Seldomridge.  With  that  first  mortgage  they  have,  too,  the 
indorsement  of  the  bank  issuing  bonds  ? 

Senator  Fletcher.  Exactly,  with  the  capital  and  surplus  of  the 
bank  back  of  it,  and  double  liability  of  the  stockholders  and  the 
mortgage. 

Mr.  Seldomridge.  Then  you  have  also  the  liability  of  all  the 
banks  in  that  State — that  is,  other  banks  ? 

Senator  Fletcher.  No. 

Mr.  Seldomridge.  You  do  not  provide  for  any  system  of  coopera- 
tion of  other  banks:  it  is  merely  the  local  banks? 

Senator  Fletcher.  Exactly. 

Mr.  Seldomridge.  Do  you  think  it  would  be  wise  to  extend  that 
liability  beyond  the  individual  bank  and  let  it  take  in  a  group  of 
banks  ? 

Senator  Fletcher.  I  did  think  so  at  first,  and  that  is  how  I  pro- 
vided in  bill  2909,  making  all  these  banks  guarantee  these  bonds,  up 
to  the  central  national  bank,  but  I  do  not  believe  that  is  necessary 
now. 

Mr.  Hayes.  Would  it  not  be  a  little  hard  to  sell  stock  with  that 
indefinite  and  large  liability? 

Senator  Fletcher.  Yes.  There  might  be  objection  on  that 
ground.  I  do  not  think  that  would  be  best.  The  more  I  thought 
about  it  and  considered  it,  the  more  I  became  convinced  that  those 


44  RURAL    CREDITS. 

bonds  ought  to  be  good  issued  by  the  local  bank,  when  the}'  have 
back  of  them  real  estate  worth  twice  as  much  as  the  face  of  the  bond, 
and  when  they  have  the  capital  and  surplus  of  the  bank  and  double 
liability  of  stockholders,  and  when  they  have,  in  addition  to  that, 
tho  amortization  feature,  whereby  the  borrower  is  annually  or  semi- 
annually reducing  his  principal  all  the  while. 

Mr.  Seldomredge.  J)o  those  stockholders  have  to  be  residents  in 
the  district   in  which  the  bank  is  located? 

Senator  Fletcher.  No,  sir. 

Mr.  Seldomridge.  You  do  not  provide  for  the  investment  of  funds 
from  another  State? 

Senator  Hollis.  Senator  Fletcher,  I  imagine  this  Government  help 
will  turn  out  to  be  one  of  the  lighting  points  of  this  measure,  whatever 
it  is.  I  would  like  to  lay  a  little  foundation  for  that  at  the  start. 
Of  course  we  realize  that  the  Government  authority  is  limited  by  the 
Constitution  to  fiscal  agents,  and  that  is  all  that  that  has  been  x- 
tended  to,  and  I  would  like  to  have  your  view  as  to  whether  the 
Government  can  constitutionally  loan  money  directly  to  applicants 
or  invest  money  in  the  shares  of  rural-credit  banks  for  the  purpose  of 
establishing  them.     Has  your  commission  considered  that? 

Senator  Fletcher.  We  have  not  considered  that  particular  point, 
as  I  recall.  I  do  not  think  we  had  that  up.  But  it  is  possible  that 
there  is  no  constitutional  objection  to  it.  The  main  objection  would 
be,  first,  the  objection  that  it  is  very  largely  paternalism  and  class 
legislation  and 

Senator  Hollis  (interposing) .  Subsidy  ? 

Senator  Fletcher.  Yes. 

Mr.  Weaver.  That  objection,  Senator,  would  apply  to  a  direct 
loan  to  the  farmers.  I  do  not  see  how  a  constitutional  objection  on 
account  of  class  legislation  could  be  presented  as  an  objection  to  the 
Government  establishing  a  system  of  land  banks,  or  cooperative 
banks,  agricultural  credit  banks,  and  putting  Government  money 
into  them,  to  make  them  a  success.  It  was  pointed  out  that  the 
first  national  bank,  the  Hamilton  National  Bank,  was  unconstitu- 
tional, and  Chief  Justice  Marshall  decided  otherwise. 

Senator  Hollis.  I  occupy  a  peculiar  position  on  class  legislation. 
I  do  not  think  there  is  any  objection  to  class  legislation,  and  I  have  so 
said,  but  constitutionally  I  have  very  grave  doubts  whether  the 
Government  could  invest  money  in  rural  credit  banks  as  a  shareholder. 

Senator  Fletcher.  I  have  not  gone  into  that  question  thoroughly, 
myself,  as  to  the  constitutionality. 

Mr.  Weaver.  1  do  not  want  to  go  on  record  as  being  in  favor  of 
class  legislation,  but  if  we  are  going  to  have  any,  I  would  rather  give 
it  to  the  farmers,  than  to  any  other  class,  as  being  the  most  worthy 
class. 

Senator  Hollis.  1  am  in  favor  of  it  at  present,  because  I  want  to 
give  it  to  that  very  sort  of  people. 

Senator  Fletcher.  I  think  it  is  very  difficult  to  make  class  legis- 
lation out  of  legislation  that  is  going  to  benefit  the  farmer  and  the 
agricultural  interests  of  the  country,  because  we  are  universally 
affected  by  what  affects  the  agricultural  interests  of  the  country, 
and  it  seems  to  me  it  would  be  rather  difficult  to  m.ike  out  a  case  of 
class  legislation.     Still,   that    objection  could    be   urged   as   to   that 


RURAL    CREDITS.  45 

feature,  and  I  do  not  think  it  is  necessary  to  have  Government  aid, 
and  1  am  rather  opposed  to  it  as  a  general  proposition. 

Mr.  Flatt.  Senator  Fletcher,  in  answer  to  a  question  of  Mr, 
Seldomridge  a  few  minutes  ago  you  seemed  to  imply  that  it  would  be 
impossible  for  capital  outside  of  a  State  to  go  into  another  State  and 
help  organize  these  banks.  You  did  not  mean  to  say  that,  did  you? 
For  instance,  if  I  want  to  invest  my  money  in  a  bank  in  Colorado 
there  is  nothing  in  this  bill  to  prevent  it? 

Senator  Fletcher.  Not  as  far  as  bonds  are  concerned. 

Mr.  Platt.  No;  I  mean  in  the  bank  itself,  its  stock. 

Senator  Fletcher.  My  impression  is  that  we  confined  the  organi- 
zation shareholders  to  residents. 

Mr.  Moss.  No;  it  is  just  a  limitation  on  the  power  of  the  bank  to 
loan. 

Mr.  Platt.  There  is  nothing  to  prevent  eastern  capital  from 
helping  organize  these  banks  in  the  West,  is  there? 

Mr.  Moss.  Oh,  yes. 

Senator  Fletcher.  You  are  thinking  of  that  in  connection  with 
the  short  term. 

Mr.  Moss.  I  was  discussing  it  in  regard  to  the  short  term;  but  in 
land  banks  there  is  nothing  in  this  bill  to  prohibit  outside  capital 
from  being  invested  in  the  stock  of  the  bank. 

Senator  Fletcher.  It  was  in  reference  to  the  short-term  personal 
credit  banks  that  we  thought  of  confining  the  shareholders  to  the 
residents,  but  not  as  to  these  land-mortgage  banks.  In  these  share- 
holders may  reside  anywhere. 

Mr.  Woods.  What  great  inducement  is  there  for  people  with  a 
little  money  to  take  stock  in  these  banks  as  proposed? 

Senator  Fletcher.  Well,  of  course  the  primary  inducement  is  to 
provide  for  the  needs  of  that  immediate  community.  Do  you  mean 
for  outside  capital  to  come  in  and  take  stock? 

Mr.  Woods.  Yes. 

Senator  Fletcher.  Well,  it  is  quite  a  safe  institution. 

Mr.  Platt.  Dividends  equal  to  the  legal  rate  of  interest  in  the 
neighborhood,  and  perhaps  more. 

Senator  Fletcher.  Yes.  The  dividends  may  be  very  good,  and 
probably  would  be;  and  then  the  bonds  would  be  good  investments. 

Mr.  Platt.  You  think  the  dividends  would  be  as  high  as  the  ordi- 
narv  banks  would? 

Senator  Fletcher.  I  see  no  reason  wiry  they  should  not  be. 

Mr.  Weaver.  That  would  be  the  same  as  all  farm  security. 

Senator  Fletcher.  It  would  depend  very  largely  upon  the  amount 
of  business  they  would  do. 

Mr.  Hayes.  If  they  could  get  deposits,  I  see  no  reason  why,  with 
15  times  the  loaning  value,  they  should  not  pay  larger  dividends 
than  the  commercial  banks. 

Senator  Fletcher.  Yes.  I  have  been  told  that  commercial 
banks  now  opera  ting  on  a  margin  of  0.35  of  1  per  cent  are  earning 
20  and  30  per  cent  on  their  stock.  Here  we  provide  a  margin  of  a 
maximum  of  1  per  cent. 

Mr.  Bulkley.  Where  is  that,  Senator  ?     What  banks  are  those  ? 

Senator  Fletcher.  I  have  been  told — perhaps  I  ought  not  to 
quote  people  personally  about  that — but  in  Vermont  this  particular 
institution  I  am  talking  about,  I  was  told  by  the  president  of  one  of 


46  RURAL    CREDITS. 

these  institutions  that  they  did  a  large  business  there,  and  what 
the  hanks  got  out  of  it  was  0.35  of  1  per  cent,  and  they  were  able  to 
pay  20  per  cent  dividends  or  something  like  that  on  their  stock.  It 
depends  of  course  on  the  volume  of  business  as  to  what  the  earnings 
would   be. 

Mr.  Platt.  Do  you  think  banks  of  this  land  could  serve  the  farmers 
any  better  or  make  loans  any  cheaper  than  the  savings  loans  insti- 
tutions can,  building  loan  associations? 

Senator  Fletcher.  I  think  they  can.  1  am  inclined  to  think 
their  operating  expenses  will  be  less,  generally. 

Most  people  interested  in  them  will  be  concerned  very  largely 
because  of  this  cooperative  feature,  cooperative  possibilities,  and 
they  will  be  keeping  down  the  expenses  of  the  institution,  I  think. 

Mr.  Hayes.  Senator,  do  you  not  think  if  we  could  organize  a  sys- 
tem of  banks  where  the  expenses  would  be  down  as  low  as  the  build- 
ing associations,  which  are  usually  under  1  per  cent,  that  we  shall 
have  accomplished  a  great  result  for  the  agricultural  interests  of  the 
country  ? 

Senator  Fletcher.  Yes;  I  do. 

Mr.  Hayes.  I  think  so. 

Mr.  Platt.  You  spoke  of  compulsory  amortization.  Of  course 
amortization  is  what  the  farmers  want,  but  could  as  low  a  rate  of 
interest  be  given  on  a  loan  with  the  amortization  feature  in  it  as  on 
perfectly  secured  loans  without  amortization  ?  Does  not  the  bor- 
rower usually  want  a  fixed  term.  Of  course  that  does  not  affect  the 
bond  feature. 

Mr.  Hayes.  He  would  have  a  fixed  term. 

Mr.  Platt.  He  would  have  a  fixed  term  of  the  bond. 

Mr.  Hayes.  The  bank  fixes  that. 

Senator  Fletcher.  I  think  that  is  a  very  important  feature.  I 
think  it  is  one  of  the  most  important  features  of  this  bill,  that  there 
should  be  compulsory  amortization. 

Mr.  Bulkley.  Senator,  on  that  point,  a  great  many  farm  loans 
that  now  exist  are  constantly  renewed,  and  as  long  as  their  security 
is  kept  good  there  does  not  seem  to  be  any  particular  objection  on 
the  part  of  the  lenders  against  renewing  mortgages  from  time  to 
time.  If  we  had  compulsory  amortization  that  would  upset  all  of 
that  system.  Do  you  think  there  is  any  reason  why  it  should  be 
upset  ? 

Senator  Fletcher.  No;  I  would  not  want  to  upset  it.  I  would 
want  this  system  we  are  speaking  of  to  be  supplemental  of  what  we 
have  now.    I  would  not  want  to  interfere  with  what  we  have  got. 

Mr.  Bulkley.  Do  you  think  it  is  necessary  that  amortization 
should  be  compulsory,  or  shouldn't  it  be  optional  ? 

Senator  Fletcher.  1  think  it  should  be  compulsory.  I  think  that 
is  the  experience  of  all  the  countries  where  the  system  is  in  operation. 

Senator  Owen.  Senator,  the  defense  of  the  national  bank  system 
against  the  charge  of  unconstitutionality  was  that  those  banks  were 
an  agency  through  which  the  United  States  might  finance  its  bonds, 
and  so  forth.  What  is  the  defense  of  this  system  as  against  a  like 
charge?  You  have  doubtless  worked  that  out,  and  I  thought  you 
might  put  it  in  compact  form. 


RURAL    CREDITS.  47 

Senator  Fletcher.  We  made  these  bonds  security  for  postal 
deposits,  and,  in  a  way,  the  banks  may  be  fiscal  agents  of  the  Govern- 
ment.   I  think  we  come  within  that  decision  on  that  subject. 

Senator  Hollis.  You  do  provide  in  your  bill,  \  believe,  that  they 
may  receive  deposits  of  Government  funds  outside  of  postal  funds? 

Senator  Fletcher.  Yes. 

Senator  Owen.  So  that  the  postal  funds  might  be  deposited  with 
these  banks  ? 

Senator  Fletcher.  Yes. 

Mr.  Platt.  It  seems  to  me,  Senator,  that  any  possible  scheme  of 

Eayment  on  the  installment  plan  can  not  work  out  as  cheaply  for  the 
orrower  as  if  he  did  not  pay  on  the  installment  plan.  It  seems  to 
be  the  same  in  buying  money  as  in  buying  furniture  or  anything  else 
that  you  can  not  buy  on  the  installment  plan  without  paying  a  little 
bit  more. 

Mr.  Hayes.  Not  unless  there  is  some  risk  connected  with  it.  In 
this  connection  I  do  not  see  your  point.  There  is  no  more  risk,  and 
the  risk  is  even  less. 

Mr.  Platt.  If  your  security7  is  good,  there  is  no  more  risk  in  not 
having  the  installment  plan  payments  than  there  is  in  the  other  way. 

Mr.  Hayes.  The  security  is  not,  because  it  is  personal  security. 

Mr.  Platt.  We  are  talking  about  the  long-term  mortgages. 

Mr.  Hayes.  I  do  not  think  so. 

Senator  Fletcher.  I  do  not  think  that  the  objection  would  obtain. 

Senator  Owen.  Making  these  partial  payments  would  be  in  the 
nature  of  an  investment,  leading  the  borrower  out  of  the  borrowing 
class  and  leaving  him  to  escape  from  the  borrower  class. 

Senator  Fletcher.  This  table  I  have  just  submitted  here,  for  in- 
stance, gives  a  rate  of  interest  of  4 h  per  cent,  and  this  case,  involving 
a  bond  of  SI, 000  and  paying  4§  per  cent  interest,  the  entire  debt  is 
liquidated  in  25  years,  which  seems  to  be  quite  a  favorable  proposition 
for  the  farmer. 

We  give  illustrations  in  the  report  on  that  point. 

Mr.  Platt.  There  are  in  existence  at  the  present  time  two  purely 
mutual  institutions,  one  of  them  dealing  in  the  amortization  plan  and 
the  other  in  the  mutual  savings  bank,  institutions  such  as  Senator 
Hollis  has  spoken  of,  the  loan  associations.  I  think  it  is  the  ex- 
perience of  everybody  who  has  tried  to  borrow,  and  I  have  tried  it 
myself,  that  you  can  borrow  cheaper  from  a  savings  bank  than  you 
can  from  a  building  loan  association.  The  amortization  feature  is  a 
great  advantage  to  some  people,  but  for  people  who  do  not  need  it 
it  is  a  little  bit  cheaper  to  borrow  money  from  a  savings  bank. 

Senator  Hollis.  The  reason  for  that  is  this,  that  the  building  loan 
associations  will  loan  out  practically  the  entire  value  of  the  propertv; 
that  is,  they  will  advance  the  funds,  and  they  will  put  it  right  in  tne 
property,  and  therefore  it  is  proper,  because  the  risk  is  greater,  that 
they  should  require  a  better  rate  of  interest. 

Mr.  Platt.  They  are  purely  cooperative,  because  the  borrower  is 
an  association  member. 

Senator  Hollis.  Not  with  our  associations.  The  men  who  borrow 
from  it  pay  a  higher  rate  of  interest.  It  is  a  mighty  good  investment 
for  those  who  put  money  into  it,  but  it  is  a  very  poor  one  tor  the 


48  RURAL    CREDITS. 

borrower,  because  they  make  the  borrowers  pay  a  higher  rate  of 
interest  because  of  the  greater  risk.     I  think  that  is  the  theory  of  it. 

Mr.  Hayes.  The  mutual  savings  bank  requires  such  a  big  margin. 

Mr.  Platt.  1  do  not  think  in  my  State  the  margin  is  any  different. 
The  margin  is  just  the  same. 

Mr.  Hayes.  They  make  themselves  absolutely  safe.  There  is 
absolutely  no  risk  at  all  with  the  savings  bank,  but  with  the  building 
association  they  will  take  a  man's  case,  as  you  might  say,  and  finance 
him  on  a  great  deal  smaller  margin. 

Mr.  Platt.  But  they  have  the  amortization  feature.  The  bor- 
rowers have  to  be  members  of  the  association,  and  they  get  a  part  of 
the  profits  back. 

Senator  IIollis.  There  are  a  great  many  members  who  never 
become  borrowers,  and  they  need  not  become  members  in  order  to 
become  borrowers.     That  is  a  feature  we  want  to  avoid. 

Senator  Fletcher.  A  great  many  of  these  institutions  have  refer- 
ence more  particularly  to  enabling  a  man  to  build  a  home,  and  they 
will  generally  loan  him  all  that  he  needs  to  build  the  home;  if  he 
furnishes  the  land  they  will  build  the  house. 

Mr.  Hayes.  That  is  the  case  generally.  Of  course,  the  proposition 
before  the  commission  is  along  the  same  general  lines. 

Mr.  Moss.  The  amortization  feature  in  here  is  really  the  savings 
feature  we  put  in  here;  that  is  the  real  value  of  it.  It  is  for  the  bene- 
fit of  the  borrower  as  much  as  the  lender,  with  the  idea  that  it  might 
tend  to  encourage  a  person,  under  Government  supervision,  to  go  in 
debt  for  a  long  time  without  making  provision  for  paying  it;  so  it  is 
really  making  the  bank  a  savings  bank. 

Mr.  Platt.  I  do  not  believe  it  would  work  out  any  cheaper  for  the 
borrower  than  if  he  borrowed  direct  from  the  mutual  savings  bank. 

Mr.  Hayes.  It  might  work  out  to  his  advantage  in  the  end,  in 
that  he  would  have  his  land  left  in  the  one  case,  and  in  the  other  the 
bank  would  have  it,  perhaps. 

Senator  Hollis.  I  have  an  illustration.  I  am  trustee  of  an  estate, 
and  there  is  a  mortgage  on  it  on  which  a  farmer  has  been  paying  6 
per  cent  interest  since  1876,  and  he  is  now  dying  with  cancer.  If 
that  had  been  on  the  amortization  plan,  even  at  4^  per  cent,  accord- 
ing to  this  theory,  he  would  have  had  his  debt  all  paid  up  now. 
It  is  a  good  deal  like  the  insurance  policies  that  we  have  all  taken 
out;  they  collect  more  from  you  than  they  really  come  to,  but  the 
endowment  feature  and  the  participating  feature,  and  so  on,  compels 
a  man  to  save  something,  if  he  once  starts  and  keeps  up  his  payments. 

Senator  Fletcher.  Then  I  think  you  get  a  better  rate  of  interest 
and  get  a  wider  market  for  your  bonds  and  a  greater  demand  for 
them  if  the  purchaser  of  the  bonds  knows  that  back  of  them  is  what 
would  be,  in  the  case  of  an  industrial  bond,  a  sinking  fund  that  is 
going  to  take  care  of  that  obligation. 

Senator  Owen.  Increasing  the  value  of  the  security? 

Senator  Fletcher.  Precisely.  And  instead  of  having  a  sinking 
fund  that  is  kept  separate  and  invested,  that  may  be  lost  by  the 
investment,  we  provide  for  this  amortization  feature,  whereby  the 
payment  is  noted  on  the  mortgage.  It  has  the  features  of  a  sinking 
fund  and  has  the  advantage  of  being  a  credit,  when  it  is  made,  on 
the  mortgage,  rather  than  invested  as  a  sinking  fund  might  be 
invested. 


RURAL    CREDITS.  49 

Mr.  Platt.  After  all,  the  chief  advantage  of  it  is  that  it  compels 
the  borrower  to  pay  back  in  small  amounts,  so  that  he  is  bound  to 
save,  and  it  is  not  in  the  low  rate  of  interest. 

Mr.  Hayes.  But  when  you  come  to  the  practical  operation  of  a 
scheme  of  that  kind,  it  seems  to  me,  Mr.  Platt,  that  it  would  give 
additional  confidence  to  the  public  in  the  bank  and  in  the  bond  that 
it  had  issued. 

Mr.  Platt.  I  think  it  would. 

Mr.  Hayes.  If  there  was  compulsory  amortization  in  the  law. 

Mr.  Platt.  I  think  so. 

Mr.  Hayes.  Because  they  would  not  have  any  poor  securities;  it 
would  make  it  impossible  to  have  any  poor  securities. 

Mr.  Brown.  Would  it  not  lessen  the  value  of  the  bonds  if  at  every 
interest  payment  there  would  be  an  amortization  payment  ? 

Mr.  Hayes.  Oh,  no;  not  of  the  bond. 

Senator  Fletcher.  The  bond  is  not  issued  against  each  mortgage; 
it  is  issued  against  all  the  mortgages.  The  provision  is  made  that 
the  amount  of  bonds  outstanding  shall  not  exceed  the  amount  of 
mortgages  that  the  bank  holds.  It  may  have  20  mortgages,  you  see, 
and  the  issue  of  bonds  is  against  the  whole  20  mortgages.  If  the 
individual  mortgagor  makes  a  payment  on  account  of  his  principal, 
it  is  noted  on  the  back  of  his  mortgage  as  paid  on  that  morgtage. 
But  of  course  the  bank  has  got  to  see  that  the  bonds  outstanding  do 
not  exceed  the  face  of  the  mortgages  which  it  holds.  And  then  we 
have  a  provision  in  here  for  the  bank  to  use  its  capital  and  surplus  in 
buying  in  these  bonds  from  time  to  time,  so  that  will  help  to  keep 
the  market  price  of  the  bonds  up,  and  will  be  an  advantage. 

Mr.  Hayes.  Of  course  as  the  operation  went  on  and  these  mort- 
gages were  paid,  these  installments,  that  gives  capital  to  make  other 
loans  and  make  other  mortgages. 

Mr.  Seldomridge.  What  is  the  lowest  denomination  of  the  bonds? 

Senator  Fletcher.  I  do  not  think  we  provided  for  that.  It  is 
left  for  regulation  by  the  banks,  as  I  recall  it. 

Mr.  Seldomridge.  Do  you  not  think  it  advisable  to  issue  these 
bonds  in  rather  small  amounts  to  be  used  for  saving  purposes  by 
people  of  small  means? 

Senator  Fletcher.  I  think  that  is  true.  We  have  not  fixed  the 
denomination  of  the  bonds.  That  will  be  left  to  the  bank.  One 
community  might  want  one  denomination  and  another  community 
another. 

Mr.  Seldomridge.  You  could  fix  a  minimum  and  maximum  be- 
tween which  they  might  operate. 

Senator  Fletcher.  Yes,  that  could  be  done. 

Mr.  Seldomridge.  A  minimum  and  maximum. 

Senator  Fletcher.  That  could  be  done.  The  bank  must  see  to  it, 
and  this  Government  agent,  that  the  bonds  are  called  in  as  the 
mortgages  are  paid  off.  That  is  another  matter,  Senator  Owens, 
that  ties  this  up,  I  think,  to  the  powers  of  Congress.  We  provide 
that  there  shall  be  a  fiduciary  agent  of  the  Government  in  every  one 
of  these  banks,  and  it  is  his  business  to  see  to  it  that  the  mortgages 
shall  be  there  to  equal  the  bonds  that  are  outstanding  in  these  banks. 

Mr.  Hayes.  And  that  the  payments  are  made? 

Senator  Fletcher.  And  that  the  payments  are  made  and  entered 
properly   and  registered. 

37031—14 4 


50  RURAL    CREDITS. 

Mr.  Seldomridoe.  Do  you  think,  under  that,  scheme,  that  in  the 
manner  proposed  there,  there  will  be  a  positive  inducement  for  cap- 
ital to  go  into  what  we  might  call  the  needy  farm  sections  of  this 
country  that  are  now  asking  for  this  relief  and  establish  these  insti- 
tutions ? 

Senator  Fletcher.  I  do. 

Mr.  Seldomridge.  And  do  you  think  there  is  sufficient  attraction 
for  capital  to  seek  investment  in  that  particular  section  ? 

Senator  Fletcher.  Yes,  sir. 

Air.  Seldomridge.  What  makes  you  think  that?  Is  it  anything  in 
addition  to  what  you  have  said  here,  or  just  providing  means  for 
investment  which  are  not  now  open  ? 

Senator  Fletcher.  I  think  it  provides  means  for  investment  which 
are  not  now  open,  and  then,  in  the  next  place,  I  think  it  will  uncover 
and  develop,  perhaps,  funds  that  are  not  in  bank  and  not  in  circula- 
tion now  in  the  various  communities.  It  is  an  absolutely  safe  invest- 
ment for  people  who  have  money  and  who  are  afraid  of  banks.  That 
will  be  one  source. 

Mr.  Seldomridge.  In  other  words,  it  will  be  a  vehicle  for  putting 
on  the  market  the  mortgage  securities  in  a  different  way  from  what 
now  obtains  ? 

Senator  Fletcher.  Yes. 

Mr.  Seldomridge.  The  people,  instead  of  having  to  find  an  indi- 
vidual lender,  or,  on  the  other  hand,  an  individual  borrower,  the  two 
will  be  brought  together  through  this  channel  ? 

Senator  Fletcher.  That  is  true. 

Mr.  Hayes.  The  individual  lender  does  not  have  to  watch  the  indi- 
vidual borrower  to  see  how  he  is  getting  along.  The  bank  takes  care 
of  that. 

Senator  Fletcher.  The  man  who  holds  the  bonds  has  no  relation 
with  the  man  who  made  the  mortgage — not  at  all — and  I  think  that 
will  attract  outside  capital. 

Mr.  Hayes.  I  think  it  will. 

Mr.  Seldomridge.  I  think  the  proposition  is  a  good  one,  if  we  can 
secure  absolute  fidelity  and  security  in  the  management  of  the  bank. 
If  that  can  be  done,  I  think  there  is  no  question  in  my  mind  about  it. 

Senator  Fletcher.  Yes. 

Mr.  Brown.  On  that  point,  even  though  the  individual  borrower 
may  pay  off  at  stated  periods  and  get  credits  upon  his  individual 
mortgage,  does  not  his  property  in  fact  stand  for  the  security  of  all 
the  bonds  that  are  out,  even  though  he  may  be  entirely  paid  out — 
does  hot  his  property  still  stand  for  the  face  of  all  the  bonds  that  are 
out? 

Senator  Fletcher.  No,  sir;  the  lien  on  his  property  is  gradually 
diminished. 

Mr.  Brown.  Suppose,  though,  that  the  bonds  are  not  paid. 

Mr.  Hayes.  That  has  nothing  to  do  with  the  mortgage;  it  does 
not  affect  the  mortgage  at  all. 

Mr.  Moss.  Under  the  terms  of  the  bill,  Mr.  Brown,  that  could  not 
happen. 

Mr.  Brown.  It  could  not  happen  if  the  bank  was  properly  or- 
ganized and  everything  went  along  smoothly;  but  suppose  the  bank 
were  to  fail,  or  the  bonds  be  stolen. 


BUBAL  ^CREDITS.  51 

Mr.  Hayes.  Suppose  it  did  fail,  and  the  mortgage  is  paid  off  to 
$100;  that  is  all  ne  is  called  upon  to  pay. 

Senator  Fletcher.  There  can  not  be  outstanding  more  bonds  than 
there  are  secured  by  the  mortgages. 

Mr.  Weaver.  It  is  just  an  asset  of  the  bank,  that  is  all,  and  if  the 
bank  fails  of  course  the  creditors  of  the  bank  participate  in  its  assets 
and  the  mortgages  outstanding  are  given  to  that  bank,  and  have  no 
connection  with  the  bonds  of  the  bank  in  any  way. 

Mr.  Brown.  Suppose  the  bank  should  fail  and  they  were  not 
paid  ? 

Mr.  Hayes.  The  mortgagor  would  not  have  to  respond  except  to 
the  extent  of  his  mortgage  under  the  bill  we  have  here. 

Mr.  Seldomridge.  Whenever  any  portion  is  paid  on  a  mortgage, 
that  portion  is  reinvested  in  some  other  bond,  and  the  difference 
between  the  amount  covered  by  the  mortgage  and  the  amount  paid 
in  would  be  found  somewhere  else — in  some  other  investment  of  the 
bank's  property.  It  would  be  in  the  capital  somewhere.  That 
would  be  the  security  that  the  bondholders  would  have,  other  than 
the  security  of  the  balance  due  on  the  mortgage. 

Mr.  Hayes.  The  bondholder  would  have  not  only  the  total  amount 
of  mortgages  held  by  the  bank,  but  would  also  have  tho  capital  and 
surplus  of  the  bank,  and  the  double  liability  of  the  stockholders. 

Senator  Owen.  If  there  was  an  individual  loss  under  a  system  of 
that  kind,  which  might  occur  in  an  individual  instance,  the  mortgage 
would  be  covered  by  the  earning  capacity  of  the  bank  otherwise. 

Mr.  Platt.  It  is  not  inconceivable,  of  course,  that  a  big  defalca- 
tion might  ruin  the  bank. 

Senator  Owen.  That  would  ruin  any  bank. 

Mr.  Seldomridge.  Could  we  not  put  in  this  bill  some  sort  of 
guaranty  provision  which  would  protect  the  bondholders  against 
defalcations  ? 

Senator  Fletcher.  We  have  got  our  provision  here  in  the  rep- 
resentative right  in  every  bank. 

Mr.  Hayes.  If  your  Government  representative  is  performing  his 
duties  property,  there  could  not  be  any  defalcation. 

Mr.  Platt.  The  local  stockholders  and  directors  ought  to  have 
some  responsibilities. 

Mr.  Brown.  Then,  Senator,  may  I  ask  this  question,  which  appears 
to  me  to  be  in  point:  Is  not  the  bondholder  in  the  end  dependent 
entirely  upon  the  integrity  of  the  bank  ? 

Mr.  Hayes.  And  the  fiduciary  agent  of  the  Government,  too'? 

Senator  Fletcher.  Ultimately,  that  might  possibly  be.  Of  course, 
if  the  mortgages  were  stolen  and  taken  away  he  would  lose  his  security 
for  the  bond. 

Senator  Owen.  It  would  have  to  be  a  protracted  series  of  de- 
falcations, which  is  impossible  under  Government  supervision. 

Senator  Fletcher.  I  do  not  see  how  it  is  possible  to  happen  as  we 
have  this  bill,  because  we  have  Government  inspection,  and  we  have 
a  Government  agent  in  every  bank. 

Mr.  Seldomridge.  Do  you  make  them  depositories  in  any  way? 

Senator  Fletcher.  Yes. 

Mr.  Weaver.  Is  not  the  whole  theory  of  our  Government  based 
upon  the  fact  that  we  have  got  to  rely  upon  some  men  being  honest? 


52  RURAL    CREDITS. 

Senator  Owen.  We  all  put  our  lives  in  the  hands  of  the  fellow  who 
handles  the  throttle  of  the  engine  every  time  we  ride  on  the  trains. 

Mi-.  Hayes.  And  even  on  the  fellow  that  is  fixing  the  track;  we 
have  got  to  depend  on  him. 

Mr.  Bulkley.  What  is  your  view  of  the  probable  effect  of  this 
legislation  on  farm-land  values? 

Senator  Fletcher.  It  may  be  possible  that  it  will  increase  farm- 
land values.  The  low  rate  of  interest  would  have  a  tendency  to  do 
that. 

Mr.  Hayes.  Do  you  think  that  is  desirable  ? 

Senator  Fletcher.  I  do  not  see  any  objection  to  that.  The  only 
reason,  it  seems  to  me,  that  it  might  be  undesirable  would  be  to 
encourage  speculation  in  lands. 

Mr.  Hayes.  Is  not  this  the  principal  objection  to  it,  that  it  makes 
it  harder  for  the  individual  to  get  a  farm  ? 

Senator  Fletcher.  That  might  possibly  happen  in  some  instances, 
but  still  if  he  is  getting  a  more  valuable  farm  he  can  afford  to  pay 
more  for  it.  I  do  not  think  there  will  be  very  much  danger  of  any 
material  rise  in  farm-land  values. 

Senator  Owen.  The  remedy  for  your  suggestion,  Mr.  Hayes,  is 
single  tax.     [Laughter.] 

Mr.  Hayes.  What  objection  would  you  see  to  our  undertaking  to 
prevent  that  result  by  providing  in  tne  law  for  what  purposes  the 
money  can  be  used  ? 

Senator  Fletcher.  We  do  that. 

Mr.  Hayes.  Would  that  not  accomplish  that  result  \ 

Senator  Fletcher.  I  think  so.  I  think  that  is  a  safeguard  against 
that.  We  provide  in  the  bill  that  it  shall  be  used  to  complete  the 
purchase  of  land,  to  supply  money  to  complete  the  purchase  of 
land,  to  improve  and  equip  the  farm,  and  to  pay  off  existing  liens. 
Those  are  tne  three  purposes  named  in  the  bill. 

Mr.  Hayes.  So  that  the  man  that  had  none  ol  these  needs  could 
not  be  a  borrower  under  the  law '. 

Senator  Fletcher.  He  could  not  borrow,  no.  I  do  not  think 
that  it  would  be  possible  to  borrow  lor  purposes  ol  speculation  to 
any  extent.  As  a  matter  of  fact,  I  believe  generally  our  lands 
are  lower  priced  than  the  lands  of  any  country  where  they  do  not 

{>roduce  any  more  than  our  lands.  I  think  our  lands  are  generally 
ower  in  price,  compared  with  the  lands  of  other  countries,  so  that 
we  can  stand  some  increase. 

Mr.  Platt.  Suppose  I  own  a  farm  just  as  an  investment  and  it  is 
clear  of  mortgages,  is  there  anything  in  this  bill  to  prevent  me  from 
borrowing  other  funds,  if  I  want  to  '. 

Senator  Fletcher.  I  did  not  quite  get  that. 

Mr.  Platt.  Suppose  I  own  a  farm  that  is  clear  ol  mortgages,  just 
as  an  investment. 

Senator  Fletcher.  Yes. 

Mr.  Platt.  Is  there  anything  in  this  bill  that  prohibits  me  from 
borrowing  under  this  plan  ( 

Mr.  Brown.  Yon  would  have  to  spend  the  money  on  the  farm. 

Senator  Fletcher.  You  would  have  to  borrow  for  the  purpose  of 
improvement  or  equipment. 

Mr.  Platt.  Well.  I  could  fix  that  easy. enough.  I  could  use  this 
money  I  got  from  this  mortgage  for  improvement  and  take  other 


RURAL    CREDITS.  53 

money  and  buy  railroad  stock  that  I  intended  to  use  for  improving 
the  farm.  It  seems  to  me  you  can  not  get  up  a  system  that  will 
absolutely  insure  that  the  money  is  not  going  to  be  spent  except 
for  certain  purposes.  If  the  man  has  good  security  and  wants  to 
borrow  on  it,  I  do  not  see  how  you  can  avoid  lending  him. 

Senator  Fletcher.  So  far  as  I  am  concerned  personally,  I  do  not 
see  that  we  ought  to  set  ourselves  up  as  guardians  of  the  farmers. 

Mr.  Platt.  I  think  you  are  entirely  right  about  that. 

Senator  Fletcher.  I  think  if  the  farmer  gives  good  security  that 
is  all  we  need  to  bother  about;  what  he  does  with  the  money  is  his 
business. 

Mr.  Brown.  Suppose  he  wants  to  buy  an  automobile? 

Senator  Fletcher.  Well,  if  he  needs  one  he  ought  to  buy  one  to 
take  his  children  to  school. 

Mr.  Weaver.  However,  the  purpose  of  this  bill  is  the  develop- 
ment of  farms,  and  the  giving  to  the  farmers  of  facilities  that  they 
do  not  now  have  under  the  general  commercial  banking  system  and 
under  the  borrowing  of  money  from  individuals  ? 

Senator  Fletcher.  Yes. 

Mr.  Weaver.  I  say,  is  not  the  purpose  of  it  to  put  the  money 
from  this  system  which  the  Government  of  the  United  States,  through 
the  Congress,  is  endeavoring  to  give  to  the  people,  into  the  land  for 
the  development  of  the  land,  whereby  you  are  increasing  the  value 
of  the  land  and  developing  the  farm,  and  do  you  not  think  it  would 
be  rather  aside  from  the  purposes  of  this  bill  to  lend  money  to  per- 
sons for  the  purpose  of  speculation  ? 

Senator  Fletcher.  As  I  said  a  moment  ago,  I  do  not  know  that 
we  ought  to  set  ourselves  up  to  watch  the  use  of  the  money  too  care- 
fully. If  he  is  able  to  furnish  security,  I  do  not  think  we  ought  to 
inquire  too  closely  what  he  shall  do  with  the  money.  I  would  not 
want  to  encourage  any  class  of  people  going  into  speculation  or  going 
into  wild  schemes.  Primarily  what  you  say  is  quite  true,  I  think, 
Mr.  Weaver,  and  that  is  one  reason  why  we  have  this  limitation 
mentioned  here  in  the  bill. 

Mr.  Weaver.  I  am  sure  I  agree  with  the  Senator  in  his  idea  that 
it  is  for  the  individual  to  do  what  he  wants  to  with  his  own.  As  old 
Falstaff  said,  "Shall  I  not  take  mine  own  ease  in  mine  own  inn?" 
The  whole  purpose  of  it  is  to  provide  money  for  the  development  of 
the  farm. 

Senator  Fletcher.  To  provide  cheaper  money  for  that  purpose. 

Mr.  Hayes.  Yes;  but  some  of  us  are  not  particularly  anxious  to 

I>rovide  cheaper  money  for  him  if  it  is  going  to  raise  the  price  of  farm 
and  and  make  it  harder  for  the  accomplishment  of  the  purpose  we 
all  have  in  view,  which  is  to  make  it  possible  for  a  man  who  has  not 
much  money  to  secure  land  and  equip  it  for  profitable  operation. 

Senator  Fletcher.  That  is  one  reason  why  we  thought  best  to 
specify  the  purposes. 

Mr.  Platt.  If  you  own  a  farm,  this  will  enable  you  to  sell  it  at  a 
higher  price. 

Mr.  Hayes.  I  know,  and  I  own  a  farm,  all  right,  but  I  am  not  think- 
ing of  my  own  individual  interests  in  this  case. 

Mr.  Moss.  Do  you  not  believe  that  the  provision  in  the  bill  that  no 
man  can  borrow  more  than  50  per  cent  of  the  value  of  his  land  will,  in 
itself,  check  speculation  very  largely  ? 


54  RURAL    CREDITS. 

Senator  Fletcher.  1  think  so.     That  is  also  one  of  the  effects. 

Mr.  Moss.  In  other  words,  the  man  is  not  going  to  speculate  very 
much  when  he  has  to  put  up  $2  to  get  $1. 

Mr.  Hayes.  That  is  the  case  now.  You  have  to  put  up  about  $2 
to  get  $1  if  you  want  to  go  to  a  bank  and  borrow  money  to-day  on 
real  estate. 

Mr.  Brown.  Is  there  any  limit  in  your  bill,  or  do  you  think  there 
should  be  one,  of  the  amount  any  one  individual  can  borrow  or  should 
borrow  ? 

Mr.  Platt.  That  is  not  in  the  bill. 

Senator  Mollis.  It  does  not  occur  to  me  that  there  should  be  any 
limit  to  any  man's  borrowing  on  land  when  the  land  answers  the  debt 
rather  than  the  individual.  Of  course  on  commercial  loans  they  have 
to  look  pretty  strictly  to  that.  But  I  did  have  an  impression  there 
was  something  of  that  sort  in  this  bill. 

Mr.  Brown.  I  did  not  catch  it  when  I  ran  over  it. 

Mr.  Coulter.  There  is  no  limit  to  the  amount  one  man  can  borrow, 
but  no  bank  can  lend  more  than  a  certain  per  cent  of  its  capital  to  any 
one  person. 

Mr.  Brown.  It  is  the  other  way,  then. 

Mr.  Platt.  It  could  not  be  used  to  any  extent  on  a  10,000-acre 
farm? 

Mr.  Coulter.  A  man  has  to  divide  the  farm  up  and  get  it  on 
separate  mortgages. 

Senator  Fletcher.  I  think  that  is  the  only  limitation,  Mr.  Brown. 

Mr.  Brown.  That  answers  practically  the  same  purpose,  if  the 
bank  is  limited  in  the  amount  of  the  loan. 

Senator  Fletcher.  Yes.  I  was  looking  to  see  the  particular 
sections  of  the  bill. 

Mr.  Weaver.  In  some  States  individual  landowners  hold  great 
bodies  of  land.  For  instance,  in  Texas  I  know  of  one  tract  of 
420,000  acres  near  San  Angelo. 

Senator  Fletcher.  This  is  the  provision  in  the  bill  that  I  think 
answers  your  question,  under  section  D,  page  61  of  the  document 
380: 

No  national  farm-land  bank  shall  at  any  time  loan  any  money  upon  the  face  or 
credit  or  upon  the  assignment  of  its  own  stock  or  of  the  stock  of  any  other  national 
farm-land  bank;  nor  shall  any  national  farm-land  bank  loan  to  or  on  the  credit  of 
any  one  individual  or  institution,  either  on  the  security  of  land  or  on  any  other  security, 
an  amount  in  excess  of  20  per  cent  of  the  sum  of  its  then  paid-in  capital  and  surplus. 

Senator  Hollis.  Is  there  any  other  question  that  anyone  would 
like  to  ask  Senator  Fletcher  ? 

Senator  Lee.  I  want  to  inquire  about  one  suggestion  made  by 
Senator  Fletcher,  which  is  this  question  of  taxation,  which  has  not 
been  entered  into  very  largely. 

Senator  Fletcher.  We  follow,  practically,  in  the  proposed  bill, 
the  provisions  of  the  Federal  reserve  act. 

Senator  Lee.  Of  course,  national-bank  stock  is  subject  to  taxation, 
and  then  stock  owned  by  another  bank  would  be  the  property  of 
the  national  bank,  and  would  not  be  subject  to  taxation.  We  had 
a  very  acute,  long-standing  controversy  over  this  question  of  bank 
taxation,  and  it  has  developed  some  peculiar  phases,  and  shows  how 
deeply  interested  the  financial  institutions  are  m  the  question  of  taxa- 
tion, and  it  resulted  in  some  litigation  that  I  started  myself  in  my 


RURAL   CREDITS.  55 

own  county.  We  got  the  State  divided  into  two  groups,  so  as  to 
keep  the  banks  under  a  separate  law,  and  the  effect  of  which  is  that 
certain  exemptions  are  allowed  in  Baltimore  City  that  are  not  allowed 
in  other  parts  of  the  State.  The  contention  was  that  the  exemptions 
were  unlawful,  and  contrary  to  the  provisions  of  the  constitution  of 
the  State  for  equal  taxation,  and  the  result  of  it  was  that  there  was, 
particularly  in  some  portions  of  the  country,  no  corporate  tax.  It 
showed  how  close  a  margin  the  financial  system  is  operating  on,  and 
in  some  places  you  can  see,  yourself,  how  important  it  is.  You  get  a 
county  tax  of  90  cents  or  a  dollar,  and  a  State  tax  of  31  cents,  and  you 
might  have  a  municipal  tax  of  $2,  and  it  will  readily  run  your  banking 
costs  up  to  a  fixed  charge  for  taxation  of  over  3  cents.  The  question 
arises,  if  you  have  a  national  bank  or  a  State  banking  system  subject 
to  a  taxable  burden,  and  you  put  in  competition  with  that  system 
another  type  of  bank  or  money-lending  institution,  exempted  from 
all  taxation,  you  are  going  to  increase  the  demand  for  absolute 
freedom  from  taxation  for  other  financial  institutions,  which  will 

Erobably  lead  up  to  a  demand  for  a  repeal  of  all  taxation  on  national 
anks.  Other  banks  take  the  position  now,  all  the  banks  of  Balti- 
more, that  all  of  their  taxes  should  be  reduced  to  a  dollar  basis,  and 
in  the  last  four  sessions  of  our  legislature  there  has  been  a  bill  urged 
by  the  Baltimore  banks  to  the  effect  that  all  their  taxation — munici- 
pal, State,  and  county — should  be  reduced  to  a  dollar  basis,  and  they 
all  claim  that  the  New  York  banks  are  on  that  basis  to-day,  and  the 
Philadelphia  banks  are  on  that  basis.  The  great  issue  of  our  banks 
has  come  under  their  demand  for  not  only  a  dollar  basis,  but  a  reduc- 
tion of  that  dollar  basis  of  all  exempted  securities,  which  would 
reduce  the  banks  to  the  position  of  having  no  taxes  at  all. 

So  you  see,  gentlemen,  if  you  are  going  to  go  into  this  question  of 
taxation,  it  is  one  of  the  most  fundamental  and  far  reaching  aspects 
of  the  whole  plan. 

Senator  Fletcher.  It  is  in  our  section  18  where  we  refer  to  the 
exemption  of  capital  stock,  and  it  is  similar  to  the  provision  con- 
tained in  the  Federal  reserve  act.  We  look  at  it  this  way:  If  the 
mortgages  have  to  pay  taxes,  then,  undoubtedly,  the  man  who 
makes  the  mortgage  has  got  to  pay  it,  generally  speaking,  and  it 
means  it  comes  out  of  the  farmer,  and  we  thought  that  mortgages 
ought  to  be  exempt  from  taxation. 

Senator  Lee.  If  you  have  a  strictly  limited  basis,  so  that,  aside 
from  the  operating  expense,  there  can  be  no  profits  accruing  to  any 
one  except  an  absolutely  limited  amount  of  profit,  that  might  be 
very  well;  but  if  you  have  in  business  an  institution  where  the 
margin  of  profit  for  the  people  who  are  operating  it  is  on  a  different 
basis  from  the  margin  of  profit  of  the  commercial  bank,  that  very 
margin  of  profit  is  going  to  attract  this  capital.  You  either  get  it 
or  j£ou  do  not  get  it  on  that  margin  of  profit. 

Mr.  Platt.  That  is  practically  the  only  special  privilege  that  there 
is  in  the  bill,  is  it  not  ? 

Senator  Fletcher.  Exemption  from  taxation? 

Mr.  Platt.  Yes. 

Senator  Fletcher.  And  then  making  them  fiscal  agents,  in  a  way, 
and  allowing  deposits. 

Senator  Owen.  Making  them  depositors  for  postal  receipts  and 
postal  savings,  is  it  not  ? 


56  RURAL    CREDITS. 

Senator  Fletcher.  Yes;  and  then  making  them  investments  for 
trustees  and  guardians. 

Mr.  Platt.  That  is  not  exactly  a  special  privilege,  because  there 
are  lots  of  other  securities  that  are  also  in  that  last  class  of  securities 
which  can  he  invested  in  trust  funds. 

Mr.  Moss.  When  the  State  in  which  they  are  located  passes  certain 
legislation  of  a  reciprocal  character  in  its  broadest  sense,  other  se- 
curities can  not  be  invested  in  trust  funds,  but  can  in  these  special 
instances  where  the  State  passes  legislation  desire  by  the  commis- 
sioner of  land  banks  ? 

Senator  Fletcher.  Yes;  the  commissioner  of  farm-land  banks  is 
given  certain  powers  in  connection  with  that  privilege. 

Mr.  Moss.  The  question  of  investment  in  trust  funds  is  entirely 
under  the  regulation  of  the  commissioner  of  land  banks  and  is  de- 
pendent upon  reciprocal  State  legislation? 

Senator  Fletcher.  Yes. 

Mr.  Platt.  I  think  that  is  a  very  good  provision. 

Senator  Lea.  Senator,  it  would  seem  more  consistent  if  you  would 
reduce  these  two  systems,  the  central  system  of  farm  loans  for  farm 

Eurposes,  to  regulate  it  and  make  it  free  from  taxation,  than  it  would 
e  for  you  to  make  it  a'  broader  type  of  lending  for  all  commercial 
purposes,  to  any  one  who  would  see  fit  to  invest  in  these  agricultural 
securities  ? 

Senator  Fletcher.  Yes;  that  is  true,  I  think.  That  is  another 
reason  why  we  felt  like  limiting  the  loaning  of  the  money  for  certain 
purposes. 

Senator  Owen.  That  is  done  in  the  bill,  is  it  not;  the  money  which 
is  received  is  intended  to  be  used  for  farm  purposes  ? 

Senator  Fletcher.  For  three  purposes,  completing  the  payment 
of  the  purchase  price,  equipping  and  improving  the  farm,  and  paying 
off  and  discharging  existing  hens. 

Senator  Lea.  How  do  you  operate  that  with  regard  to  the  bal- 
ance ?     Has  the  farmer  a  checking  right  upon  the  balance  on  deposit  ? 

Senator  Fletcher.  The  bank  will  have  to  see  to  that. 

Senator  Hollis.  The  bank  will  not  make  the  loan  until  it  is  satis- 
fied with  the  security  ? 

Senator  Fletcher.  Precisely,  and  the  commissioner  of  farm-land 
banks  is  empowered  here  to  make  certain  rules  and  regulations  with 
reference  to  that.  I  think  it  can  be  met  in  that  way,  by  rules  and 
regulations  prescribed  by  the  commissioner  of  farm-land  banks,  and 
then  the  Government  supervision. 

Senator  Hollis.  If  there  is  nothing  further  we  will  adjourn  until 
.to-morrow  at  half  past  10,  at  the  room  of  the  Banking  and  Cur- 
rency Committee  of  the  House.  T  believe  Mr.  Moss  is  going  to  ad- 
vise us  to-morrow.  We  will  consider  that  we  adjourn  until  10.30 
o'clock  to-morrow. 

(The  committee  adjourned  to  10.30  o'clock  a.  m.,  Tuesdav,  Febru- 
ary 17,  1914.) 


TUESDAY,  FEBRUARY   17,   1914. 

House  of  Representatives, 

Washington,  D.  C. 
The  subcommittees  assembled  in  joint  session  at  11  o'clock  a.  m., 
Hon.  Robert  J.   Bulkley  presiding. 

Present  also  Senator  Henry  F.  Hollis  and  Representatives  Brown, 
Stone,  Seldomridge,  Hayes,  Woods,  and  Piatt. 

By  direction  of  the  chairman  the  so-called  Fletcher  bill  (S.  4246) 
is  incorporated  in  the  record  as  follows: 

A  BILL  To  provide  for  the  establishment,  operation,  and  supervision  of  a  national  farm- 
land bank  system  in  the  United  States  of  America,  for  the  creation  of  depositaries  for 
postal  savings  and  other  public  funds,  and  for  other  purposes. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  the  short  title  of  this  act  shall 
be  "  National   Farm-Land  Bank  Act." 

Sec.  2.  That  there  shall  be  in  the  Department  of  the  Treasury  a  bureau 
charged  with  the  execution  of  all  laws  passed  by  Congress  relating  to  the  crea- 
tion and  supervision  of  farm-land  banks,  the  chief  officer  of  which  bureau  shall 
be  known  as  the  commissioner  of  farm-land  banks,  and  shall  perform  his  duties 
under  the  general  direction  of  the  Secretary  of  the  Treasury. 

Sec.  3.  That  the  commissioner  of  farm-land  banks  shall  be  appointed  by  the 
President,  by  and  with  the  advice  and  consent  of  the  Senate,  and  shall  hold 
office  for  the  term  of  five  years,  unless  sooner  removed  by  the  President  upon 
reasons  to  be  communicated  by  him  to  the  Senate;  and  he  shall  be  entitled  to 
a  salary  of  $6,000  a  year. 

The  commissioner  of  farm-land  banks  shall,  within  fifteen  days  of  notice  of 
his  appointment,  take  and  subscribe  the  oath  of  office,  and  he  shall  give  to  the 
United  States  a  bond  in.  the  penalty  of  $50,000,  with  surety  or  sureties  to  be 
approved  by  the  Secretary  of  the  Treasury,  conditioned  for  the  faithful  dis- 
charge of  the  duties  of  his  office. 

Sec.  4.  That  the  Secretary  of  the  Treasury,  at  the  request  of  the  commis- 
sioner of  farm-land  banks,  may  appoint  one  deputy  commissioner,  who  shall  be 
entitled  to  a  salary  of  $3,500  per  year,  and  who  shall  possess  such  powers  and 
perform  such  duties  under  the  commissioner  as  he  shall  direct.  During  a 
vacancy  in  the  office  of  the  commissioner,  or  during  his  absence  or  inability,  the 
deputy  commissioner  shall  possess  the  powers  and  perform  the  duties  attached 
by  law  to  the  office  of  the  commissioner.  The  deputy  commissioner  shall  take 
the  oath  of  office,  and  shall  give  a  like  bond  in  the  penalty  of  $30,000. 

Sec  5.  That  the  commissioner  of  farm-land  banks  shall  adopt  a  seal  of  office 
to  be  approved  by  the  Secretary  of  the  Treasury,  a  description  of  which  seal, 
together  with  an  impression  thereof  and  a  certificate  of  approval  thereof  signed 
by  the  Secretary  of  the  Treasury,  shall  be  filed  in  the  office  of  the  Secretary  of 
State. 

Sec.  6.  That  there  shall  be  assigned  from  time  to  time  to  the  commissioner 
of  farm-land  banks  by  the  Secretary  of  the  Treasury  rooms  for  conducting  the 
business  of  the  bureau  of  farm-land  banks,  containing  safe  and  secure  fire- 
proof vaults  in  which  the  commissioner  shall  keep  all  original  articles  of  asso- 
ciation and  other  valuable  documents  and  things  belonging  to  his  department; 
and  the  commissioner  shall  from  time  to  time  furnish  the  necessary  furniture, 
stationery,  and  other  proper  conveniences  for  the  transaction  of  the  business  of 
his  office. 

57 


58  RURAL    CREDITS. 

The  commissioner  shall  employ  from  time  to  time  the  necessary  clerks,  to 
be  appointed  and  classified  by  the  Secretary  of  the  Treasury,  to  discharge  such 
duties  as  the  commissioner  shall   direct 

Sec.  7.  That  it  shall  not  be  lawful  for  the  commissioner  or  deputy  commis- 
sioner, or  for  any  clerk  employed  in  the  bureau  of  farm-land  banks,  either 
directly  or  indirectly,  to  be  interested  in  any  farm-land  bank  formed  pursuant 
to  the  provisions  of  this  act. 

Sec.  8.  That  the  commissioner  shall  make  an  annual  report  to  Congress  at 
the  commencement  of  its  session,  exhibiting — 

First.  A  summary  of  the  state  and  condition  of  every  farm-land  bank  from 
which  reports  have  been  received  during  the  preceding  year,  at  the  several 
dates  to  which  such  reports  refer,  with  an  abstract  of  the  whole  amount  of 
mortgages  or  deeds  of  trust  held  by  them  and  collateral  trust  bonds  (herein- 
after described  as  national  land-bank  bonds)  issued  by  them,  the  whole  amount 
of  their  other  assets  and  liabilities,  the  amount  of  their  capital  stock,  and  such 
other  information  in  relation  to  such  companies  as  in  his  judgment  may  be 
useful  or  as  may  be  requested  by  Congress. 

Second.  A  statement  of  the  companies  whose  business  has  been  closed  during 
the  year,  with  the  amount  of  their  mortgages  or  deeds  of  trust  and  of  their 
national  land-bank  bonds  redeemed  and  the  amount  outstanding. 

Third.  Any  other  information  which  he  may  deem  desirable  to  present  and 
such  special  information  as  may  be  called  for  by  Congress. 

Fourth.  The  names  and  compensation  of  the  clerks  employed  by  him,  and  the 
whole  amount  of  the  expenses  of  the  bureau  of  farm-land  banks  during  the 
year,  together  with  a  full  and  complete  list  of  all  officers,  agents,  clerks,  and 
other  employees  of  his  office,  including  examiners,  receivers,  and  attorneys  for 
receivers,  and  clerks  employed  by  them,  or  any  other  person  connected  with  the 
work  of  said  bureau  in  Washington  or  elsewhere  whose  salary  or  compensation 
is  paid  from  the  Treasury  of  the  United  States  or  assessed  against  or  collected 
from  existing  or  failed  companies  under  supervision  or  control. 

When  the  annual  report  provided  for  in  the  last  section  is  completed,  or  while 
it  is  in  process  of  completion  if  thereby  the  business  may  be  sooner  dispatched, 
the  work  of  printing  shall  be  commenced  under  the  superintendence  of  the 
Secretary  of  the  Treasury,  and  the  whole  shall  be  printed  and  ready  for  de- 
livery on  or  before  the  first  day  of  December  next  after  the  close  of  the  fiscal 
year  to  which  the  report  relates.  There  shall  be  printed  not  to  exced  ten  thou- 
sand copies;  one  thousand  for  the  Senate,  two  thousand  for  the  House,  and  the 
remainder  for  distribution  by  the  commission. 

Sec  9.  That  within  ninety  days  after  the  approval  of  this  act,  or  as  soon 
thereafter  as  may  be,  the  Secretary  of  the  Treasury  shall  formulate  and  adopt 
the  plans,  rules,  and  regulations  governing  the  operations  of  the  bureau  of 
farm-land  banks,  in  accordance  with  this  act,  which  plans,  rules,  and  regula- 
tions shall  be  enforced  by  the  said  commissioner  of  farm-land  banks. 

POWERS  OF   COMMISSIONER  OF  FARM-LAND   BANKS. 

Sec.  10.  That  the  commissioner  of  farm-land  banks  is  authorized  and  empow- 
ered upon  proper  application  to  issue  charters  or  certificates  of  incorporation 
for  the  establishment  of  national  farm-land  banks  as  herein  provided  for;  and 
to  exercise  supervision  and  control  over  and  make  examinations  of  all  of  the 
national  farm-land  banks  established  under  this  act.  under  such  general  rules 
and  regulations  as  may  be  orovided;  and  to  withdraw  or  forfeit  such  charters 
or  liquidate  such  banks  whenever  necessary,  in  accordance  with  rules  to  be 
provided,  subject  in  all  respects  to  the  requirements  and  provisions  herein 
contained. 

Sec.  11.  That  the  said  commissioner  of  farm-land  banks  is  hereby  authorized, 
by  general  rules  and  regulations  to  be  approved  by  the  Secretary  of  the  Treas- 
ury, applicable  alike  to  all  the  national  farm-land  banks  organized  hereunder, 
to  specify  the  conditions  under  which  the  privileges  herein  authorized  to  be 
granted  to  all  said  national  farm-land  banks  shall  be  extended  to  such  banks; 
and  particularly  to  provide  for  the  extension  of  such  privileges  only  to  national 
farm-land  banks  operating  in  those  States  which,  by  the  passage  of  suitable  laws. 
have  met  the  requirements  of  the  said  commissioner  of  farm-land  banks  (first) 
as  to  the  simplification  of  land-title  registration  and  conveyancing,  (second) 
as  to  the  simplification,  promptness,  and  economy  of  methods  of  securing  farm- 
land loans  and  of  foreclosing  the  same,  and  as  to  other  matters  as  more  fully 


RUKAL    CKEDITS.  59 

set  out  iii  section  thirty-four  of  this  act.  And  the  said  commissioner  of  farm- 
land banks  shall,  by  like  general  rules  and  regulations  to  be  approved  by  the 
Secretary  of  the  Treasury,  have  the  power  to  specify  the  time  when  such  rules 
and  regulations  or  certain  of  them  shall  go  into  effect,  and  the  time  within 
which  such  conditions  or  certain  of  them  must  be  complied  with,  and  to  extend 
such  time,  and  to  withhold  such  privileges  or  certain  of  them  from  the  national 
farm-laud  banks  operating  in  any  State  failing  to  comply  with  the  required 
provisions  and  regulations  until  the  same  are  fully  complied  with. 

Sec.  12.  That  the  commissioner  of  farm-land  banks,  by  and  with  the  approval 
of  the  Secretary  of  the  Treasury,  shall  from  time  to  time  prepare  and  publish 
amortization  tables,  covering  periods  of  from  six  to  thirty-five  years,  at  varying 
rates  of  interest,  to  meet  all  the  requirements  of  the  banks  organized  hereunder. 
Such  tables  shall  be  adopted  and  used  by  all  of  such  banks  as  the  basis  of  all 
repayments  of  long-term  martgage  loans  herein  provided  for. 

INCORPORATION    OF    NATIONAL   FARM-LAND    BANKS. 

Sec.  13.  That  the  associations  for  carrying  on  the  business  of  farm-land  bank- 
ing under  this  act  may  be  formed  by  any  number  of  natural  persons,  not  less 
in  any  case  than  ten.  They  shall  enter  into  articles  of  association,  which  shall 
specify  in  general  terms  the  object  for  which  the  association  is  formed,  and 
may  contain  any  other  provisions  not  inconsistent  with  law  which  the  associa- 
tion may  see  fit  to  adopt  for  the  regulation  of  its  business  and  the  conduct  of 
its  affairs.  These  articles  shall  be  signed  by  the  persons  uniting  to  form  the 
association,  and  a  copy  of  them  shall  be  forwarded  to  the  commissioner  of 
farm-land  banks  to  be  filed  and  preserved  in  his  office. 

Sec.  14.  That  the  persons  uniting  to  form  such  a  national  farm-land  bank 
shall,  under  their  hands,  make  an  organization  certificate,  which  shall  specifically 
state : 

First.  The  name  assumed  by  such  association.  The  words  "  national  farm- 
land bank  "  shall  be  a  part  of  the  title  of  every  such  institution,  and  these  words 
shall  not  be  used  by  any  institution  other  than  those  incorporated  under  this 
act :  Provided,  hoicever,  That  if  the  persons  uniting  to  form  such  a  national 
farm-land  bank  shall  wish  to  apply  cooperative  principles  in  the  formation  and 
management  of  the  same,  the  words  "  national  farm-land  bank,  cooperative," 
shall  be  a  part  of  the  title ;  and  the  word  "  cooperative  "  shall  not  be  used  by 
any  national  farm-land  bank  other  than  those  which  accept  the  following 
principles  and  provide  in  their  by-laws  that — 

(a)  No  stockholder  shall  own  more  than  ten  per  centum  of  the  share  capital 
a.t  any  time. 

(b)  At  all  meetings  of  the  stockholders  of  such  banking  corporation  each 
stockholder  shall  have  one  vote  and  only  one  on  all  matters  pertaining  to  the 
organization  or  management  of  the  institution,  irrespective  of  the  number  of 
shares  of  stock  owned  by  such  stockholder. 

(c)  The  net  earnings  of  such  banking  corporation  available  and  set  aside 
for  the  payment  of  interest  and  dividends  shall  be  distributed  as  follows: 

To  each  owner  of  stock  of  such  corporation  may  first  be  paid  a  dividend  in 
the  form  of  interest  upon  the  par  value  of  the  shares  of  stock  owned  by  such 
owner  of  stock,  computed  at  the  rate  of  interest  generally  prevailing  in  the 
community  where  such  bank  is  located,  but  not  exceeding  the  legal  rate  of 
interest  in  the  State  where  such  banking  corporation  is  situated,  if  said  earnings 
are  sufficient  for  that  purpose ;  otherwise,  to  be  paid  to  each  owner  of  such 
stock  pro  rata  computed  upon  the  par  value  of  such  stock.  The  balance  of 
such  net  earnings,  if  any,  shall  be  distributed  among  the  patrons  of  such  bank- 
ing corporation  in  proportion  to  the  amount  of  business  transacted  with  such 
bank :  Provided,  however,  That  in  such  distribution  the  share-owning  patrons 
may,  if  approved  by  a  two-thirds  vote,  take  dividends  at  a  rate  twice  as  great 
as  that  paid  to  the  nonshare-owning  patrons. 

(d)  The  shares  of  stock  of  such  national  farm-land  banks,  cooperative,  may 
be  of  the  par  value  of  §25  each. 

(e)  In  all  other  respects  such  national  farm-land  banks,  cooperative,  shall 
conform  to  and  be  governed  by  the  general  laws  as  herein  provided. 

The  words  "national  farm-land  bank"  or  "national  farm-land  bank,  cooper- 
ative." shall  be  prefixed  by  such  descriptive  title  or  name  as  the  applicants  may 
indicate,  subject  to  the  approval  of  the  commissioner  of  farm-land  banks. 
Each  said  national  farm-land  bank  shall  be  designated  by  an  official  number 
provided  by  the  commissioner  of  farm-land  banks. 


60  RURAL    CREDITS. 

Second.  The  State  in  which  the  operations  of  such  national  farmland  banks 
are  to  be  carried  on,  and  the  place  in  said  State  where  its  principal  office  is  to 
be  located,  which  place  may  be  changed  from  time  to  time  upon  the  request  of 
such  national  farm-land  bank,  with  the  approval  of  the  commissioner  of  farm- 
land banks. 

Third.  The  amount  of  capital  stock,  and  the  number  of  shares  into  which 
the  same  is  to  be  divided:  Provided,  That  such  capital  stock  shall  in  no  c;ise 
be  less  than  $10,000:  And  provided  further,  That  such  capital  stock  may  be 
increased  or  decreased  from  time  to  time,  subject  to  the  approval  of  the  com- 
missioner of  farm-land  bank's,  but  at  no  time  to  be  less  than  th<>  minimum  herein 
set  forth. 

Fourth.  The  names  and  places  of  residence  of  the  shareholders  and  the 
number  of  shares  held  by  each  of  them. 

Fifth.  The  fact  that  the  certificate  is  made  to  enable  such  persons  to  avail 
themselves  of  the  advantages  of  this  act. 

Sec.  15.  That  the  organization  certificate  shall  be  acknowledged  before  a 
judge  of  some  court  of  record,  or  before  a  notary  public,  and  shall  be.  together 
with  the  acknowledgment  thereto,  authenticated  by  the  seal  of  such  court  or 
notary  public,  transmitted  to  the  commissioner  of  farm-land  banks,  who  shall 
record  and  carefully  preserve  the  same  in  his  office. 

Powers    and    Limitations    of    National    Farm-Land    Banks. 

general  powers. 

Sec  16.  That  upon  duly  making  and  filing  the  articles  or'  association  and 
an  organization  certificate,  the  association  shall  become,  as  from  the  date  of 
the  execution  of  its  organization  certificate,  a  body  corporate;  and  as  such, 
and  in  the  name  designated  in  the  organization  certificate,  shall  have  power: 

First.  To  adopt  and  use  a  corporate  seal. 

Second.  To  have  succession  for  the  period  of  fifty  years  from  its  organiza- 
tion, unless  it  is  sooner  dissolved  according  to  the  provisions  of  its  articles  of 
association  or  by  the  act  of  its  shareholders  owning  two-thirds  of  its  capital 
stock;  except  that,  in  the  case  of  cooperative  farm-laud  banks,  a  vote  of  two- 
thirds  of  the  stockholders  shall  be  necessary,  or  unless  its  franchise  becomes 
forfeited  by  some  violation  of  law:  Provided,  That  the  charters  of  all  national 
farm-land  banks  shall  be  at  all  times  subject  to  change,  amendment,  or  repeal 
under  general  laws  enacted  by  Congress:  Provided,  That  no  such  change,  amend- 
ment, or  repeal  shall  in  any  way  affect  the  rights  of  the  creditors  of  such 
national  farm-land  banks. 

Third.  To  make  contracts. 

Fourth.  To  sue  and  be  sued,  complain  and  defend,  in  any  court  of  law  and 
equity  as  fully  as  natural  persons. 

Fifth.  To  elect  or  appoint  not  less  than  five  nor  more  than  nine  directors, 
and  by  its  board  of  directors  to  appoint  a  president,  vice  president,  and  other 
officers,  to  define  their  duties,  require  bonds  of  them,  and  fix  the  penalty 
thereof,  dismiss  such  officers  or  any  of  them  at  pleasure,  and  appoint  others 
to  fill  their  places:  Provided.  That  the  officer  herein  described  as  Federal 
fiduciary  agent  shall  not  be  subject  to  removal  by  the  board  of  directors  or 
officers  of  said  bank,  but  shall  be  subject  to  removal  only  by  the  commissioner 
of  farm-land  banks. 

Sixth.  To  prescribe  by-laws  not  inconsistent  with  law  regulating  the  manner 
in  which  its  stock  shall  be  transferred,  its  directors  shall  be  elected  or  ap- 
pointed, its  officers  elected  or  appointed,  its  property  transferred,  its  general 
business  conducted,  and  the  privileges  granted  to  it  by  law  exercised  and  en- 
joyed, except  that  in  the  case  of  cooperative  farm-land  bauks  the  by-laws  shall 
be  approved  by  two-thirds  of  the  stockholders  before  beinu:  adopted  and  put 
into  effect. 

Seventh.  To  exercise  by  its  board  of  directors  or  duly  authorized  officers 
or  agents,  subject  to  law,  all  such  incidental  powers  as  shall  be  necessary  to 
carry  on  the  business  of  farm-land  banking:  Provided,  That  the  powers  of 
such  association  shall  include  the  following  specific  powers  ami  shall  be  sub- 
ject to  the  following  specific  restrictions: 


RUEAL    CREDITS.  61 

A.    SPECIFIC    POWEBS. 

Every  national  farm-land  bank  shall  have  the  following  specific  powers: 

(a)  To  accept  and  pay  interest  on  deposits  to  an  amount  not  exceeding  fifty 
per  centum  of  the  amount  of  its  combined  paid-up  capital  and  surplus;  to 
receive  deposits  of  postal  savings  funds  to  the  same  extent  and  to  pay  interest 
thereon  at  the  rate  required  of  other  banks  receiving  such  deposits.  The 
trustees  of  the  Postal  Savings  System  are  hereby  authorized  and  empowered 
to  select  national  farm-land  banks  as  depositories  for  such  funds,  which  banks, 
when  required  by  the  Secretary  of  the  Treasury,  shall  act  as  fiscal  agent  of  the 
United  States. 

(b)  To  make  loans  upon  farm  lands  anywhere  within  the  State  in  which  such 
national  farm-land  bank  is  operated :  Provided, 

First.  That  such  loans  are  made  for  not  more  than  thirty-five  years. 

Second.  That  such  loans  are  secured  by  a  first  mortgage  or  first  deed  of  trust 
on  farm  lands. 

Third.  That  such  loans  shall  be  made  for  any  of  the  following  purposes: 
(a)  To  complete  the  purchase  of  the  agricultural  lands  mortgaged;  (b)  to  im- 
prove and  equip  such  lands  for  agricultural  purposes;  (c)  to  pay  and  discharge 
debts  secured  by  mortgages  or  deeds  of  trust  on  said  lands. 

Fourth.  That  such  loans  do  not  exceed  fifty  per  centum  in  amount  in  the  case 
of  improved  farm  lands,  and  do  not  exceed  forty  per  centum  in  amount  in  other 
cases,  of  the  value  of  the  said  lands ;  to  be  determined  by  an  appraisal,  as  pro- 
vided in  this  act. 

Fifth.  That  every  such  farm-land  loan  contain  a  mandatory  provision  for  the 
amortization  of  such  loan,  or  reduction  of  the  same  by  annual  or  semiannual 
payments  on  account  of  principal :  Provided,  That  the  loan  extends  over  a 
period  exceeding  five  years. 

Sixth.  That  every  such  loan  may  be  paid  off  in  whole  or  in  part  by  the  bor- 
rower, in  accordance  with  rules  to  be  prescribed  by  the  commissioner  of  farm- 
land banks,  at  any  interest  period,  after  such  loan  has  continued  for  five  years, 
by  the  payment  of  the  whole  or  a  part  of  such  loan,  with  interest  to  such  date, 
after  crediting  the  amortization  payments  on  the  same,  as  and  when  they  were 
made. 

(c)  To  issue,  sell,  and  trade  in  its  own  collateral  trust  bonds  which  shal,l  be 
known  and  described  as  "national  land-bank  bonds"  secured  by  the  deposit,  as 
elsewhere  herein  provided  of  first  mortgages  or  first  deeds  of  trust  (and  of  notes 
or  bonds  secured  thereby),  in  an  amount  equal  at  least  to  the  face  value  of 
the  national  land-bank  bonds  so  issued  and  sold  by  the  said  bank:  Provided, 

First.  That  the  rate  of  interest  upon  the  farm-land  loans  evidenced  by  the 
mortgages  or  deeds  of  trust  held  by  the  bank  as  security  for  its  own  national 
land-bank  bonds  shall  not  exceed  the  rate  of  interest  paid  on  such  national 
land-bank  bonds  by  more  than  one  per  centum  annually  upon  the  amount  unpaid 
on  the  loan,  which  said  one  per  centum  shall  cover  all  charges  of  administration. 

Second.  That  all  national  land-bank  bonds  issued  by  the  said  bank  shall  be 
payable  on  a  date  specified  and  shall  be  subject  to  call  at  par,  at  any  interest 
period,  after  the  date  of  issue,  or  after  a  specified  time,  by  such  proper  notice 
and  advertisement  as  may  be  provided  by  the  commissioner  of  farm-land  banks. 

Third.  That  such  national  land-bank  bonds  shall  be  always  protected  by 
the  deposit,  as  security  therefor,  of  at  least  an  equal  amount  in  face  value  of 
first  mortgage  or  first  deed  of  trust  farm  loans  (and  of  notes  or  bonds  secured 
thereby),  maturing  not  less  than  five  years  after  their  date. 

Fourth.  That  as  vhe  amortization  payments  are  credited  upon  the  first  mort- 
gage or  first  deed  of  trust  farm  loans  so  deposited  as  security,  the  national 
land-bank  bonds  issued  by  the  bank  and  secured  thereby  shall  be  called  and 
paid,  or  purchased  in  the  open  market  and  retired,  to  the  extent  of  the  credits 
made  upon  such  first  mortgage  or  first  deed  of  trust  farm  loans  held  as  security 
for  the  same,  under  rules  and  regulations  made  by  the  commissioner  of  farm- 
land banks. 

Fifth.  That  the  first  mortgage  or  first  deed  of  trust  farm  loans  (and  the  notes 
and  bonds  secured  thereby)  field  as  security  for  such  national  land-bank  bonds 
shall  at  all  times  be  in  the  joint  possession  and  under  the  joint  control  of  the 
said  bank  and  of  the  Federal  fiduciary  agent  hereinafter  provided  for,  and  that 
a  register  of  such  first  mortgages  or  first  deeds  of  trust  shall  be  at  all  times 
kept  by  the  bank,  entries  or  cancellations  in  which  shall  only  be  made  with  the 
approval  in  writing  of  such  Federal  fiduciary  agent. 


62  RURAL    CREDITS. 

Sixth.  That  no  national  land-bank  bond  shall  be  issued  against  any  mortgage 
or  deed  of  trust  (or  notes  or  bonds  secured  thereby)  which  falls  due  earlier 
than  five  years  after  its  date. 

(d)  To  use  its  capital  slock,  surplus,  and  deposits  as  a  revolving  fund  for  the 
temporary  purchase  or  holding  of  such  firsi  mortgage  or  first  deed  of  trust  farm 
loans;  or  to  use  the  same  Cor  the  purpose  of  buying  in  its  national  land-bank 
bonds  and  of  holding  them  temporarily,  so  as  to  maintain  the  price  of  the  same: 
or  to  loan  its  capital  and  surplus  on  first  mortgages  or  first  deeds  of  trust  for 
a  period  not  exceeding  five  years:  Provided,  That  not  to  exceed  fifty  per  centum 
of  such  capital  and  surplus  may  be  permanently  invested  in  such  national  land- 
bank  bonds  and  in  first  mortgage  or  first  deed  of  trust  farm  loans,  and  the  re- 
mainder of  the  capital  and  surplus  can  be  permanently  invested  only  in  United 
States  Government  bonds,  in  the  bonds  of  the  State  in  which  such  bank  is 
operating,  or  in  such  other  securities  as  may  be  authorized  by  the  connnissoner 
of  farm-land  banks. 

(e)  To  buy  and  sell  gold  and  silver  coin  and  bullion;  to  collect  notes,  drafts, 
and  bills  of  exchange ;  to  discount  commercial  and  other  short-term  paper  and 
deal  in  national  land-bank  bonds  of  other  farm-land  banks  with  its  deposits; 
to  keep  reciprocal  accounts  with  other  banks;  to  rediscount  its  commercial  and 
other  short-term  paper  with  other  banks;  and  to  carry  on  a  general  banking 
business  so  far  as  its  current  deposits  are  concerned  :  Provided,  That  such  de- 
posits do  not  exceed  fifty  per  centum  of  its  capital  and  surplus,  except  as  else- 
where herein  specfied :  Provided,  however,  That  farm-laud  banks,  cooperative, 
may  for  and  with  their  stockholders  also  do  and  transact  the  business  now 
possessed  and  exercised  by  national  banks  under  the  laws  of  the  United  States, 
under  such  rules  and  regulations  as  may  be  prescribed  by  the  commissoner  of 
farm-land  banks. 

!!.    SPECIFIC    LIMITATIONS. 

Every  national  farm-land  bank  shall  be  subject  to  the  following  specific 
limitations: 

(a)  The  amount  of  national  land-bank  bonds  that  may  be  issued  and  out- 
standing at  any  one  time  by  such  national  farm-land  bank  shall  not  exceed 
fifteen  times  its  capital  and  accumulated  surplus. 

(b)  The  charges  of  administration  imposed  by  such  national  farm-land  bank 
upon  the  borrower  for  handling  such  loan  shall  not  in  each  instance  exceed  an 
annual  charge  of  one  per  centum  upon  the  amount  unpaid  on  the  loan. 

(3)  The  payments  to  be  made  annually  or  semiannually  by  the  borrower 
shall  in  all  cases  be  sufficient  to  pay  the  interest  charge  upon  the  loan,  the  ad- 
ministration charges  of  the  bank,  and  an  amortization  payment  sufficient  to 
retire  and  pay  off  the  amount  of  the  principal  borrowed  (as  evidenced  by  the 
face  of  said  first  mortgage  or  first  deed  of  trust  and  the  notes  or  bonds  secured 
thereby),  at  its  maturity. 

(d)  No  national  farm-land  bank  shall  at  any  time  loan  any  money  upon  the 
faith  or  credit,  or  upon  the  assignment,  of  its  own  stock,  or  of  the  stock  of  any 
other  national  farm-land  bank;  nor  shall  any  national  farm-laud  bank  loan  to 
or  on  the  credit  of,  any  one  individual  or  institution,  either  on  the  security  of 
land  or  on  any  other  security,  an  amount  in  excess  of  twenty  per  centum  of 
the  sum  of  its*  then  paid-in  capital  and  surplus. 

Eighth.  But  no  national  farm-land  bank  shall  transact  any  business  except 
such  as  is  incidental  and  necessarily  preliminary  to  its  organization  until  it 
has  been  authorized  to  commence  business  by  the  commissioner  of  farm-land 
banks. 

HOLDINGS    OF    REAL    ESTATE. 

Sec.  17.  That  national  farm-land  bank  may  purchase,  hold,  and  convey  real 
estate  for  the  following  purposes  and  for  no  others: 

First.  Such  as  shall  be  necessary  for  its  immediate  accommodation  in  the 
transaction  of  its  business. 

Second.  Such  as  shall  be  mortgaged  to  it  by  way  of  security  for  loans  made 
by  it,  as  elsewhere  herein  provided. 

Third.  Such  as  shall  be  conveyed  to  it  in  satisfaction  of  debts  contracted  in 
the  course  of  business  dealings. 

Fourth.  Such  as  it  shall  purchase  at  sale  under  judgments,  decrees,  or  mort- 
gages or  deeds  of  trust,  held  by  the  bank,  or  shall  purchase  to  secure  debts 
due  to  It. 


RURAL    CREDITS.  63 

But  no  such  bank  shall  bold  tbe  title  and  possession  of  any  real  estate  con- 
veyed to  or  purchased  by  it  to  secure  any  debts  due  to  it  for  a  longer  period 
than  five  years. 

EXEMPTION   FROM    TAXATION. 

Sue.  18.  That  every  national  farm-land  bank  incorporated  under  the  terms  of 
this  act  and  the  capital  stock  and  surplus  therein  and  the  income  derived  there- 
from and  the  mortgages  and  deeds  of  trust  (and  the  notes  and  bonds  secured 
thereby)  held  by  said  bank  and  the  national  land-bank  bonds  issued  by  the 
same  shall  be  exempt  from  Federal  State,  and  local  taxation,  except  in  respect 
to  taxes  upon  real  estate. 

FEDERAL    FIDUCIARY    AGENT. 

Sec.  19.  That  the  commissioner  of  farm-land  banks  shall  at  the  time  of  or- 
ganization of  each  national  farm-land  bank  designate  some  individual  who  is 
not  an  officer  or  director  of  the  bank,  and  who  is  not  objectionable  to  the 
directors  of  the  bank,  as  a  "  Federal  fiduciary  agent"  for  that  bank,  who  shall 
also  be  the  representative  of  the  bureau  of  farm-land  banks.  As  such  Federal 
fiduciary  agent  he  shall  have  the  following  powers  and  perform  the  following 
duties: 

First.  He  shall  certify  to  each  national  land-bank  bond  issued  by  the  said 
bank,  and  no  national  land-bank  bond  issued  without  his  signature  shall  be 
binding  upon  the  said  bank 

Second.  He  shall  have  joint  possession  and  control  with  the  bank  of  the 
mortgages  and  deeds  of  trust  (and  of  the  notes  and  bonds  secured  thereby) 
which  are  deposited  as  security  for  the  national  land-bank  bonds  issued  by  the 
bank,  and  no  mortgage  or  deed  of  trust  (or  note  or  bond  secured  thereby)  so 
placed  in  the  joint  possession  of  himself  and  the  said  bank  shall  be  withdrawn 
or  changed  or  have  any  credit  made  thereon  except  by  and  with  his  consent  in 
writing. 

Third.  He  shall  have  the  supervisory  control  of  all  entries  in  the  mortgage 
ledger  kept  by  the  bank,  in  which  ledger  shall  be  kept  a  detailed  statement  of 
each  issue  of  national  land-bank  bonds  made  by  the  bank,  and  of  all  the 
mortgages  or  deeds  of  trust  (and  notes  or  bonds  secured  thereby)  held  by  the 
bank  and  himself  jointly,  to  secure  the  national  land-bank  bonds  of  the  bank, 
as  well  of  such  other  information  as  may  be  required  by  the  bureau  of  farm- 
land banks.  And  no  entry  shall  be  made  in  tbe  said  mortgage  ledger  indi- 
cating either  the  deposit  of  mortgages  or  deeds  of  trust,  the  withdrawal  or 
substitution  of  mortgages  or  deeds  of  trust,  or  credits  on  mortgages  or  deeds 
of  trust  so  held  by  the  bank,  except  by  and  with  his  approval  in  writing, 
which  approval  may  be  signified  by  signing  his  name  on  the  margin  of  the  page 
in  the  mortgage  ledger  where  such  entries  are  made. 

Fourth.  He  shall  execute  such  bond  with  such  security  as  may  be  required 
by  the  commissioner  of  farm-land  banks.  The  salary  and  expenses  of  said 
Federal  fiduciary  agent  shall  be  fixed  by  the  joint  agreement  of  the  bank  and 
of  the  commissioner  of  farm-land  banks  and  shall  be  paid  by  the  national 
farm-land  bank  with,  which  he  is  acting. 

CAPITAL    STOCK. 

Sec  20.  That  the  shares  of  stock  of  each  national  farm-land  bank  shall  be 
©f  the  par  value  of  $100  each,  and  each  stockholder  shall  be  entitled  to  one 
vote  for  each  share  of  stock  standing  in  his  name:  Provided,  however.  That  in 
the  case  of  national  farm-land  banks,  cooperative,  each  stockholder  shall  be 
entitled  to  one  vote,  and  only  one,  and  the  shares  of  stock  may  be  of  the  par 
value  of  $25  each.  Shareholders  may  vote  by  proxies  duly  authorized  in 
writing ;  but  no  officer,  clerk,  or  employee  of  such  bank  shall  act  as  proxy, 
and  no  shareholder  whose  liability  is  past  due  or  unpaid  shall  be  allowed  to 
vote.  Any  national  farm-land  bank  may  be  it  by-laws  authorize  cumulative 
voting  for  directors. 

Sec  21.  That  at  least  fifty  per  centum  of  the  capital  stock  of  every  national 
farm-land  bank  shall  be  paid  in  before  it  shall  be  authorized  to  do  business, 
and  the  remainder  of  the  capital  stock  of  said  bank  shall  be  paid  in,  in  install- 
ments of  at  least  ten  per  centum  each  on  the  whole  amount  of  the  capital,  as 
frequently  as  one  installment  before  the  end  of  each  succeeding  month  from 


64  RURAL    CREDITS. 

the  time  it  shall  be  authorized  by  the  commissioner  of  farm-land  banks  to  com- 
mence business,  and  the  payment  of  each  installment  shall  be  certified  to  the 
commissioner  of  farm-land  banks,  under  oath,  by  the  president  or  cashier  of 
the  bank. 

Sec.  22.  That  whenever  any  shareholder  or  his  assignee  fails  to  pay  any 
installment  on  the  stock  when  the  same  is  required  by  the  preceding  section 
to  be  paid,  the  directors  of  such  bank  may  sell  the  stock  of  such  delinquent 
shareholder  at  public  auction,  having  given  three  weeks'  previous  notice 
thereof  in  a  newspaper  of  general  circulation  published  in  the  city  or  county 
where  the  bank  is  located  (or  if  no  newspaper  is  published  in  said  city  or 
county,  then  in  a  newspaper  published  nearest  thereto),  to  any  person  who 
will  pay  the  highest  price  therefor,  to  be  not  less  than  the  amount  due  thereon, 
with  the  expenses  of  advertisement  and  sale ;  and  the  excess,  if  any,  shall  be 
paid  to  the  delinquent  shareholder.  If  no  bidder  can  be  found  who  will  pay 
for  such  stock  the  amount  due  thereon  to  the  association  and  the  cost  of 
advertisement  and  sale,  the  amount  previously  paid  shall  be  forfeited  to  the 
association,  and  such  stock  shall  be  sold  as  the  directors  may  order,  within  six 
months  from  the  time  of  such  forfeiture;  and  if  not  sold,  it  shall  be  canceled 
and  deducted  from  the  capital  stock  of  the  association.  If  any  such  cancella- 
tion and  reduction  shall  reduce  the  capital  of  the  association  below  the  mini- 
mum of  the  capital  required  by  law,  or  below  one-fifteenth  of  its  outstanding 
national  land-bank  bonds,  the  capital  stock  shall,  within  thirty  days  from  the 
date  of  such  cancellation,  be  increased  to  the  required  amount,  in  default  of 
which  a  receiver  may  be  appointed,  according  to  the  provisions  of  section 
fifty-two  hundred  and  thirty-four  of  the  Revised  Statutes,  so  fas  as  it  may 
be  applied  hereto,  to  close  up  the  business  of  such  bank. 

Sec.  23.  That  any  bank  formed  under  this  act  may,  by  its  articles  of  association, 
provide  for  an  increase  of  its  capital  from  time  to  time,  as  may  be  deemed  expe- 
dient, subject  to  the  limitations  of  this  act.  But  the  maximum  of  such  increase 
to  be  provided  in  the  articles  of  association  shall  be  approved  by  the  commis- 
sioner of  farm-land  banks;  and  no  increase  of  capital  shall  be  valid  until  the 
total  amount  of  such  increase  is  paid  in  and  until  notice  thereof  has  been 
transmitted  to  the  commissioner  of  farm-land  banks,  who  shall  thereupon  issue 
to  such  bank  his  certificate,  specifying  the  amount  of  such  increase  of  capital 
stock,  with  his  approval  thereof,  and  after  it  has  been  duly  paid  in  it  shall  be 
treated  as  part  of  the  capital  stock  of  such  association. 

Sec.  24.  That  any  bank  formed  under  this  act  may,  by  the  vote  of  share- 
holders owning  two-thirds  of  its  capital  stock,  or  in  the  case  of  national  farm- 
land banks,  cooperative,  by  the  vote  of  two-thirds  of  the  stockholders,  reduce 
its  capital  to  any  sum  not  below  the  amount  required  by  this  act  to  authorize 
the  formation  of  such  a  bank ;  but  no  such  reduction  shall  be  allowed  which 
will  reduce  the  capital  and  surplus  of  the  association  below  one-fifteenth  of  its 
outstanding  national  land-bank  bonds  as  herein  provided ;  nor  shall  any  such 
reduction  be  made  until  the  amount  of  the  proposed  reduction  has  been  re- 
ported to  and  approved  by  the  commissioner  of  farm-land  banks. 

BOARD    OF    DIRECTORS. 

Sec.  25.  That  the  affairs  of  each  bank  shall  be  managed  by  not  less  than  five 
nor  more  than  nine  directors.  All  directors  shall  be  elected  by  the  shareholders 
at  a  meeting  to  be  held  at  any  time  before  the  association  is  authorized  by 
the  commissioner  of  farm-land  banks  to  commence  business,  and  afterwards  at 
meetings  to  be  held  on  any  such  date  in  January  of  each  year  as  is  specified 
therefor  in  the  articles  of  association.  The  directors  shall  hold  office  for  one 
year  and  until  their  successors  are  elected  and  qualified. 

Sec.  l!<>.  That  every  director  must,  during  his  whole  term  of  service,  be  a 
citizen  of  the  United  States:  and  at  least  three-fourths  of  the  directors  must 
reside  in  the  State  or  Territory  in  which  the  bank  is  located  for  at  least  one 
year  immediately  preceding  their  election,  and  must  be  residents  therein  during 
their  continuance  in  office.  Every  director  must  own,  in  his  own  right,  at  least 
five  shares  of  the  capital  stock  of  the  bank  of  which  he  is  a  director.  Any 
director  who  ceases  to  be  the  owner  of  five  shares  of  stock,  or  who  becomes 
in  any  other  manner  disqualified,  shall  thereby  vacate  his  place. 

Sec.  27.  That  each  director,  when  appointed  or  elected,  shall  take  an  oath 
that  he  will,  BO  far  as  the  duty  devolves  on  him.  diligently  and  honestly  ad- 
minister the  affairs  of  such  bank,  and  will  not  knowingly  violate  or  willingly 
permit  to  be  violated  any  of  the  provisions  of  this  act,  and  that  he  is  the  owner 


RURAL    CREDITS.  65 

in  good  faith,  and  in  his  own  right,  of  the  number  of  shares  of  stock  required 
by  this  act,  subscribed  for  by  him  or  standing  in  his  name  on  the  books  of 
the  bank,  and  that  the  same  is  not  hypothecated  or  in  any  way  pledged  as 
security  for  any  loan  or  debt.  Such  oath  subscribed  by  the  director  making 
it,  and  certified  by  the  officer  before  whom  it  is  taken,  shall  be  immediately 
transmitted  to  the  commissioner  of  farm-land  banks  and  shall  be  filed  and 
preserved  in  his  office. 

Sec.  28.  That  any  vacancy  in  the  board  shall  be  filled  by  appointment  by 
the  remaining  directors,  and  any  director  so  appointed  shall  hold  his  place 
until  the  next  election. 

Sec.  29.  That  if,  from  any  cause,  an  election  of  directors  is  not  made  at  the 
time  appointed,  the  bank  shall  not  for  that  cause  be  dissolved,  but  an  election 
may  be  held  on  any  subsequent  day,  thirty  days'  notice  thereof  in  all  cases 
having  been  given  in  a  newspaper  published  in  the  city,  town,  or  county  in 
which  the  bank  is  located ;  and  if  no  newspaper  is  published  in  such  city, 
town,  or  county,  such  notice  shall  be  published  in  a  newspaper  published 
nearest  thereto.  If  the  articles  of  association  do  not  fix  the  day  on  which  the 
election  shall  be  held,  or  if  no  election  is  held  on  the  day  fixed,  the  day  for 
the  election  shall  be  designated  by  the  board  of  directors;  or  if  the  directors 
fail  to  fix  the  day,  shareholders  representing  two-thirds  of  the  shares  may 
do  so,  or  in  the  case  of  national  farm-land  banks,  cooperative,  two-thirds  of 
the  stockholders  may  do  so. 

Sec.  30.  That  one  of  the  directors,  to  be  chosen  by  the  board,  shall  be  the 
president  of  the  board.  One  or  more  vice  presidents  shall  likewise  be  chosen 
by  the  board. 

LIABILITY    OF    STOCKHOLDERS. 

Sec  31.  That  the  shareholders  of  every  national  farm-land  bank  shall  be  held 
individually  responsible,  equally  and  ratably,  and  not  one  for  another,  for  all 
contracts,  debts,  and  engagements  of  such  bank,  to  the  extent  of  the  amount 
of  their  stock  therein,  at  the  par  value  thereof,  in  addition  to  the  amount  in- 
vested in  such  shares,  unless,  in  the  case  of  national  farm-land  banks,  coopera- 
tive, by  a  two-thirds  vote  of  the  stockholders  a  larger  liability  shall  be  under- 
taken. 

Sec.  32.  That  persons  holding  stock  as  executors,  administrators,  guardians, 
or  trustees  shall  not  be  personally  subject  to  any  liabilities  as  stockholders;  but 
the  estates  and  funds  in  their  hands  shall  be  liable  in  like  manner  and  to  the 
same  extent  as  the  testator,  intestate,  ward,  or  person  interested  in  such  trust 
funds  would  be  if  living  and  competent  to  act  and  hold  the  stock  in  his  own 
name. 

CONVERSION    OF    EXISTING    LAND-MORTGAGE    COMPANIES    AND    OTHER    STATE    INSTITU- 
TIONS   INTO    NATIONAL    FARM-LAND    BANKS. 

Sec.  33.  That  any  land-mortgage  association  or  corporation,  or  any  similar 
institution,  including  building  and  loan  associations  or  savings  and  loan  asso- 
ciations lending  exclusively  on  farm  mortgages,  now  incorporated  under  the 
general  or  special  laws  of  any  State,  may  become  a  national  farm-land  bank 
under  this  act,  under  a  suitable  name,  upon  complying  with  the  provisions  of 
this  act;  and  in  such  case  the  articles  of  association  and  the  organization 
certificate  may  be  executed  by  a  majority  of  the  stockholders  of  the  existing 
institution,  and  the  certificate  shall  declare  that  the  owners  of  two-thirds  of  the 
capital  stock  of  the  old  institution  have  authorized  the  directors  to  make  such 
certificate  and  to  change  and  convert  the  institution  into  a  national  farm-land 
bank.  The  majority  of  the  directors,  after  executing  the  articles  of  association 
and  organization  certificate,  shall  have  power  to  execute  all  other  papers  and 
to  do  whatever  may  be  required  to  make  its  organization  perfect  and  complete 
as  a  national  farm-land  bank.  The  directors  of  the  old  company  may  continue 
to  be  the  directors  of  the  national  farm-land  bank  until  others  are  elected  or 
appointed,  in  accordance  with  the  provisions  of  this  chapter.  When  the  com- 
missioner of  farm-land  banks  has  given  to  such  association  a  certificate 
under  his  hand  and  official  seal,  after  the  provisions  of  this  bill  have  been  com- 
plied with  and  after  it  is  authorized  to  commence  the  business  of  farm-land 
banking,  the  bank  shall  have  the  same  powers  and  privileges  and  shall  be 
subject  to  the  same  duties,  responsibilities,  and  rules,  in  all  respects,  as  are 
prescribed  for  other  banks  originally  organized  as  national  farm-land  banks, 
and  shall  be  held  and  regarded  as  such  a  national  farm-land  bank:  but  no  such 

37031—14 5 


66  RUEAL    CREDITS. 

bank  shall  have  a  less  capital  than  the  amount  prescribed  for  national  farm- 
land banks  organized  under  this  act,  and  no  such  corporation  shall  be  authorized 
to  do  business  as  a  national  farm-land  bank  until  the  amount  of  its  outstanding 
collateral  trust  bonds  is  so  reduced  that  it  does  not  exceed  fifteen  times  the 
capital  and  surplus  of  the  said  bank  and  until  it  complies  in  all  other  respects 
with  the  provisions  of  this  act. 

PRIVILEGES    GRANTED    TO    NATIONAL    FARM-LAND    HANKS. 

Sec.  34.  That  the  national  land-bank  bonds  of  any  national  farm-land  bank 
shall  be  available  for  the  following  purposes: 

First.  As  security  for  the  deposit  of  postal  savings  funds  in  such  national 
farm-land  banks  and  sill  other  banks  authorized  to  receive  such  deposits. 

Second.  As  a  legal  investment  for  time  deposits  of  national  banking  associa- 
tions, as  provided  in  the  Federal  reserve  act,  and  for  the  funds  accumulated 
in  savings  banks  organized  and  doing  business  in  the  District  of  Columbia. 

Third.  As  a  legal  investment  for  trust  funds  and  estates  under  the  charge  of 
or  administered  by  any  of  the  courts  of  the  United  States. 

Fourth.  As  a  security  for  loans  from  national  banking  associations  to  na- 
tional farm-land  banks  or  to  individuals,  for  not  exceeding  five  years,  to  an 
amount  aggregating  not  over  twenty-five  per  centum  of  the  capital  and  surplus 
or  to  one-third  of  the  time  deposits  of  the  national  banking  association  making 
such  loan.  Such  loans  to  be  made  and  beld  by  the  national  banking  associa- 
tion making  the  same,  as  being  within  the  provisions  of  section  twenty-four 
of  the  Federal  reserve  act,  so  as  to  permit  national  banking  associations  to 
lend  to  national  farm-land  banks,  on  their  obligations  secured  by  their  national 
land-bank  bonds,  in  place  of  making  the  loan  directly  on  farm  lands,  as  pro- 
vided for  in  said  section. 

The  foregoing  privileges  (or  such  of  them  as  the  commissioner  of  farm-land 
banks,  with  the  approval  of  the  Secretary  of  the  Treasury,  may,  by  general 
rules  applicable  to  all  banks  organized  hereunder,  from  time  to  time  designate) 
shall  apply  to  national  land-bank  bonds  issued  under  authority  of  this  act 
only  as  and  when  the  following  conditions  (or  such  of  tbem  as  the  commissioner 
of  farm-land  banks,  with  the  approval  of  tbe  Secretary  of  the  Treasury,  may 
from  time  to  time  by  like  general  rules  designate)  are  likewise  put  into  effect 
in  any  State  or  States : 

(a)  That  laws  decided  to  be  sufficient  by  the  bureau  of  farm-land  banks 
have  been  enacted  by  tbe  State  in  which  such  national  farm-land  bank  is 
operating,  withdrawing  or  canceling  the  right  to  claim  exemption,  or  providing 
for  the  waiver  of  such  exemption,  whether  homestead  or  otherwise,  against 
the  mortgages  or  deeds  of  trust  (or  notes  or  bonds  secured  thereby)  held  as 
security  for  the  national  land-bank  bonds  of  such  national  farm-land  bank: 
Provided,  That  if  the  right  to  waive  such  exemption  is  given,  then  that  all  the 
mortgages  or  deeds  of  trust  (and  bouds  or  notes  secured  thereby)  deposited 
as  security  for  such  national  land-bank  bonds  contain  such  waiver. 

(b)  That  in  the  judgment  of  the  commissioner  of  farm-land  banks  the  State 
laws  providing  for  registration  of  land  titles,  conveyances,  and  foreclosures  in 
any  given  State  are  such  as  to  give  reasonable  protection  to  the  holders  of 
first  mortgages  and  first  deeds  of  trust  on  lands  located  within  that  State. 

(c)  That  the  national  land-bank  bonds  of  all  national  farm-land  banks 
which  are  accepted  under  tins  law  as  security  in  the  various  matters  above  set 
out  shall  be  likewise  accepted,  under  the  State  laws  of  the  State  in  which 
such  national  farm-land  bank  is  operated,  as  a  legal  investment  for  tbe  funds 
of  savings  banks  operating  in  that  State  and  of  trust  funds  and  estates  held 
by  or  under  the  control  of  the  courts  of  that  State  and  as  a  legal  investment  for 
the  reserves  of  insurance  companies  incorporated  under  or  operating  under 
the  laws  of  that  State. 

EXAMINATIONS. 

Sec.  .';."",.  That  the  commissioner  of  farm-land  banks,  with  the  approval  of 
the  Secretary  of  the  Treasury,  shall,  as  often  as  shall  be  deemed  necessary  or 
proper,  indicate  a  suitable  person  or  persons  to  make  an  examination  of  the 
affairs  of  every  national  farm-land  bank,  and  shall  have  power  to  make  a  thor- 
ough examination  into  all  the  affairs  of  the  bank,  and  in  doing  so  to  examine 
any  of  the  officers  and  agents  thereof  on  oath,  and  shall  make  full  and  detailed 
report  of  the  condition  of  the  bank  to  the  commissioner  of  farm-land  banks. 


EUEAL    CREDITS.  67 

The  person  assigned  to  the  making  of  such  examination  of  the  affairs  of  any 
national  farm-land  bank  shall  have  the  power  to  call  together  a  quorum  of 
the  directors  of  such  bank,  who  shall,  under  oath,  state  to  such  examiner  the 
character  and  circumstance  of  such  of  its  business  as  he  may  designate.  The 
expense  of  the  examinations  herein  provided  for  shall  be  assessed  by  the 
bureau  of  farm-land  banks  upon  the  banks  examined  in  proportion  to  assets 
or  resources  held  by  such  banks  upon  a  date  during  the  year  on  which  such 
examinations  are  held,  to  be  established  by  the  bureau  of  farm-land  banks. 
The  provisions  of  section  twenty-six  of  the  Federal  reserve  act,  prohibiting 
the  making  of  any  loan  or  granting  any  gratuity  to  the  examiner  of  a  national 
bank,  sball  apply  with  equal  force  to  examiners  of  national  farm-land  banks, 
and  the  penalties  and  punishments  therein  provided  shall  be  equally  applicable 
to  such  examiners  of  national  farm-land  banks. 

Sec.  36.  That  the  commissioner  of  farm-land  banks  shall  require  statements 
showing  the  condition  of  each  bank  to  be  published  in  a  newspaper  or  news- 
papers published  in  the  vicinity  where  the  bank  is  located  at  such  times  as 
calls  for  such  statements  may  be  made  by  him,  and  in  general  conformity  with 
the  practice  as  to  call  for  statements  from  national  banking  associations  by  the 
Comptroller  of  the  Currency :  Provided,  That  in  the  discretion  of  the  Secretary 
of  the  Treasury  any  or  all  examinations  of  national  farm-land  banks  may  be 
made  by  examiners  who  are  commissioned  to  examine  national  banking 
associations. 

DIVIDENDS. 

Sec.  37.  That  the  directors  of  each  national  farm-land  bank  shall  be  author- 
ized to  declare  a  dividend  upon  the  outstanding  and  paid-up  capital  stock  of 
such  an  institution  out  of  the  net  earnings  of  the  same:  Provided,  That  in  no 
case  shall  any  dividend  be  paid  which  will  impair  the  capital  stock  of  the 
said  institution,  nor  shall  any  dividend  be  paid  which  will  reduce  the  amount 
of  capital  and  surplus  of  each  bank  to  less  than  one-flfteenth  of  the  outstanding 
national  land-bank  bonds  of  the  said  bank:  Provided,  however,  That  in  the  case 
of  cooperative  farm-land  banks  the  net  earnings  of  such  banking  corporations 
available  and  set  aside  for  the  payment  of  interest  and  dividends  shall  be 
distributed  as  follows :  To  each  owner  of  stock  of  such  corporation  may  first 
be  paid  a  dividend  in  the  form  of  interest  upon  the  par  value  of  the  shares 
of  stock  owned  by  such  owner  of  stock,  computed  at  the  rate  of  interest 
generally  prevailing  in  the  community  where  such  bank  is  located,  but  not 
exceeding  the  legal  rate  of  interest  in  the  State  where  such  banking  corpora- 
tion is  situated,  if  said  earnings  are  sufficient  for  that  purpose;  otherwise,  to 
be  paid  to  each  owner  of  such  stock  pro  rata,  computed  upon  the  par  value  of 
such  stock.  The  balance  of  such  net  earnings,  if  any.  shall  be  distributed 
among  the  patrons  of  such  banking  corporation  in  proportion  to  the  amount 
of  business  transacted  with  such  bank :  Provided,  however,  That  in  such  dis- 
tribution the  share-owning  patrons  may.  if  approved  by  a  two-thirds  vote, 
take  dividends  at  a  rate  twice  as  great  as  that  paid  to  nonshare-owning  patrons : 
Provided  further,  That  a  special  reserve  fund  shall  be  maintained  by  each 
national  farm-land  bank,  which  special  reserve  fund  shall  be  created  out  of  the 
net  earnings  of  the  bank  and  shall  at  all  times  be  equal  to  five  per  centum  of 
the  total  annual  interest  charge  on  the  land-bank  bonds  which  are  outstanding 
against  such  bank  at  the  close  of  the  last  fiscal  year.  Such  special  reserve 
fund  shall  not  be  disbursed  for  any  other  purpose  except  to  meet  arrears  in 
interest  payments  on  land-bank  bonds  issued  by  such  bank. 

DIRECTORS'    MEETINGS. 

Sec.  38.  That  the  directors  of  each  national  farm-land  bank  shall  meet  at 
least  once  in  each  month,  and  at  such  other  times  as  are  necessary.  They  shall 
have  power  to  appoint  committees  and  to  delegate  to  such  committees  such 
portion  of  their  powers  as  may  be  necessary  for  the  convenient  operation  of  the 
bank,  subject  to  the  approval  of  the  bureau  of  farm-land  banks. 

APPRAISEMENT    COMMITTEE. 

Sec  39.  That  the  board  of  directors  of  each  national  farm-land  bank  shall 
immediately  upon  its  organization,  and  before  making  any  loans  upon  farm 
lands,  appoint  an  appraisement  committee,  which  shall  be  composed  of  three 


68  RURAL    CREDITS. 

members  of  the  board  of  directors.  The  names  of  said  appraisement  committee 
shall  be  at  once  delivered  to  the  commissioner  of  farm-land  banks,  and  any 
change  In  the  said  committee  shall  be  at  once  communicated  to  him.  The  duty 
of  said  committee  shall  be  to  appraise,  or  cause  to  be  appraised,  and  report  on 
the  value  of  real  estate  offered  as  security  for  loans.  All  reports  of  the  ap- 
praisement committee  shall  be  made  In  writing,  signed  by  a  majority  of  the 
commit  lee,  and  shall  give  a  description  of  the  property,  the  value  at  which  it 
Is  appraised  by  them,  the  value  at  which  it  is  assessed  for  taxation,  and  such 
other  information  as  may  be  required  by  the  directors  of  the  bank  or  by  the 
commissioner  of  farm-land  banks.  Such  report  shall  be  filed  and  preserved 
with  other  papers  relating  to  such  loan,  and  no  loan  shall  be  made  on  any 
farm  land  unless  and  until  such  report  in  writing  has  been  filed  with  the  said 
bank. 

POSTAL   SAVINGS   DEPOSITS — DEPOSIT  OF   STATE  FUNDS — RESERVES — LOAN   OF   CURRENT 

DEPOSITS. 

Sec.  40.  That  all  national  farm-land  banks  shall,  upon  the  request  of  the 
board  of  trustees  of  the  postal  savings  system,  receive  deposits  of  postal  savings 
funds  to  the  extent  of  one-half  their  capital  and  surplus,  and  pay  interest 
thereon  at  the  rate  required  to  be  paid  by  other  banks  on  similar  postal  deposits. 

Sec  41.  That  the  limitation  on  the  amount  of  deposits  which  shall  be  received 
by  national  farm-land  banks,  by  which  they  are  prevented  from  receiving  de- 
posits in  excess  of  fifty  per  centum  of  their  capital  and  surplus,  shall  not  apply 
to  deposits  made  with  said  banks  by  the  Government  in  the  shape  of  postal 
savings  deposits  or  other  governmental  deposits;  nor  shall  it  prevent  the  said 
banks  from  receiving  deposits  of  State  funds.  On  all  time  deposits  of  whatever 
character  the  national  farm-land  banks  shall  maintain  a  cash  reserve  of  at 
least  five  per  centum,  and  on  all  check  deposits  shall  maintain  a  reserve  of  at  least 
twelve  per  centum,  either  in  cash  or  in  balances  with  other  banks,  under  rules 
and  regulations  to  be  prescribed  by  the  commissioner  of  farm-land  banks.  The 
postal  savings  deposits  held  by  any  such  bank,  except  the  five  per  centum  reserve, 
may  be  invested  only  in  first  mortgage  or  first  deed  of  trust  loans  on  farm 
land,  being  secured  to  the  Government  by  the  deposit  with  it  of  the  national 
land-bank  bonds  of  any  national  farm-land  bank  complying  with  the  rules  of 
the  commissioner  of  farm-land  banks,  approved  by  the  Secretary  of  the  Treas- 
ury, as  prescribed  in  pursuance  of  the  provisions  of  this  act.  The  funds  held 
on  deposit  by  such  banks  for  the  State  in  which  they  operate  may  be  invested 
as  provided  by  the  laws  of  such  State. 

DESTRUCTIBLE  PROPERTY  TO  BE  INSURED. 

Sec.  42.  That  wherever  the  value  of  buildings  or  destructible  property  at- 
tached to  the  land  is  a  part  of  the  security  for  any  loan,  such  buildings  or 
destructible  property  shall  be  properly  insured  against  loss  by  fire,  and  policies 
representing  such  insurance  shall  be  properly  assigned  and  deposited  along 
with  the  mortgages  under  the  joint  control  of  the  said  bank  and  the  Federal  fidu- 
ciary agent.  In  such  case  provisions  shall  be  made  in  the  mortgages  or  deeds 
of  trust  for  the  payment  by  the  borrower  of  an  amount  sufficient  to  pay  the 
premiums  on  such  insurance  policies,  in  addition  to  the  interest,  amortization, 
and  administration  charges  to  be  paid  by  him  as  herein  set  out.  In  appraising 
property  for  loans  the  buildings  and  destructible  property  shall  not  be  valued 
at  more  than  twenty  per  centum  of  the  total  appraisement. 

BRANCH    BANKS. 

Sec  43.  That  no  national  farm-land  bank  shall  be  authorized  to  operate 
branches,  but  each  said  institution  may,  with  the  approval  of  the  commissioner 
of  farm-land  hanks,  employ  and  maintain  loan  agencies  throughout  the  State  in 
which   it   is  operated. 

SALES  AGENCIES. 

Sec.  44.  That  any  national  farm-land  bank  may,  with  the  consent  of  the 
commissioner  of  farm-land  banks,  maintain  either  within  the  State  in  which 
it  is  operating,  or  elsewhere,  sales  agents  or  agencies  for  the  sale  of  its  na- 
tional land-hank  bonds  or  for  trading  in  the  same. 


EURAL    CREDITS.  6  b 

HOW   PERIODIC  PAYMENTS   MADE  BY  BORROWER  ON   MORTGAGE  TO  BE  DETERMINED. 

Sec.  45.  That  to  the  rate  of  iDterest  to  be  borne  by  the  natioual  land-bank 
bonds  to  be  issued  by  the  bank  shall  be  added  the  administration  charge,  to- 
gether with  a  charge  sufficient  to  amortize  the  loan  by  the  time  of  its  maturity, 
and  in  this  way  the  periodic  payment  to  be  paid  by  the  borrower  on  his  mort- 
gage shall  be  fixed,  and  this  shall  be  set  out  in  every  mortgage  and  shall  not  be 
changed  during  the  term  thereof. 

LOANS  MAY  BE  PAID  WITH  NATIONAL  LAND-BANK  BONDS  OF  SAME  SERIES — BANK 
MAY  BUY  IN  ITS  NATIONAL  LAND-BANK  BONDS  AND  HAVE  CORRESPONDI NG  AMOUNT 
OF    MORTGAGES    RELEASED. 

Sec.  46.  That  any  borrower  shall  be  entitled  to  pay  off  the  amount  of  his 
mortgage  or  any  portion  thereof  by  presenting  to  the  bank,  on  any  interest 
period  after  the  first  five  years,  the  national  land-bank  bonds  of  the  bank  of 
the  same  series  as  those  issued  against  his  mortgage.  To  the  extent  of  such 
national  land-bank  bonds  presented  and  canceled  at  such  time,  the  borrower 
shall  be  relieved  of  his  mortgage  indebtedness  and  proper  credits  shall  be  made 
upon  his  mortgage.  The  Federal  fiduciary  agent  shall  evidence  such  credit. 
The  bank  issuing  such  national  land-bank  bonds  shall  also  have  the  right  at 
any  time  to  buy  in  the  open  market  its  national  land-bank  bonds  and  to  cancel 
the  same,  and  thereupon  to  release  a  proportionate  amount  of  the  mortgages 
securing  such  national  land-bank  bonds.  But  in  case  any  of  such  national  land- 
bank  bonds  of  the  bank  are  called  for  payment  by  the  bank,  as  hereinbefore 
provided,  then  the  same  must  be  paid  off  by  the  bank  at  par. 

Sec.  47.  That  whenever  the  borrower  pays  his  debt  in  full  the  bank  shall 
promptly  satisfy  and  discharge  the  lien  of  record. 

GENERAL  POWERS    GIVEN   TO   COMMISSIONER   OF   FARM-LAND   BANKS. 

Sec.  48.  That  the  commissioner  of  farm-land  banks,  by  general  rules  and 
regulations,  shall  prescribe  the  methods  of  keeping  the  mortgage  register;  of 
holding  and  preserving  the  mortgages  and  the  bonds  secured  by  deed  of  trust 
in  the  joint  possession  of  the  bank  and  of  the  Federal  fiduciary  agent;  of  credit- 
ing payments  on  mortgages;  of  canceling  mortgages;  and  of  releasing  the  liens 
of  mortgages  in  whole  or  in  part;  and  the  general  rules  and  regulations  for  the 
conduct  of  the  institutions  provided  for  under  this  act.  Such  rules  and  regula- 
tions not  in  conflict  with  the  provisions  of  this  act  shall  be  binding  upon  all 
the  banks  created  under  the  same. 

Sec  49.  That  all  matters  relating  to  the  organization  and  operation  of  said 
national  farm-land  banks  created  under  this  act  shall  be  under  the  direction 
and  control  of  the  commissioner  of  farm-land  banks,  except  as  herein  specified. 

PENALTIES   FOR   VIOLATION    OF  LAW. 

Sec.  50.  That  any  officer,  clerk,  or  agent  of  any  national  farm-land  bank  or 
any  Federal  fiduciary  agent  herein  described,  who  commits  any  offense  or  mal- 
feasance, such  as  described  in  sections  fifty-two  hundred  and  eight  and  fifty- 
two  hundred  and  nine  of  the  Revised  Statutes  of  the  United  States,  and  section 
thirteen  of  the  act  approved  July  twelfth,  eighteen  hundred  and  eighty-two, 
being  the  law  relating  to  national  banks,  shall  be  punished  upon  conviction  as 
prescribed  in  the  said  laws  relating  to  national  banks. 

Sec.  51.  That  all  acts  and  parts  of  acts  inconsistent  herewith  are  hereby 
repealed. 

Mr.  Bulkley.  Now.  Mr.  Moss,  if  you  are  ready  we  will  be  glad  to 
hear  you. 

STATEMENT  OF  RALPH  W.  MOSS,  A  REPRESENTATIVE  IN  CON- 
GRESS FROM  THE  STATE  OF  INDIANA. 

Mr.  Moss.  Mr.  Chairman  and  gentlemen  of  the  committee,  I  am 
going  to  confine  myself  to  the  terms  of  the  bill.  I  take  it  that  the 
members  of  the  committee  fully  comprehend  the  importance  of  the 


70  RURAL    CREDITS. 

subject  and  also  the  urgency  of  the  matter  pending  before  the  country. 
I  feel,  too,  that  the  committee  must  be  aware  of  the  fact  that  the 
literature  on  this  subject  is  readily  available  to  each  member  of  the 
committee,  and  I  have  no  doubt  that  each  member  of  the  committee 
has  read  widely  on  the  subject.  I  am  not,  therefore,  going  to  dis- 
cuss the  general  features  of  it.  Even  though  such  discussion  were 
necessary.  Senator  Fletcher's  statement  on  yesterday  would  relieve 
that  necessity  largely.  I  had  also  intended  to  present  some  facts 
before  the  committee,  especially  bearing  on  the  question  of  a  uniform 
rate  of  interest  all  over  the  United  States,  but  the  necessity  for  that 
I  feel  has  been  largely  obviated  by  the  statement  of  Prof.  Thompson, 
and  I  am  gratified  to  find,  on  reading  it  carefully,  that  the  conclu- 
sions I  had  reached  myself  and  the  conclusions  the  commission  have 
reached  are  fully  borne  out  by  the  investigation  made  by  the  De- 
partment of  Agriculture  through  Mr.  Thompson.  And  I  would  say 
to  those  members  of  the  committee  who  have  not  already  studied  it 
carefully,  that  I  think  Prof.  Thompson's  statement  is  well  worth 
a  careful  study  of  the  facts  there  stated. 

And  now  this  bill,  as  was  stated  yesterday,  was  drafted  by  a  sub- 
committee consisting  of  Senator  Fletcher,  Dr.  Coulter,  and  myself; 
then  submitted  to  the  full  committee,  and  later  submitted  to  the 
President  and,  by  his  request,  was  submitted  to  the  Secretary  of 
Agriculture.  The  Secretary  of  Agriculture,  after  some  weeks  of 
study,  gave  to  the  President  a  written  opinion  on  the  bill  containing 
a  suggestion  I  would  like  to  call  the  committee's  attention  to  at  this 
time. 

On  page  14,  in  clause  3  of  the  bill,  is  represented  the  principal 
criticism  Secretary  Houston  had  of  the  bill  as  originally  submitted  by 
the  commission.     I  shall  discuss  that.     Clause  3,  on  page  14,  reads : 

That  such  loans  shall  be  made  for  ;iuy  of  the  following  purposes:  (a)  To 
complete  the  purchase  of  the  agricultural  lauds  mortgaged;  (b)  to  improve 
and  to  equip  such  lands  for  agricultural  purposes;  and  (c)  to  pay  and  discharge 
debts  secured  by  mortgages  or  deeds  of  trust  ou  said  lands. 

That  clause  was  inserted  in  the  bill  at  the  suggestion  of  Secretary 
Houston  and,  as  I  understood  it,  with  the  approval  of  the  President. 
Now,  the  purpose  of  that  clause  is  very  apparent,  and  grows  out  of 
the  belief  on  the  part  of  the  Secretary  of  Agriculture  that  any  pure 
credit  institution  would  lend  itself  to  the  purposes  of  speculation,  and 
that  its  results  even  might  extend  so  far  that  it  would  lower  the  rate 
of  interest  to  an  extent  which  would  cause  a  general  rise  of  land 
values.  If  so,  the  advantage  of  the  lower  rate  of  interest  would  be 
consumed  partly,  at  least,  m  the  rise  of  the  value  of  the  land,  and 
therefore  the  total  interest  charge  might  remain  stationary,  instead 
of  falling  to  the  borrower. 

I  feel  not  only  every  member  of  the  commission,  but  every  member 
of  this  committee  is  in  full  sympathy  with  the  purpose  of  this  re- 
striction, and  yet  I  do  not  believe  that  such  results  would  follow  if 
the  clause  were  to  be  omitted.  I  feel  that  the  Secretary  of  Agri- 
culture in  suggesting  this  restriction  acted  with  rather  overdue 
caution.  In  support  of  this  opinion,  I  want  to  give  the  reasons  to 
the  committee  for  my  conviction. 

First,  this  bill  is  an  instrument  permitting  voluntary  contracts 
between  parties.     In  other  words,  the  loans  are  not  forced — the  bank 


RURAL    CREDITS.  71 

is  not  forced  to  make  the  loan — and  the  borrower  is  not  compelled 
to  borrow.  Therefore,  before  any  loan  can  be  negotiated  there  must 
be  an  agreement  made  between  a  lender  and  a  borrower. 

Now,  farmers  do  not  mortgage  their  farms  rashly  nor  hastily.  In 
my  State,  in  giving  a  mortgage  on  farm  property,  the  wife  must  join 
with  the  husband,  and  the  question  of  mortgaging  a  piece  of  real 
estate  is  well  considered. 

We  then  have,  first,  the  prudence  of  the  borrower,  and,  next,  the 
prudence  of  the  lender.  For,  under  the  terms  of  this  bill,  for  every 
$15  loaned,  the  bank  must  actually  pledge  $1  in  paid-in  capital  and 
assume  an  additional  dollar  in  liability.  Now,  a  bank  does  not  seek 
to  make  loans  in  order  to  foreclose,  to  gain  the  title  to  real  estate. 
In  fact,  if  any  bank  believed,  when  asked  to  make  a  loan,  that  in 
order  to  secure  repayment  of  the  loan  it  would  have  to  foreclose,  it 
would  not  make  the  loan.  Banks  will  therefore  be  prudent  about  the 
loans.  We  thus  have  the  prudence  of  the  bank  and  the  caution  of 
the  borrower  combined  in  guarding  against  speculation. 

This  restriction  is  difficult  of  administration.  As  a  matter  of  fact, 
there  is  only  one  way  in  which  such  restrictions  can  be  administered 
effectively,  and  that  would  be  to  make  the  bank  the  trustee  of  the 
borrower  to  supervise  its  expenditure.  You  would  not  consider  that 
for  a  moment.  Immediately  the  loan  is  made  it  can  not  be  with- 
drawn. Its  terms  are  fixed,  and  it  is  fixed  for  a  long  period  of 
years.  Under  this  bill  the  principal  sum  is  absolutely  secured;  the 
man  has  the  money  in  his  pocket,  and  he  can  undoubtedly  control 
it  and  do  with  it  as  he  chooses.  He  may  spend  his  money  in  any 
way  he  sees  fit,  unless  you  were  to  make  the  bank  his  trustee.  Assum- 
ing, however,  99  per  cent  of  the  farmers  are  honest,  it  is  argued  that 
we  can  take  this  chance  on  the  1  per  cent.  But  I  want  to  call  your 
attention  to  the  fact  that  undoubtedly  the  man  who  has  an  easy  con- 
science is  the  one  who  would  use  this  bill  for  speculative  purposes. 
So  you  restrict,  in  my  judgment,  the  operations  of  the  bank;  you 
place  restrictions  upon  the  man  who  is  borrowing  the  money,  who  is 
prudent,  and  at  the  same  time  you  can  not  place  restrictions  upon 
the  reckless  man.  And  for  thai  reason  I  consider  it  a  restriction 
which  ought  not  to  be  written  into  the  bill. 

And  more  than  that.  This  bill  is  very  closely  restricted  in  its 
general  terms,  and  there  ought  to  be  no  additional  restrictions  placed 
further  than  are  absolutety  necessary.  I  trust  that  the  committee 
will  consider  this  point  carefully ;  and  if  you  believe,  when  you  con- 
sider this  matter — because  it  is  a  question  you  must  consider,  in  any 
bill  you  report,  the  question  of  the  purpose  of  the  loan  must  come 
up — that  it  is  not  necessary  to  declare  the  purpose  of  the  loan  in 
order  to  prevent  speculation,  I  trust  the  bill  will  be  reported  by  the 
committee  without  that  restriction. 

Senator  Holijs.  Mr.  Moss,  you  recall  that  in  the  banking  and  cur- 
rency bill  which  has  already  been  passed,  the  purpose  for  which  the 
notes  may  be  rediscounted  and  made  the  basis  of  circulation  is  defi- 
nitely prescribed,  and  that  is  for  the  reason  it  is  contemplated  that 
the  rediscounted  notes  may  be  the  basis  of  circulation.  But  here 
there  is  no  such  purpose,  so  far  as  I  know;  and  do  you  not  imagine 
that  Secretary  Houston,  perhaps,  was  influenced  somewhat  by  the 
restrictions  on  the  purpose  of  the  loans  in  the  Federal  reserve  act  ? 


72  EUEAL    CREDITS. 

Mr.  Moss.  That  may  be.  I  want  to  say,  Senator,  that  a  restriction 
on  the  purpose  of  the  loan  is  proper  and  ought  to  go  with  all  systems 
of  personal  credit,  and  I  would  not  favor  a  system  of  personal  credit — 
and  I  am  going  to  discuss  that  with  you  in  a  few  moments — that  did 
not  put  a  restriction  upon  personal  loans  as  to  the  uses  to  which  the 
borrowed  money  may  be  used.  But  on  real-estate  loans  it  is  a  differ- 
ent matter  entirely.  I  desire  to  call  the  committee's  attention  to  the 
fact  that  in  every  system  of  mortgage  loans  which  I  have  studied, 
unless  the  funds  have  been  advanced  by  the  National  Treasury  for  a 
specific  purpose,  there  has  been  no  limitation  placed  upon  the  pur- 
poses of  the  loan. 

France  will  loan  $2,000  to  any  French  subject  for  the  purpose  of 
acquiring  a  homestead,  providing  he  does  not  own  a  homestead.  The 
same  Government  will  give  a  man  a  pension  providing  he  lives  on 
that  farm  until  he  is  65  years  of  age.  And  when  I  asked  the  reason 
for  such  provisions  of  law  it  was  said  France  considered  it  was  worth 
$2,000  to  have  a  new  farm  home  established,  because  of  the  large 
decrease  in  her  farm  population. 

Now,  if  the  proposal  were  to  advance  the  funds  out  of  the  Public 
Treasury,  I  agree  at  once  there  should  be  a  restriction  to  certain  de- 
clared purposes;  but  that  has  not  been  the  idea  of  the  commission. 
We  are  not  endeavoring  to  do  anything  more  than  provide  a  system 
of  favorable  contracting  between  lender  and  borrower.  Government 
supervision  should  see  that  the  terms  of  the  contract  are  faithfully 
carried  out ;  but  it  seems  to  me  to  be  going  too  far  to  attempt  to  direct 
the  expenditure  of  the  money,  and  I  do  not  believe  it  is  necessary 
nor  advisable  to  insert  that  clause  which  the  Secretary  of  Agriculture 
has  suggested. 

Mr.  Hayes.  Don't  you  think  it  would  have  this  effect:  It  would 
serve  as  sort  of  a  guide  to  the  men  who  are  desirous  of  being  prudent ; 
for  instance,  the  bank  and  the  Federal  agent?  Now,  you  are  an  attor- 
ney, I  presume  ? 

Mr.  Moss.  No,  sir. 

Mr.  Hayes.  I  am,  and  I  say  to  you  that  a  man  who  came  to  a  bank 
and  desired  that  money  for  speculative  purposes,  a  prudent  banker 
or  prudent  Federal  agent  in  charge  of  that  bank  with  this  condition 
upon  it  could,  by  a  proper  system  of  examination,  find  out  if  a  man 
was  going  to  use  it  for  speculative  purposes.  So  I  believe  it  would  be 
not,  as  you  suggest,  an  unnecessary  limitation ;  but  I  believe  it  would 
be  a  very  wholesome  limitation  and  one  that  could  be  enforced  and 
that  would  be  enforced. 

Mr.  Moss.  I  have  just  suggested  a  situation  that  came  to  my  mind 
to  the  committee. 

Senator  Hollis.  What  is  your  real  objection  to  it,  Mr.  Moss? 

Mr.  Moss.  My  real  objection  to  it  is  in  the  operation  of  the  bank.  I 
do  not  believe  it  to  be  a  simple  task  to  organize  these  banks  and  set 
them  to  work,  as  a  great  man}7  people  seem  to  believe  it  will  be.  And 
I  recall  that  in  one  bank — the  Bavarian  Mortgage  Bank,  which  is 
the  largest  mortgage  bank  in  Germany — that  its  prominence  is  due 
to  the  fact  that  it  had  one  privilege  which  other  competing  banks  do 
not  have,  namely,  naming  its  own  appraisers.  The  other  banks  of 
Germany  must  accept  official  appraisers,  but  this  bank  has  a  right 
to  name  their  own  appraisers.  They  claim  they  are  able  on  this  ac- 
count to  give  a  little  more  favorable  terms,  and  that  such  advantage 


RURAL    CREDITS.  73 

has  extended  their  business  until  it  has  overshadowed  all  other  banks 
in  Germany. 

I  believe  we  ought  to  make  it  possible  for  these  banks  to  operate 
with  as  few  restrictions  as  possible  with  safety  to  their  patrons. 
That  is  the  commission's  idea ;  we  wish  to  afford  every  possible  means 
of  competition  among  themselves,  but  impose  no  restrictions  unless 
it  is  absolutely  necessary  to  secure  safety  of  operation. 

Mr.  Bulkley.  Now,  Mr.  Moss,  there  is  another  suggested  restric- 
tion that  seems  to  me  very  close  to  the  point  you  are  discussing.  I 
would  be  glad  to  have  you  tell  us  what  you  think  about  limiting  the 
amount  an  individual  would  be  permitted  to  borrow  from  the  bank. 

Mr.  Moss.  Yes;  I  will  come  to  that  in  a  moment;  but  there  is  one 
other  matter.  I  wish  to  touch  upon  in  answer  to  the  Senator's  ques- 
tion, and  that  is  the  bank  will  be  under  the  control  and  will  be 
supervised  by  Government  agents  like  the  national-bank  examiners  if 
this  bill  is  adopted.  Now,  if  the  purpose  of  the  loan  is  written  in 
the  law,  it  would  give  power  to  the  supervising  agent,  the  man  who 
is  examining  the  bank,  to  harass  the  management  of  the  bank  at 
times  by  insisting  that  the  borrower  is  not  carrying  out  the  purpose 
of  the  loan,  when  it  is  beyond  the  power  of  the  bank  to  compel  him 
to  do  it ;  and  I  fear  that  this  might  be  used  as  a  means  of  embarrass- 
ing the  bank.  The  Government  agent  has  the  power  under  this  bill 
to  close  the  bank  in  just  the  same  way  as  a  national  bank  is  closed. 
Here  is  a  proposed  limitation  that  the  bank  shall  not  loan  except  for 
certain  purposes  with  no  power  on  the  part  of  the  bank  to  see  that 
the  borrower  carries  out  those  particular  purposes.  You  put  it  in 
the  power  of  the  borrower  to  violate  the  purpose  for  which  the  loan 
is  made,  and,  it  seems  to  me,  the  bank  examiner  might  hold  the 
management  of  the  bank  responsible  for  the  violation  of  the  law, 
which  the  bank  could  not  prevent.  I  always  did  object  and  object 
now  to  imposing  any  penalty  for  a  violation  of  a  law  when  the  per- 
son who  is  penalized  can  not  prevent  the  violation. 

Mr.  Hayes.  Do  you  think  there  will  be  any  opportunity  for  that 
being  done  provided  they  have  the  statement  of  the  applicant  for  a 
loan,  which  they  would  have  in  writing,  as  to  what  the  purpose  of 
it  was? 

Mr.  Moss.  That  is  a  question  that  I  am  suggesting  for  the  con- 
sideration of  the  committee. 

Mr.  Hayes.  I  do  not  see  how  there  would  be.  If  there  are  any 
ether  objections  I  wish  you  would  suggest  them,  because  that  is  quite 
an  important  point  with  me. 

Mr.  Moss.  I  will  state  again,  Mr.  Hayes,  that  I  am  in  entire  sym- 
pathy with  the  purpose  of  the  restriction,  but  I  do  not  believe  it  is 
necessary.  The  natural  prudence  of  the  borrower  and  the  caution 
of  the  lender,  together  with  the  further  fact  that  the  owner  can  only 
borrow  50  per  cent  of  the  value  of  the  land,  and  that  by  enforced 
amortization  he  will  have  a  higher  rate  to  pay — all  of  these  con- 
siderations, it  seems  to  me,  would  absolutely  put  a  check  upon  the 
speculative  borrower. 

Mr.  Seldomridge.  Mr.  Moss,  I  just  want  to  ask  Mr.  Hayes  a 
question. 

Mr.  Moss.  Yes. 

Mr.  Seldomridge.  Suppose  a  man  gets  some  money  under  section 
3  and  should  be  visited  by  some  unforeseen  occurrence — sickness  or 


74  RURAL    CREDITS. 

something  of  that  kind — would  not  that  tend  to  relieve  him  of  the 
obligations  of  this  clause? 

Mr.  Hayes.  Absolutely;  of  course. 

Mr.  Seldomridge.  But  you  put  him  under  writing  and  under 
oath 

Mr.  Hayes.  Not  under  oath;  no. 

Mr.  Seldomridge.  When  he  makes  a  written  statement  he  practi- 
cally makes  himself  liable,  it  seems  to  me;  and  I  have  some  sympathy 
with  the  position  taken  here  by  Mr.  Moss. 

Mr.  Hayes.  Of  course,  I  do  not  want  to  take  Mr.  Moss's  time. 
You  and  I  can  discuss  this  later,  but  I  do  not  look  at  it  that  way. 

Mr.  Moss.  Undoubtedly  there  are  certain  legitimate  purposes  and 
highly  important  purposes  for  which  a  loan  would  not  be  permitted 
under  the  fixed  terms  of  this  bill  and  that  ought  to  be  permitted 
under  this  system.  I  call  your  attention  to  the  fact  that  the  Depart- 
ment of  Agriculture  has  just  made  an  investigation  and  has  reached 
the  conclusion  that  100  acres  is  the  smallest  unit  which  a  man  can 
farm  efficiently  in  this  country.  In  other  words,  in  using  machinery 
the  Department  of  Agriculture  has  come  to  the  conclusion  that  100 
acres  is  the  lowest  acreage  that  can  be  handled  efficiently  under  the 
conditions  of  farming  in  this  country.  Now,  you  will  admit  at 
once  that  the  man  with  40  acres  might  very  reasonably  and  pru- 
dently wish  to  extent  his  area ;  second,  that  if  he  has  a  family  and 
children  coming  along,  there  will  come  a  time  when  it  may  be  neces- 
sary to  mortgage  his  farm  in  order  to  acquire  other  farms  for  his 
children ;  it  sometimes  comes  down  to  a  question  that  land  must  be 
purchased  at  a  particular  time  or  it  can  not  be  purchased  at  all — 
land  which  may  adjoin  his  small  tract — and  it  therefore  happens 
that  sometimes  a  man  must  foresee  and  be  prepared  to  make  a  pur- 
chase; otherwise  the  opportunity  will  pass  and  he  would  be  cut  off 
under  the  restrictions  of  the  bill  from  accepting  these  exceptional 
opportunities. 

Mr.  Hayes.  Why? 

Mr.  Moss.  Under  this  clause,  to  complete  the  purchase  of  agricul- 
tural lands  mortgaged.  Now,  under  that  provision,  strictly  applied, 
he  could  not  mortgage  80  acres  of  land  to  buy  an  additional  40. 

Mr.  Hayes.  I  think  that  is  a  very  narrow  construction. 

Mr.  Moss.  It  is  a  very  obvious  one.  It  is  possible  to  work  a  very 
great  hardship  upon  a  person  with  a  worthy  purpose.  A  farmer 
under  its  provisions  would  be  denied  the  privilege  of  purchasing  that 
additional  acreage  to  bring  his  farm  up  to  the  area  recognized  by 
the  Department  of  Agriculture  as  the  smallest  unit  which  can  be 
farmed  efficiently. 

Mr.  Woods.  Mr.  Moss,  can  you  tell  us  how  they  came  to  that  con- 
clusion ? 

Mr.  Moss.  I  do  not  know  how  they  came  to  that  conclusion,  but  I 
can  tell  you  why  I  will  concur  in  that  conclusion.  In  the  first  place 
we  have  gotten  to  a  point  in  this  country  when  forestry  must  be 
recognized.  Every  man  must  have  a  part  of  his  land  in  forest,  and 
a  part  of  it  must  lie  in  pasture;  you  should  have  a  rotation  of  crops; 
and  you  can  not  take  less  than  100  acres  of  land  and  divide  it  in 
fields  so  that  you  can  handle  machinery  efficiently  and  organize  a  ro- 
tation of  crops.     I  will  put  my  reputation  back  of  that  statement. 


RURAL    CREDITS.  75 

Mr.  BuLKiiET.  In  that  connection,  Mr.  Moss,  in  order  to  have  it  for 
the  record,  you  are  a  practical  farmer  yourself,  are  you  not? 

Mr.  Moss.  Yes,  sir.  I  might  say  here,  I  was  born  on  a  farm,  and 
I  am  living  on  the  same  farm  on  which  I  was  born.  What  higher 
education  I  have  was  secured  at  Purdue  University,  which  is  an  agri- 
cultural college,  so  that  in  my  life,  with  the  exception  of  my  service 
in  Congress  and  State  senate,  I  have  spent  all  of  my  time  on  the 
farm  and  associating  with  agricultural  people. 

Mr.  Woods.  Do  you  not  think  a  farm  of  60  acres  is  as  profitable  as 
a  farm  of  100  acres? 

Mr.  Moss.  If  you  will  take  the  word  "profitable"  and  substitute 
the  word  "  economical,"  I  will  say  yes.  A  hundred  acres  is  the 
minimum.  That  is  what  I  am  speaking  about.  As  a  matter  of  fact, 
if  I  have  80  acres  of  land  I  would  give  more  than  the  adjoining  80 
acres  was  worth  in  order  to  get  a  farm  of  160  acres,  which  can  be 
worked  more  economically  than  a  farm  of  80  acres.  In  my  section 
of  the  country  a  man  would  not  willingly  buy  80  acres  of  land  for 
a  farm.     He  would  want  a  larger  body  of  land. 

Mr.  Hayes.  You  are  speaking  now  of  the  ordinary  farm  land  ? 

Mr.  Moss.  Yes. 

Mr.  Hayes.  In  my  State  20  acres  would  be  the  unit.  Of  course,  I 
am  not  speaking  of  a  farm  proper. 

Mr.  Moss.  In  answer  to  the  question  of  the  chairman,  my  judgment 
on  the  limitation  of  the  loans  is  that  the  limitation  has  been  put  too 
low  in  this  bill.  Twenty  per  cent  of  the  capital  stock  means  a  bank 
must  have  75  borrowers  borrowing  at  the  maximum  capacity  in  order 
to  make  the  lowest  issue  of  bonds  it  can  make.  In  other  words,  sup- 
pose we  take  a  bank  with  $10,000  capital  and  that  bank  issues 
$150,000  in  land  bonds,  which  they  have  the  right  to  do,  the  largest 
amount  it  can  loan  to  any  one  man  under  this  bill  would  be  $2,000, 
and  therefore  it  would  have  to  have  75  borrowers  in  order  to  loan  up 
to  its  maximum  capacity. 

Now,  prudence  does  not  require  that  $10,000  of  capital  shall  be 
divided  among  75  men  as  the  fewest  number  there  could  be,  nor  is  it 
reasonable  in  order  to  protect  the  bank.  In  addition,  the  maximum 
loan  is  too  small.  When  I  call  your  attention  to  the  fact  that  in 
short-time  loans  Prof.  Thompson  gave  it  (hat  the  average  loan  to 
farmers  was  $044— that  is,  the  average  short-time  loan — you  can  see 
that  $2,000  is  certainly  too  low  for  the  maximum  loan.  If  you  take 
r  bank  with  $100,000  capital  or  $250,000,  that  objection  entirely  dis- 
appears.    I  would  suggest  that  the  maximum  be  raised. 

Mr.  Hayes.  I  should  think  $3,000  would  be  little  enough. 

Mr.  Moss.  You  are  right  about  that. 

Senator  Hoeets.  Mr.  Moss,  do  you  think  the  same  reason  applies 
for  limiting  loans  on  real  estate  as  applies  to  commercial  loans? 

Mr.  Moss.  Yes;  but,  Senator,  not  in  as  large  a  degree,  because 
there  is  a  much  greater  hazard  in  commercial  loans  than  in  real 
estate  loans.  As  this  bill  is  written,  the  same  limitation  applies  here 
that  applies  to  national  banks,  and  it  is  entirely  too  low.  I  will  not 
say  now  what  the  limit  should  be,  but  it  should  be  raised  over  the 
limit  placed  in  the  bill. 

Mr.  Brown.  Mr.  Moss,  is  not  $2,000  more  than  the  average  farm 
mortgage  ? 


76  RURAL    CREDITS. 

Mr.  Moss.  Dr.  Coulter  will  come  before  your  committee.  He  is  an 
expert  from  the  Census  Bureau  and  can  give  you  the  figures  exactly, 
and  I  can  not.  My  understanding  is  that  $1,700  is  the  average  farm 
loan  in  the  United  States,  but  I  would  prefer  that  you  wait  until 
you  can  ask  the  question  of  Dr.  Coulter. 

Mr.  Platt.  Mr.  Bathrick  gave  the  average  as  $1,700. 

Mr.  Moss.  As  regards  the  average  loan  that  could  be  made,  I  am 
just  stating  that  a  bank  would  have  to  have  about  75  borrowers, 
each  taking  a  maximum  loan,  before  it  could  lend  to  the  maximum 
capacity  of  its  funds.     That  is  the  matter  I  am  speaking  of. 

Mr.  Bulkley.  Mr.  Moss,  there  is  one  other  question  in  connection 
with  that  same  thing:  A  number  of  Members  have  been  somewhat 
concerned  because  they  fear  that  any  system  which  will  materially 
reduce  interest  rates  will  have  as  its  principal  effect  an  increase  in 
land  values.  Now,  would  not  we  eliminate  that  by  placing  a  limita- 
tion upon  the  amount  that  any  one  man  could  borrow?  Would  not 
that  in  itself  tend  to  limit  the  use  of  these  funds  for  speculative 
purposes  ? 

Mr.  Moss.  That  is  true.  But  the  purpose  I  had  in  mind  in  advo- 
cating a  limitation,  Mr.  Chairman,  was  another  and  different  pur- 
pose than  that.  I  am  going  to  discuss  the  rise  in  value  later.  My 
purpose  was  this,  that  in  existing  systems  of  mortgage  loans,  it  has 
been  a  very  simple  question  to  get  the  small  loans.  The  tendency 
has  been  to  make  large  loans.  If  you  do  not  limit  the  size  of  the 
loan,  you  will  find  when  the  sj'stem  goes  into  operation,  that  the 
funds  will  flow  toward  the  big  borrower  and  not  toward  the  little 
one.  Now,  then,  in  order  to  prevent  that  result,  it  is  necessary  to 
place  a  limitation  on  the  size  of  loans  in  order  to  compel  the  banks 
to  accommodate  small  borrowers.  That  situation  has  been  so  acute 
in  some  of  the  older  systems,  that  banks  have  been  organized  by  the 
Government  expressly  for  the  purpose  of  taking  care  of  the  little  bor- 
rower. It  is  not  any  trouble  for  the  big  man  to  get  a  loan.  I  would 
advocate  a  restriction,  but  it  occurs  to  my  mind  the  restriction  is  too 
low  at  $2,000. 

Mr.  Bulkley.  You  have  not  fixed  it  positively  at  $2,000  ? 

Mr.  Moss.  Under  the  present  terms  of  this  bill,  that  is  the  largest 
loan  that  could  be  gotten  in  a  minimum  bank.  Of  course,  with  a 
bank  having  $25,000  capital,  it  would  be  quite  different,  or  with  a 
bank  having  $50,000  capital,  etc.  Of  course,  75  borrowers  would 
exhaust  the  capital  in  any  bank 

Mr.  Bulkley.  I  understand  that.  But  in  addition  to  this  restric- 
tion as  to  what  any  one  bank  can  loan,  should  there  not  be  the  re- 
striction on  the  amount  of  money  itself  that  any  one  individual  can 
borrow  ? 

Mr.  Moss.  If  you  did  that.  I  think  it  would  make  the  system  en- 
tirely feasible  and  workable.  I  think  that  a  good  suggestion,  Mr. 
Chairman. 

Mr.  Bulkley.  Have  you  anv  thought  as  to  what  that  limit  should 
be? 

Mr.  Moss.  I  have  not,  Mr.  Chairman.  This  feature  of  the  matter 
was  discussed  back  and  forth,  and  the  figures  on  that  phase  of  it  Dr. 
Coulter,  as  an  expert  from  the  Census  Bureau,  can  give  better  than  I. 

Xow,  coming  back  just  a  moment.  I  have  in  my  hand  the  comments 
of  the  agricultural  press  on  this  bill,  so  far  as  I  have  been  able  to 


RURAL    CREDITS.  77 

get  them.  It  is  well  known  that  this  bill  has  been  given  very  wide 
publicity,  and  I  have  taken  particular  pains  to  secure  the  editorial 
comments  of  the  agricultural  press,  so  far  as  thej'  have  been  made, 
both  for  and  against  the  bill.  I  have  done  that  because  it  is  a  difficult 
matter  to  get  a  correct  expression  of  the  agricultural  thought,  be- 
cause the  farmers  are  not  organized.  There  are  certain  persons 
whom  I  have  met,  claiming  to  speak  for  the  farmers  in  an  official 
capacity,  some  representing  the  grange  and  other  farm  organizations, 
and  they  are  asking  for  certain  features  to  be  incorporated  in  this 
legislation.  I  came  into  possession  of  a  letter,  which  I  presume  had 
been  widely  sent  out  suggesting  that  the  farmers  begin  writing  let- 
ters to  their  Representatives,  a  suggested  copy  of  which  was  inclosed, 
in  order  to  secure  the  passage  of  a  certain  bill. 

If  you  wish  it,  I  will  publish  in  the  record  those  editorial  com- 
ments, or  the  committee  can  read  them.  I  call  your  attention  to  that 
feature  in  passing. 

Mr.  Hayes.  Will  you  state,  in  a  general  way,  Mr.  Moss,  whether 
they  are  generally  favorable  to  this  bill? 

Mr.  Moss.  Yes.  There  is  absolutely  no  criticism  of  the  principle 
of  the  bill  in  any  sense  of  the  word  in  any  of  them,  and  in  nearly 
every  instance  they  are  entirely  favorable  to  the  bill.  The  bill  is  not 
referred  to  as  being  a  perfect  one.  Among  the  papers  from  which  I 
have  collected  editorial  comments  are  American  Agriculturist,  Na- 
tional Stockmen,  American  Farmer,  Farmer's  Review,  Pennsylvania 
Farmer,  Farm  and  Home,  the  Country  Gentleman,  Field  and  Farm, 
New  England  Homestead,  the  Orange  Judd  Farmer,  the  Georgia 
Farmer,  the  Nebraska  Farmer,  Campbell's  Scientific  Farmer, 
Farmer's  Stock  and  Home,  and  Indiana  Farmer.  That  is  a  list  of 
papers  which  have  made  editorial  comment  upon  it. 

Mr.  Bulkley.  I  think  those  would  be  very  interesting,  Mr.  Moss. 

Mr.  Hayes.  I  think  I  have  received  a  clipping  from  a  paper  sent 
me  by  a  farmer,  with  a  very  strong  indorsement,  which  you  have 
not  named  there. 

Mr.  Moss.  Yes.  Now,  coming  back  to  the  discussion,  we  might 
leave  out  from  our  discussion  of  this  matter  to-day  the  demand  for 
farm  loans  by  the  National  Government.  That  was  discussed  yes- 
terday by  Senator  Fletcher.  However,  I  want  to  call  your  attention 
to  one  or  two  additional  features  which,  it  seems  to  me,  should  pre- 
clude legislation,  even  if  such  legislation  were  constitutional.  I  am 
not  a  lawyer  and  will  not  discuss  that  phase  of  it.  The  first  objec- 
tion and  the  supreme  one  is  that  the  credit  of  the  United  States  ought 
to  be  reserved  for  the  purpose  of  maintaining  the  life  of  the  Re- 
public. The  power  that  enables  the  Government  to  go  out  and  bor- 
row money  at  a  low  rate  of  interest  is  its  unlimited  power  of  taxa- 
tion over  its  people.  And  if  a  war  were  to  come — which  I  trust  may 
never  happen — but  if  a  war  were  to  come,  the  only  means  for  pro- 
viding for  the  defense  of  this  Nation  is  its  power  to  tax  the  people. 

My  second  objection  is  that  in  any  country  which  is  ruled  by  the 
power  of  the  people  through  its  representatives,  a  financial  obliga- 
tion of  the  people  to  the  government  is  more  of  a  moral  one  than  a 
legal  one.  I  mean  to  say  if  there  were  a  million  people  holding  farm 
mortgages  from  the  Government,  and  the  Government  desired  to 
collect  its  money,  no  power  on  earth  could  compel  the  Government  to 
go  out  and  distrain  the  property  of  the  people  in  times  of  adversity. 


78  RURAL    CREDITS. 

Mr.  Hayes.  And  therefore  it  would  not  get  anything? 

Mr.  Moss.  It  would  not.  This  has  been  tried  in  France.  When 
the  failure  in  grape  growing,  due  to  phylloxera,  caused  bankruptcy 
in  certain  districts,  there  would  have  been  a  revolution  in  France  if 
the  Government  had  undertaken  to  collect  its  loans.  The  minister 
of  France  -aid  to  me  privately — he  would  not  put  it  in  the  record, 
but  yet  he  said  this  in  the  presence  of  other  gentlemen — that  while 
the  loans  were  legal,  the  obligation  became  purely  a  moral  one;  that 
the  Government  held  the  debts  of  its  own  people  and  it  could  not  go 
and  distrain  the  property  of  its  own  people  in  time  of  distress. 
And  I  am  satisfied  that  you  would  find  in  our  own  country  if  a  war 
were  to  break  out  and  the  Government  should  call  a  million  men 
into  the  field,  that  wTe  could  not  call  the  men  away  from  their  own 
farms  and  thus  destroy  their  only  means  of  discharging  these  loans, 
and,  at  the  same  time,  compel  them  to  pay  their  obligations  to  the 
Government.     Anyone  knows  that  to  be  true. 

And  so  the  credit  of  the  Government  ought  to  the  last  moment  to 
be  sacredly  kept  for  the  defense  of  the  Government. 

Mr.  Bulkley.  What  would  happen  to  those  agricultural  banks 
under  those  conditions,  Mr.  Moss? 

Mr.  Moss.  I  am  glad  you  spoke  about  that.  The  agricultural  bank 
is  the  only  institution  in  Europe  that  has  stood  the  stress  of  warfare 
without  any  assistance  whatever. 

Mr.  Bulkley.  How  does  that  work  out  as  a  practical  matter? 
Do  they  give  additional  time  to  the  men  called  into  the  field? 

Mr.  Moss.  As  to  that  I  can  not  speak;  but  I  think  you  will  find 
in  Europe  that  much  of  the  work  on  the  farm  is  done  by  women, 
and  I  doubt  very  much  if  war  causes  so  great  a  strain  on  the  income 
from  the  farm  and  the  people  were  able  to  carry  on  their  payments 
and  to  meet  their  obligations. 

If  the  National  Government  were  to  make  a  low  rate,  say  3  or  3£ 
per  cent,  which  is  clearly  below  competitive  rates,  it  wTill  give  the 
National  Government  absolutely  a  monopoly  of  this  mortgage  busi- 
ness. There  is  no  question  about  that.  It  would  have  to  make  all 
the  loans.  And  if  it  creates  a  monopoly  of  this  business,  it  means 
that  the  credit  of  the  National  Government  must  borrow  all  of  the 
money  that  would  be  needed;  and  I  doubt,  under  those  conditions, 
if  even  the  National  Government  itself  can  borrow  a  sufficient 
amount  at  these  very  low  rates.  In  other  words,  if  we  are  to  use 
the  credit  of  the  National  Government,  if  it  is  to  borrow  billions  of 
dollars,  it  will  be  a  different  proposition  and  rates  will  rise.  We 
might  notice  that  in  time  of  war  the  rates  of  interest  rise.  While  I 
was  in  Europe  there  was  a  war  scare,  and  this  scare  raised  the  rates 
of  interest  to  sill  European  governments. 

Mr.  Platt.  Every  farm  in  the  United  States  would  have  a  mort- 
gage on  it  under  a  scheme  of  that  kind,  would  it  not? 
s  Mr.  Moss.  I  can  not  see  any  reason  why  that  should  not  be  the 
ultimate  result. 

Now,  then,  in  making  a  uniformly  low  rate  on  mortgage  loans 
below  that  at  which  money  is  had  in  other  industries,  then  at  once 
you  will  cause  a  rise  in  the  price  of  lands.  That  is  without  any  doubt 
one  of  the  chief  objections  which  this  proposition  presents.  It  is 
not  possible  for  the  National  Government  to  loan  money  to  its  citi- 
zens unless  it  loans  to  every  one  that  meets  all  the  conditions  laid 


RURAL    CREDITS.  79 

down;  and  as  these  conditions  will  of  necessity  be  uniform  all  over 
the  United  States,  and  the  rate  is  below  what  private  money  can  be 
obtained  for,  you  will  cause  a  general  rise  in  land  values  beyond  any 
doubt.    That  is  absolutely  sure. 

Senator  Hollis.  Mr.  Moss,  can  you  see  any  reason  why  the  Treas- 
ury Dpartment  ought  not  to  be  authorized  to  use  its  discretion  in 
depositing  certain  Government  funds  with  these  banks? 

Mr.  Moss.  No;  I  do  not.  I  favor  that  provision,  and  it  is  con- 
tained in  this  bill. 

Now,  I  am  going  to  call  your  attention,  as  an  illustration,  to 
Austria.  Austria  is  one  of  the  countries  where  mortgage  loans  are 
made  by  the  Government.  I  mean  the  bonds  of  the  bank  are  guar- 
anteed, not  by  the  National  Government,  but  by  the  provincial 
governments.  Under  this  condition  private  mortgage  banks  have 
been  driven  out  of  the  land-mortgage  business,  and  yet  the  interest 
rate,  even  though  the  bonds  are  guaranteed  by  the  Government,  is 
no  lower  than  it  is  in  German}r,  where  they  have  purely  competitive 
systems  for  the  business.  The  interest  rate  the  Austrian  Govern- 
ment is  paying  for  national  purposes  is  also  higher  than  that  that 
the  German  Government  is  paying.  It  has  been  less  than  a  year  ago 
that  the  Austrian  Government  made  a  loan  for  national  purposes  in 
the  United  States  at  6^  per  cent. 

Mr.  Platt.  You  do  not  think,  then,  Mr.  Moss,  that  this  system 
would  necessarily  drive  all  land-mortgage  banks  out  of  existence? 

Mr.  Moss.  No.  I  am  sure  it  would  not,  and  that  is  one  of  its  ad- 
mirable features. 

The  next  question  I  shall  discuss  is  the  separation  of  the  mortgage 
and  personal  loan.  Upon  that  I  have  a  very  pronounced  idea  there 
should  be  a  separation.  Our  commission  at  the  beginning  was  di- 
vided upon  that  point,  and  the  bill  you  have  before  you  (S.  2909), 
by  Senator  Fletcher,  was  a  bill  combining  the  two  propositions. 

These  systems  of  banking  should  be  kept  separate  for  the  follow- 
ing reasons : 

The  first  is,  and  it  is  brought  out  most  admirabl}'  by  Prof.  Thomp- 
son, deposits  for  personal  loans  are  always  from  local  funds.  I 
think  Prof.  Thompson  made  the  statement  before  your  committee 
that  only  5f  per  cent  of  the  deposits  for  personal  purposes  come 
from  out  of  the  State  in  which  the  loans  are  made.  And  that  is 
natural.  The  loans  are  only  $250  on  the  average  for  tenants.  It 
is  upon  personal  security,  and  naturally  the  funds  must  come  from 
local  resources.  For  this  very  reason  I  fear  that  an  effective  system 
of  personal  credit  for  farmers  at  some  point  must  have  Govern- 
ment aid. 

I  am  not  going  to  discuss  it  further  than  that,  because  I  have  not 
settled  in  my  own  mind — and  our  commission  have  not,  although. 
we  are  going  to  attempt  to  submit  presently  to  you  a  bill  in  a  ten- 
tative form — just  what  should  be  done;  but  it  is  to  be  a  more  diffi- 
cult task  to  draft  an  effective  bill  upon  personal  credits  than  it  is 
for  mortgage  credits.  It  must  be  recognized  that  any  system  for 
personal  credits  must  reach  out  to  those  sections  of  the  country 
where  there  are  no  local  funds;  where  the  lands  are  in  the  unde- 
veloped stage;  and  where  there  are  no  stores  of  accumulated  capital ; 
the  people  are  all  borrowers:  there  are  not  depositors  of  idle  funds; 
and  there  comes  in  the  field  where  the  Government  must  decide 


80  RURAL    CREDITS. 

this  question  of  what  it  is  willing  to  do  in  the  matter  of  loaning 
funds  to  aid  agriculture.  When  it  comes  to  the  question  of  mortgage 
loans  funds  naturally  flow  all  over  the  United  States.  Prof.  Thomp- 
son has  told  us  that  the  great  insurance  companies  in  the  eastern 
part  of  the  Dnited  States  are  loaning  a  large  part  of  their  funds  in 
the  corn  belt — a  large  percentage  of  it,  31  per  cent  of  their  total  loans, 
in  the  State  of  Iowa.  Because  of  this  mobility  of  loanable  funds, 
there  is  no  reason  on  the  face  of  the  earth  for  Government  aid  for 
mortgage  loans,  but  the  question  of  personal  credits,  which  is  a 
purely  local  matter,  presents  a  worthy  suggestion  for  national  aid. 
I  shall  not  discuss  it  any  further  at  this  moment. 

We  have  in  this  bill  permitted  a  limited-amount  deposit — only  50 
per  cent  of  its  capital.  I  think  there  is  a  good  reason  for  that.  In  a 
business  between  the  bank  and  its  clients,  there  will  be  some  funds  left 
there — there  will  be  some  deposits  that  remain  after  the  payment  of 
the  interest.  There  has  been  a  new  relationship  created  and  it  would 
be  almost  a  necessity  there  should  be  a  limited  line  of  depositors. 
It  is  entirely  arbitrary  where  you  fix  a  limit.  I  would  put  it  so  small 
that  the  banks  could  neither  compete  largely  with  commercial  banks, 
nor  be  subjected  to  temptation  of  going  far  out  into  the  Avide  com- 
mercial field  of  bank  activity. 

There  are  in  Europe  what  are  called  mixed  banks — they  have  both 
pure  and  mixed  mortgage  banks — and  the  mixed  mortgage  banks  are 
limited  to  the  issue  of  $10  of  bonds  to  $1  in  capital;  while  the  pure 
mortgage  banks  can  issue  from  $15  to  $20,  thus  recognizing  the  fact 
there  is  a  hazard  in  accepting  commercial  business  and  that  such 
banks  must  be  closely  restricted  in  the  volume  of  their  bonds. 

The  next  question  is  a  decentralized  system  of  banking.  You  must 
make  a  choice  between  a  centralized  and  decentralized  system,  and  I 
shall  discuss  that  question  with  you  for  a  moment. 

I  will  call  your  attention  to  the  German  experience.  Germany  has 
the  decentralized  or  competitive  system  of  banking,  in  that  mortgage 
loans  are  made  by  three  or  four  different  agencies.  First,  they  have 
the  landschaften  association;  next  are  savings  banks;  next  are 
the  joint-stock  banks;  and  then  come  the  insurance  companies.  Those 
are  four  big  factors,  all  of  them  organized  as  separate  or  independent 
institutions. 

The  Landschaften  Association  have  out  $850,000,000  on  rural  loans 
(and  I  might  say  here,  in  passing,  that  the  landschaften  association 
is  limited  to  rural  loans  alone)  ;  the  savings  banks  have  a  like 
amount,  $850,000,000  on  rural  loans;  the  joint-stock  banks  have 
$154,000,000  on  rural  loans;  and  the  insurance  companies  have  only 
$12,000,000  on  rural  loans. 

Now.  you  will  see  that  where  the  institutions  are  competing  side 
by  side  for  mortgage  business  the  savings  banks  in  Germany  make  as 
large  a  proportion  of  the  rural  loans  as  the  landschaften  associa- 
tions; that  the  landschaften  association  and  savings  banks  have  each 
46  per  cent  of  the  rural  mortgage  business  while  less  than  8  per  cent 
is  made  by  the  joint-stock  banks. 

There  are  23  landschaften  associations.  One  was  founded  in  1770. 
There  were  17  founded  between  1825  and  1896. 

There  are  37  joint-stock  banks,  one  of  which  was  founded  in  1850, 
and  27  were  founded  between  1862  and  1896. 

Of  this  $154,000,000  in  rural  loans  by  joint-stock  banks,  91  per  cent 
of  it  was  made  by  only  7  banks,  1  Prussian  bank  and  6  Bavarian 


RURAL    CREDITS.  81 

banks.  It  is  not  necessary  that  land-mortgage  institutions  shall 
make  all  mortgage  loans.  It  is  not  even  desirable.  There  will  be 
free  competition,  unless  you  establish  a  monopoly  by  law,  or  unless 
you  grant  national  loans  at  such  a  low  rate  that  private  capital  will 
not  compete.  It  is  entirely  possible  to  have  competition  between 
private  capital  and  mortgage  banks,  and  the  land-mortgage  bank  will 
act  as  a  regulator  of  the  rates  and  bring  about  a  generally  lower  rate 
and  more  uniform  conditions  which  are,  in  my  mind,  desirable  results 
to  be  secured. 

Mr.  Platt.  How  many  of  those  German  institutions  have  amorti- 
zation plans?     Do  any  of  them  besides  the  landschaften? 

Mr.  Moss.  Yes;  all  mortgage  banks  demand  amortization;  savings 
banks  do  not. 

I  invite  your  particular  attention  to  the  fact  that  the  bill  limits 
the  loans  to  be  made  on  local  real  estate.  I  consider  that  an  abso- 
lutely fundamental  and  vital  feature  of  it.  It  is  a  matter  of  ex- 
perience that  any  institution  having  a  right  to  loan  both  upon  rural 
and  urban  property  places  a  large  majority  of  its  loans  upon  urban 
property. 

I  will  call  your  attention  to  the  figures.  Let  us  take  the  savings 
banks  in  Germany.  There  are  2,844  public  savings  banks  in  the 
German  Empire,  having  7,404  branches.  Thev  control  $4,100,000,000 
of  deposits.  Of  that  $4,100,000,000  deposits/20  per  cent  of  it  only 
is  loaned  upon  rural  real  estate. 

The  joint-stock  banks  in  Germany  have  loans  upon  real  estate 
now  to  the  enormous  extent  of  $2,575,000,000;  and  out  of  that  vast 
total  less  than  8  per  cent,  or  only  $154,000,000.  is  loaned  upon  rural 
real  estate. 

The  landschaften  associations  are  compelled  to  loan  upon  rural 
real  estate,  and  of  course  their  entire  loans  are  upon  this  class  of 
security. 

The  savings  banks  do  not  have  the  amortization  feature  and  can 
not  make  loans  for  a  fixed  period.  They  make  recallable  loans. 
Their  rates  are  higher  than  the  landschaften  association's  rate,  and 
yet  with  the  higher  rates  and  with  harsher  terms  these  banks  loan 
practically  as  much  money  on  rural  real  estate  as  do  the  landschaften 
associations,  and  very  much  more  than  the  joint-stock  banks,  for  this 
reason — and  this  suggests  one  of  the  fundamental  features  of  this 
bill — the  savings  banks  in  Germany  are  limited  by  law  to  making 
ioans  on  land  in  the  immediate  neighborhood  where  the  banks  are 
located,  and  only  under  certain  conditions  can  they  make  loans  out 
of  the  restricted  area. 

The  landschaften  associations  also  make  loans  in  a  restricted  area, 
each  one  being  confined  to  a  Province  in  Germany  which,  in  some 
instances,  is  no  larger  than  counties  in  some  of  our  States.  In  so 
doing  the  cost  of  the  appraisement  is  very  much  less  than  in  those 
national  loan  associations,  and  there  is  practically  no  cost  whatever  for 
supervision.  Thus,  due  to  this  fact  that  the  cost  of  inspection  and 
the  cost  of  supervision  is  so  much  less  where  local  loans  are  made 
than  in  the  case  of  those  banks  where  the  loans  are  not  limited  to  a 
particular  locality,  all  of  the  small  loans  practically  go  to  the  savings 
banks  which  seek  to  loan  their  funds  upon  local  properties. 

37031—14 6 


82  RURAL    CREDITS. 

The  joint-stock  banks  and  other  national  institutions,  having  the 
right  to  loan  anywhere  in  Germany  and  having  a  right  to  loan 
both  upon  urban  and  rural  real  estate,  if  they  were  to  assume  to 
carry  out  their  operations  all  over  the  Empire,  the  cost  of  appraise- 
ment and  cost  of  supervision  on  small  rural  loans  would  destroy 
their  margin  of  profits.  The  margin  for  administration  is  kept 
low  by  competition,  and  hence  they  accept  urban  and  large  rural 
loans. 

But,  in  the  beginning  there  was  a  feeling  of  the  commission — some 
members  of  it — that  we  could  establish  a  national  bank,  and  you  will 
recall  that  Senator  Fletcher's  bill  provided  a  bank  to  operate  all 
over  the  United  States.  Later  on  it  was  believed  it  would  be  well  to 
have  as  many  central  banks  as  we  have  States,  and  we  worked  out 
a  bill  very  carefully,  having  one  central  bank  in  each  State  and 
to  give  tliat  bank  a  monopoly  of  issuing  bonds  in  that  State. 

We  worked  out  a  tentative  bill  upon  that  subject,  and  I  am  told  a 
bill  has  been  introduced  in  Congress  containing  essentially,  if  not 
identically,  the  same  terms  as  the  draft  of  the  commission  bill.  I  may 
be  mistaken,  but  I  know  the  bill  was  presented  with  the  statement 
that  it  was  to  be  introduced,  and  I  am  told  that  a  Member  has  intro- 
duced the  bill  practically  as  the  commission  worked  it  out. 

But  the  importance  of  the  figures  as  you  have  them  from  Germany 
is  that  the  banks  there  loaning  on  rural  real  estate  are  local  banks, 
and  banks  loaning  in  a  particular  locality  are  the  ones  which  are  able 
to  meet  competition  and  are  the  most  successful. 

Now,  turning  to  France,  you  will  find  there  practically  a  monopoly 
created  by  law.  The  Credit  Foncier  started  cat  with  Government 
aid  in  the  foundation  capital,  and  was  given  an  absolute  monopoly 
for  20  years.  Later  on  this  monopoly  was  continued  by  reason  of  cer- 
tain privileges,  such  as  freedom  from  decennial  registration  of  mort- 
gages, speedy  right  of  foreclosure,  etc.  Above  all  else,  the  bank  was 
given  the  right  to  attract  deposits  by  the  lottery  system — a  system  of 
prizes.  The  result  is  that  the  Credit  Foncier  is  able  and  has  been  able 
to  secure  the  savings  of  the  French  Republic  in  deposits,  and  that 
has  been  one  of  the  great  sources  of  its  funds  for  making  loans.  This 
absorption  of  deposits  was  so  complete  that  when  France  attempted 
to  organize  a  system  of  personal  credit,  not  being  able  to  attract  de- 
posits in  local  banks,  it  became  necessary  to  use  money  advanced  by 
the  National  Government  in  order  to  make  personal  loans  to  the 
French  farmer.  The  Bank  of  France  has  to  divide  a  certain  propor- 
tion of  its  profits,  which  is  turned  over  to  these  personal-credit  banks 
in  France,  to  be  loaned  to  farmers  exclusively ;  and  that  necessity  has 
been  created  in  large  part  in  that  old  and  thickly  populated  country 
of  France  because  this  great  land  bank  is  given  a  monopoly  and  has 
been  given  the  exclusive  right,  by  a  system  of  lottery  and  prizes,  to 
attract  the  savings  of  the  nation  in  order  to  feed  and  perpetuate  this 
monopoly.    This  result  is  quite  to  be  expected. 

If  you  create  a  monopoly,  you  must  give  it  a  special  privilege  in 
order  to  exist.  Monopoly  never  has  lived,  can  not  live,  and  never  will 
live  in  any  country  unless  it  is  given  special  privileges.  That  is  the 
price  of  monopoly.  If  you  are  going  to  create  a  central  bank  and 
want  to  create  a  monopoly  by  it,  you  must  give  it  special  privileges 
in  order  for  such  bank  to  be  successful. 


KURAL    CREDITS.  83 

Your  commission  has  come  before  you  with  a  purely  competitive 
bill.  It  has  been  prejDared  with  the  idea  of  creating  competition,  not 
only  between  different  institutions,  but  between  different  types  of 
institutions;  but  if  your  committee  adopts  the  monopoly  idea,  if  you 
are  to  accept  the  central-bank  plan,  then  you  must  strike  out  of  this 
bill  or  any  bill  that  you  report  either  cooperative  banks  or  joint-stock 
banks.  Joint-stock  banks  and  cooperative  institutions  can  not  exist 
together;  they  can  exist  as  competitive  institutions,  but  they  can  not 
be  combined  together  in  a  monopolistic  joint  institution. 

Some  criticisms  have  reached  me  by  private  correspondence  and 
through  the  press  in  which  this  bill  has  been  referred  to  as  a  bankers' 
bill — as  a  measure  largely  in  the  interest  of  bankers.  As  a  matter  of 
fact,  there  can  not  be  a  freer  banking  system,  but  I  will  speak  later 
on  about  that  feature. 

Xow,  coming  back  to  the  general  features  of  the  bill.  It  offers  you 
a  competitive  system  of  banks  that  can  go  in  operation  at  once  in 
every  State  of  the  Union  under  conditions  as  they  now  exist.  At 
the  same  time  it  is  a  bill  that,  whenever  certain  local  laws  are  changed 
to  bring  about  certain  results,  then  the  bill  can  go  into  operation  in 
those  States  under  more  favorable  circumstances.  So  it  is  a  bill,  as 
I  have  said,  which  goes  into  operation  under  present  State  laws, 
and  yet  one  which  constantly  offers  a  premium  to  the  States  to  en- 
courage a  much-needed  improvement  in  many  of  the  present  State 
laws  on  this  subject. 

One  of  the  great  benefits  to  come  from  Federal  legislation  in  aid- 
ing the  farmer  is  in  providing  an  incentive  to  the  States  to  make 
better  laws  controlling  the  terms  under  which  agricultural  mortgage 
loans  are  made  and  under  which  land  titles  are  transferred.  One 
of  the  best  features  of  the  bill  is  that  it  can  go  in  operation  to-day  in 
every  State  in  the  Union,  and  yet  it  does  offer  a  perfectly  legitimate 
incentive  to  every  State  which  will  improve  its  land  laws;  and  the 
bill  not  only  offers  the  several  States  an  incentive,  but  even  suggests 
along  what  lines  this  improvement  ought  to  be  made,  and  lodges  the 
power  on  the  part  of  the  Nation  in  a  bureau  of  the  Federal  Govern- 
ment, by  rules  and  regulations,  under  conditions  which  shall  be 
uniform  and  applicable  to  all  banks  and  to  all  States  alike. 

It  is  not  necessary,  I  think,  to  speak  particularly  about  com- 
pulsory amortization,  as  it  was  discussed  fully  on  yesterda}^  by  Sena- 
tor Fletcher.  A  point,  however,  I  wish  to  call  your  attention  to 
particularly  is  that  amortization  is  really  a  savings  feature  and  any 
bank  having  amortization  is  really  a  savings  bank.  The  thought  of 
the  commission  was  not  only  to  provide  safety  for  the  funds,  but  to 
promote  safety  to  the  borrower  by  denying  to  him  an  opportunity 
to  go  in  debt  for  a  long  period  of  time  without  making  an  adequate 
provision  for  its  payment. 

I  shall  venture  to  give  my  own  definition  of  amortization. 
Amortization,  as  the  word  is  used  here,  while  it  refers  technically  to 
payments — of  course,  upon  the  principal — really  means  a  series  of 
payments  that  shall  be  uniform  for  a  certain  length  of  time  and  at 
the  end  of  the  time  that  the  debt  itself  shall  have  been  exinguished ; 
and  so  fixed  that  whatever  series  of  years  you  may  adopt,  the  bor- 
rower, by  paying  a  uniform  rate  during  that  series  of  years,  will 
owe  nothing  at  the  close  of  that  time. 


84  RURAL    CREDITS. 

One  good  feature  of  this  bill  is  that  the  National  Government  is 
charged  with  the  duty  of  providing  standard  tables  of  amortization, 
which  shall  be  adopted  by  all  of  the  banks  governed  by  its  provi- 
sions. This  would  give  a  uniform  rate  all  over  the  United  States 
for  both  public  and  private  banks  and  would  most  effectively  stand- 
ardize the  mortgage  loan  business.  And,  as  I  said  before  and  say 
now,  if  this  legislation  is  enacted  and  there  was  not  but  a  single 
bank  established  under  it,  this  one  feature  would  be  of  vast  benefit 
to  the  people  of  the  United  States.  It  would  absolutely  check  any 
practice  of  usury  by  means  of  using  false  tables  and  give  any  bank 
the  proper  rate  of  interest  to  charge  in  order  to  mature  their  loans 
within  any  given  time  at  any  given  rate. 

Mr.  Platt.  You  would  not  say  that  amortization  would  give  the 
borrower  a  cheaper  rate  of  interest  than  he  could  get  a  loan  without 
it,  would  you  ? 

Mr.  Moss.  No;  amortization  can  have  no  influence  on  interest,  ex- 
cept as  it  will  influence  the  rate  favorably  by  reason  of  strengthening 
the  security  on  which  the  loan  is  based. 

Mr.  Platt.  With  equal  security? 

Mr.  Moss.  It  gives  additional  security,  and  it  gives  the  borrower 
the  additional  protection  of  being  constantly  saving  against  his 
debt. 

Mr.  Platt.  My  only  point  in  putting  that  in  was  the  people  get 
altogether  false  ideas  of  this  thing  by  reading  about  it  in  the  news- 
papers. They  have  an  idea  that  some  miracle  is  going  to  be  worked, 
and  I  think  that  impression  ought  to  be  corrected. 

Mr.  Moss.  In  connection  with  that  idea,  Mr.  Platt,  the  basic  idea 
of  this  system  is  realW  devising  a  credit  instrument  to  secure  funds 
to  be  loaned.  Now,  the  best  credit  instrument  that  has  yet  been  de- 
vised is  a  bond,  free  from  taxation,  based  upon  absolute  security, 
with  frequent  and  regular  interest  payments.  It  is  the  credit 
instrument  that  has  fought  every  kind  of  a  war  that  has  ever  been 
waged;  it  has  constructed  all  of  our  public  improvements,  and  it 
finances  all  public  undertakings.  This  bill  is  really  adopting  that 
credit  instrument,  free  from  taxation,  placing  it  under  Government 
supervision,  and  making  in  available  for  individual  use  on  the  farm; 
whereas  heretofore  it  has  been  working  exclusively  for  community 
interest.  This  bill,  therefore,  gives  the  farmer  every  advantage 
in  the  way  of  obtaining  credit  by  the  cooperation  of  10  persons 
subscribing  a  minimum  capital  that  the  community  now  has  with 
practically  unlimited  capital.  An  advantage  is  going  to  come  to 
him  in  the  compulsory  amortization  by  inducing  a  savings  deposit, 
and  as  a  matter  of  fact  you  permit  the  farmer,  by  organization, 
with  small  capital,  to  take  advantage  of  the  most  favorable  credit 
instrument  that  the  wit  of  man  has  yet  devised. 

Senator  IIollis.  Now,  Mr.  Moss,  do  you  mean  that  those  tables 
should  be  at  a  uniform  rate  for  the  whole  country,  or  do  you  mean 
they  should  be  based  on  different  rates  of  interest? 

Mr.  Moss.  Oh,  different  dates  of  interest,  Senator.  I  mean  to  say 
that  the  table  would  indicate,  if  you  take  a  note  for  25  years  at  4 
per  cent  interest,  the  proper  annual  amortization  charge  which  is 
necessary  to  mature  the  note,  it  would  show  him  and  every  other 
man  in  the  United  States  under  like  circumstances  just  exactly  what 
payment  will  discharge  his  debt.     Another  feature  in  this  bill  is 


RURAL    CREDITS.  85 

there  is  no  sinking  fund  permitted,  and  payments  made  by  the 
farmer  must  be  at  once  turned  over  to  the  bondholder.  This  has 
been  done  in  the  interest  of  absolute  safety,  especially  for  the 
bondholder.  I  think  you  will  agree  with  me,  after  our  experience 
with  the  insurance  companies  with  vast  sinking  funds,  that  it  will 
be  vastly  better  to  make  these  moneys  active  by  turning  them  over 
immediately  to  the  holder  of  the  bonds  to  whom  they  rightly  belong, 
giving  the  banks  the  right  to  recall  bonds  at  any  time,  than  to  per- 
mit these  banks  to  accumulate  a  vast  hoard  of  money  which  musk 
be  handled  by  them  as  trustees  for  the  ultimate  benefit  of  the  bond- 
holder. 

Senator  Hollis.  I  wish  you  would  give  the  arguments  for  that, 
Mr.  Moss. 

Mr.  Moss.  The  argument  is  this,  Senator,  that  under  this  system 
it  regulates  itself  with  mathematical  certainty.  There  is  no  risk  to 
be  assumed.  You  may  assume  as  a  fact  very  safely  that  there  will 
always  be  a  larger  demand  for  these  loans  than  possibly  can  be  sup- 
plied. Therefore  the  volume  of  the  business  will  be  controlled  by 
the  sale  of  the  bonds. 

If,  then,  there  is  an  active  demand  for  the  bonds,  there  will  be 
no  hardship  whatever  on  the  bank  by  reason  of  the  prompt  payment 
and  retirement  of  outstanding  bonds,  because  the  bank  can  immedi- 
ately issue  new  bonds  to  meet  this  demand;  as  a  matter  of  fact,  the 
prompt  calling  of  bonds  and  paying  them  off  at  par  will  have  a 
tendency  to  uphold  them  in  the  market.  If,  as  a  matter  of  fact,  you 
issue  a  bond  for  35  years  or  for  30  years  and  they  circulate  for  that 
entire  period,  under  certain  conditions  it  might  be  that  such  bonds 
would  fall  below  par.  In  fact,  if  there  is  a  general  rise  in  interest 
rates,  it  is  sure  to  go  below  par ;  but  if  there  is  a  general  fall  in  in- 
terest rates  it  is  equally  true  that  the  bond  will  go  above  par.  I  think 
we  all  agree  upon  that  proposition. 

Now,  then,  if  this  bank,  as  a  farmer  comes  in  and  pays  the  money, 
even  if  it  can  reinvest,  unless  it  invest  in  land-mortgage  loans,  it 
would  have  the  same  hazard  as  other  commercial  investments.  There 
could  be  no  possible  advantage  in  permitting  a  sinking  fund  to  be 
invested  in  a  new  mortgage  loan,  because  a  new  issue  of  bonds  could 
be  made  to  do  the  same  thing.  The  only  possible  advantage  in  a 
sinking  fund  is  the  power  of  compound  interest.  Therefore  it  is  in 
the  interests  of  safety  and  does  not  in  any  way  create  a  hardship, 
except  in  the  prohibition  of  compound  interest. 

Mr.  Hayes.  Let  me  see  if  I  understand.  As  I  read  the  bill,  the 
payment  that  the  mortgagor  makes  in  the  mortgage  will  not  apply 
on  the  bond  that  is  issued  at  all.  His  bond  runs  the  full  25  years,  if 
it  is  to  run  for  that  period,  unless  the  bank  chooses  to  take  it  up  and 
does  take  it  up  and  retire  it? 

Mr.  Moss.  As  it  either  chooses  or  is  compelled  to. 

Mr.  Hayes.  How  can  it  be  compelled  to? 

Mr.  Moss.  It  must  keep  this  volume 

Mr.  Hayes  (interposing).  Yes;  I  can  see  it  might  under  certain 
circumstances. 

Mr.  Moss.  Of  course  it  would  take  this  money  and  at  once  rein- 
vest it  in  bonds,  and  it  is  not  in  any  sense  of  the  word  a  sinking 
fund. 


86  RURAL    CREDITS. 

Mr.  Hayes.  Not  at  all;  but  you  made  a  statement  here  that  led 
us  to  believe  that  you  had  some  other  idea. 

Mr.  Moss.  Oh,  no. 

Mr.  Seldomkedge.  If  it  could  use  its  surplus.  But  suppose  the 
bank  finds  itself  without  any  demand  from  the  borrowers;  it  must 
invest  its  funds  in  some  form  in  order  to  keep  up  its  interest. 

Mr.  Moss.  It  always  has  the  right  to  recall  bonds  and  pay  them 
off  at  par,  and  that  always  makes  a  satisfactory  investment  for  what- 
ever funds  it  may  have.  Now,  the  bill  permits  the  bank  to  loan 
and  reloan  its  capital,  deposits,  and  surplus  under  certain  conditions. 
If  it  is  permitted  to  reloan  its  capital,  there  can  be  no  question  of 
surplus  funds  tied  up  in  the  bank,  because  if  they  are  not  invested 
under  these  provisions  the  bank  can  call  in  and  cancel  the  bonds  at 
par,  and  the  interest  on  the  mortgages  thereby  released  will  accrue 
to  the  bank. 

Mr.  Platt.  The  section  you  refer  to  is  on  page  1G,  is  it  not, 
clause  4? 

Mr.  Moss.  Yes — 

that  as  t lie  amortization  payments  are  credited  upon  the  first  mortgage  or 
first  deed  of  trust,  farm  loans  so  deposited  as  security,  the  national  land-bank 
bonds  issued  by  the  bank  and  secured  thereby,  shall  be  called  and  paid  or 
purchased  in  the  open  market  and  retired,  to  the  extent  of  the  credits  made 
upon  said  first  mortgage  or  deed  of  trust  farm  loans  held  as  security  for  the 
same,  under  rules  and  regulations  made  by  the  commissioner  of  farm-land 
banks. 

Under  that  provision  we  have  made  it  mandatory  upon  the  bank 
to  retire  its  bonds  in  proportion  as  the  mortgages  are  paid  off. 

Mr.  Hayes.  You  do  not  allow  them  to  use  that  money  that  comes 
in  to  make  new  bonds  ? 

Mr.  Moss.  No,  sir;  we  have  no  provision  in  the  bill  for  a  sinking 
fund,  absolutely  none. 

Senator  Hollis.  Mr.  Moss,  you  do  not  feel  hurried  in  giving  your 
testimony,  do  you  ?  We  have  plenty  of  time,  and  you  go  so  fast  that 
I  find  I  can  not  follow  you. 

Mr.  Moss.  Thank  you,  Senator,  for  that  courtesy.  I  was  afraid 
I  might  tire  the  committee. 

Senator  Hollis.  I  wish  you  would  not;  I  wish  you  would  take 
your  time  and  take  it  easy,  because  we  are  not  going  to  find  many 
witnesses  who  can  give  us  the  information  you  can. 

Mr.  Moss.  I  was  afraid  I  would  tire  the  committee,  as  there  are 
many  things  I  wanted  to  speak  about.    I  thank  you  for  the  suggestion. 

The  idea  that  the  commission  had  in  this  matter  was  to  make  the 
bondholder  absolutely  safe,  and  one  of  the  great  elements  of  security 
about  the  bond  is  that  as  the  farmer  pays  in  his  money  it  immediately 
reaches  the  bondholder,  and  thus  there  is  no  risk  between  the  time 
the  money  is  paid  in  by  the  borrower  and  the  redemption  of  the  bond. 
If  the  holder  of  the  canceled  bond  is  satisfied  with  the  investment,  the 
bank  will  always  have  another  bond  of  equal  value  to  offer  to  him, 
and  therefore  there  is  no  hardship  upon  the  bondholder  and  no  hard- 
ship upon  the  bank,  and  it  will  make  the  circulation  of  securities 
more  active. 

Mr.  Hayes.  Let  me  get  your  idea  a  little  further.  You  do  not 
mean  to  say  if  I  owed  one* of  these  banks  $3,000  and  I  came  in  to 
pay  it  that  the  bond  that  was  issued  on  my  security — that  identical 


RURAL    CREDITS.  87 

bond — must  be  purchased,  or  they  must  go  out  and  purchase  the  sum 
of  $3,000  worth  of  bonds? 

Mr.  Moss.  The  bank  will  call  in  $3,000  worth  of  their  bonds,  with- 
out distinction  as  to  any  particular  bonds. 

Mr.  Brown.  Let  me  understand  this.  Are  these  bonds  redeemable 
at  the  option  of  the  bank  ? 

Mr.  Moss.  Yes;  they  necessarily  would  have  to  be.  In  Europe  I 
think  it  is  the  common  custom  to  draw  these  bonds  by  lottery,  where 
they  are  redeemed  before  they  are  due. 

Mr.  Platt.  I  was  going  to  ask  you  about  that.  You  do  not  provide 
for  any  method. 

Mr.  Moss.  No,  sir.  It  is  left  to  the  bank.  I  am  going  to  speak  in 
a  moment  of  the  reason  for  it. 

Senator  Hollis.  You  would  leave  that  to  the  board  or  commission 
to  prescribe  regulations,  based  upon  their  experience? 

Mr.  Moss.  Yes,  sir.  One  of  the  most  important  subjects  connected 
with  land-mortgage  bonds  is  to  provide  a  prompt  market  for  them. 
For  instance,  a  person  buys  a  bond  for  five  years  and  he  draws  his 
interest,  and  then  desires  to  get  his  money  back;  he  must  be  able  to 
go  out  and  sell  again,  and  at  the  same  time  to  sell  for  as  much  as 
he  gave  for  it.  That  is  the  crucial  test  of  this  proposition.  Unless 
a  bank  that  issues  the  bond  is  prepared  to  buy  it  on  demand  of  the 
owner,  there  may  be  times  when  land  bonds  might  become  a  drug 
upon  the  market.  My  own  idea  is  to  make  the  circulation  of  the  bond 
pretty  active,  so  that  they  are  taken  out  of  the  first  holder's  hands 
and  retired  at  the  bank's  counter  pretty  often.  In  that  way  they  will 
circulate  at  par  and  be  held  up  to  that  price  with  less  difficulty  than 
if  issued  for  a  long  period  of  time  and  not  paid  off  until  maturity. 

Mr.  Hayes.  Let  me  suggest,  I  think  the  provision  in  there  leaving 
the  matter  in  the  discretion  of  the  directors  what  bond  shall  be  paid 
off  is  desirable.  Here  is  a  man  who  wants  his  money  and  he  can 
notify  the  directors  what  bond  he  holds  and  that  he  would  like  to 
have  his  money,  and  they  can  have  that  in  view  and  in  that  way  ac- 
commodate him,  and  also  in  that  way  keep  the  price  of  the  bond  up. 

Mr.  Moss.  I  am  glad  that  you  approve  that  provision.  In  the  be- 
ginning we  thought  there  ought  to  be  no  restrictions  put  in  this  bill 
unless  it  was  absolutely  necessary  to  secure  safety  and  that  many 
regulations  necessary  to  enforce  the  provisions  of  this  bill  might  be 
left  to  the  discretion  of  the  division  of  land  banks  created  by  the  bill. 

Now,  the  next  provision  I  desire  to  call  especial  attention  to  is  the 
payment  of  the  mortgage  in  money  or  in  bonds.  My  attention  was 
called  to  that  provision  by  a  farm  publication,  which  stated  that  it 
was  the  joker  in  this  bill;  that  if  you  examined  any  important  bill 
you  would  always  find  a  joker  and  there  was  the  joker  in  this  bill; 
that  the  farmer  was  enticed  to  borrow  his  money  on  the  provision  that 
he  could  repay  it  at  his  option,  and  then  when  the  time  came  and  he 
attempted  to  exercise  his  option,  the  bank  might  say  to  him,  bring 
in  the  bonds,  and  as  the  bonds  might  not  be  on  the  market,  he  could 
not  get  hold  of  them  to  pay  it  off  and  he  could  not  discharge  his 
debt.  Of  course,  the  committee  understands  precisely  the  meaning 
of  the  provision.  A  man,  after  five  years — and  it  was  fixed  at  five 
years  because  it  was  believed  that  the  bank  ought  to  have  a  reason- 
able return  in  the  way  of  administrative  charges  or  profits  for  the 


88  RURAL    CREDITS. 

trouble  in  making  the  loan  and  therefore  the  loan  ought  not  to  be 
paid  off  under  five  years — that  after  five  years,  at  any  interest 
period,  the  borrower  could  have  the  right  to  repay  his  loan,  either  in 
money  or  in  bonds. 

Now.  the  mere  matter  of  fact  of  giving  the  option  of  paying  in 
bonds  is  n<>t  to  deprive  him  of  the  privilege  of  paying  in  money,  but 
if  the  bonds  fall  below  par — that  is  the  proposition — under  this  bill 
the  debtor  can  purchase  the  bonds  and  the  moment  he  presents  them  at 
the  bank's  counter  the}''  cancel  the  mortgage.  If  the  bonds  are  below 
par  this  option  gives  the  borrow  the  advantage  of  discharging  his 
debt  upon  the  lowest  possible  terms  and  the  profit  goes  to  the  bor- 
rower instead  of  to  the  bank.  Either  the  bank  or  the  farmer  must 
purchase  the  bonds  under  the  terms  of  the  bill. 

Senator  Hollis.  And  it  has  the  tendency  to  keep  the  bonds  up  in 
case  they  commence  to  go  below  par? 

Mr.  Moss.  Undoubtedly.  Now,  how  any  intelligent  writer  can 
refer  to  that  as  a  joker  I  do  not  see. 

Mr.  Hayes.  You  do  not  think  any  intelligent  writer  would,  do 
you? 

Mr.  Moss.  I  doubt  it,  but  this  writer  did  it. 

Mr.  Platt.  Is  that  done  in  any  European  banks? 

Mr.  Moss.  Yes;  it  is  nearly  uniformly  done,  and  it  is  one  of  the 
very  elements  in  the  whole  system. 

There  is  another  reason,  too,  for  making  the  redemption  after 
five  years,  and  that  is  that  it  absolutely  protects  the  borrower  against 
a  genera]  fall  in  interest  rates.  Now,  in  this  country  where  interest 
rates  are  higher  than  in  the  old  country,  it  is  said  we  can  reasonably 
look  forward  to  the  fact  that  as  the  country  grows  in  wealth  there 
will  be  a  general  fall  in  interest  rates. 

Senator  Hollis.  Is  not  that  questionable,  now?  It  is  the  old 
theory,  but  I  think  the  idea  now  is  that  that  we  will  probably  never 
have  such  low  interest  rates  as  European  countries.  I  would  like 
to  get  your  individual  judgment  about  that,  because  you  undoubtedly 
have  studied  it. 

Mr.  Moss.  My  own  individual  judgment  is  that  of  a  certainty 
interest  rates  will  fall  in  the  undeveloped  sections  of  the  United 
States. 

Mr.  Hayes.  That  is  true. 

Mr.  Moss.  Now,  without  this  optional  provision,  no  prudent  man 
is  going  to  tie  himself  up  with  a  mortgage  running  for  25  or  30 
years  in  any  section  of  the  United  States.  No  prudent  man  would 
do  it.  But,  if  he  gives  a  mortgage  for  that  length  of  time,  with 
the  privilege  of  paying  it  off  after  five  years,  he  is  absolutely  pro- 
tected against  any  fall  in  the  interest  rate,  and  then  he  has  accu- 
mulated his  amortization  payments  for  five  years  as  a  saving.  He 
makes  amortization  paj7ments  upon  the  principal,  and  a  man  who 
takes  advantage  of  the  proposition  knows  he  is  getting  his  loan  at 
the  best  terms  that  money  can  be  had.  and  after  five  years  he  can 
discharge  all  or  any  part  of  his  debt.  That.  T  submit,  is  a  very 
important  feature  of  the  bill. 

Air.  Haves. You  do  not  contemplate — I  do  not  recall  whether  the 
bill  does  or  not — you  do  not  contemplate  loans  for  less  than  five 
years? 


SURAL    CREDITS.  89 

Mr.  Moss.  Yes,  sir.  This  bank  is  given  the  privilege  of  making 
loans  for  any  shorter  period  of  time,  but  is  prohibited  from  issuing 
bonds  on  loans  for  less  than  five  years.  I  would  like  to  take  up 
the  reason  for  that.  The  main  purpose  of  this  bill  is  to  encourage 
the  savings  feature  in  connection  with  farm  loans.  I  am  speaking 
of  the  amortization  feature  now  as  a  savings  feature. 

Second,  there  is  absolutely  no  disadvantage  in  making  a  loan 
for  longer  than  five  years,  if  you  have  the  option  to  pay  it  off  after 
five  years.  The  only  question  is  that  during  the  five  years  the  bor- 
rower makes  heavier  payments  on  account  of  the  amortization  fea- 
ture. Therefore  it  works  no  hardship,  at  least,  not  to  give  the  right 
to  issue  bonds  against  five-year  loans.  The  bank  has  the  right  to 
make  five-year  loans,  but  it  does  not  have  the  right  to  issue  bonds 
against  it.  National  banks  loan  money  for  five  years  without  issu- 
ing bonds.  It  would  at  once  be  a  discrimination  to  give  this  bank 
the  right  to  make  five-year  loans  and  issue  bonds  against  them, 
whereas  the  national  bank  right  across  the  street  is  permitted  to 
make  similar  loans,  but  is  not  given  the  right  to  do  that.  Where 
competition  is  open  no  favors  should  be  granted.  We  seek  to  make 
competition  in  the  five-year  loans.  This  bank  has  the  right  to  loan 
its  capital  and  deposits  on  five  years'  time,  just  as  other  national 
banks.  This,  I  believe,  is  eminently  fair;  but  I  think  it  would  be 
unfair  to  give  them  the  right  to  issue  bonds  against  the  five-year 
loans,  it  would  also  militate  against  the  main  purpose  of  the  bill 
which  is  to  create  a  savings  feature  in  connection  with  farm  loans. 

Mr.  Woods.  Mr.  Moss,  suppose  farmer  A  secured  a  loan  for  six 
years,  would  he  be  barred  from  paying  any  portion  of  that  loan 
until  the  end  of  five  years? 

Mr.  Moss.  I  think  that  is  true,  except  his  amortization  payments. 

Mr.  Coulter.  Anything  over  five  years  would  call  for  amorti- 
zations. 

Mr.  Moss.  Yes;  that  is  the  provisions  of  the  bill. 

Mr.  Woods.  The  amortization  feature  does  not  enter  until  after 
five  years. 

Mr.  Coulter.  Oh,  yes,  sir;  they  start  in  paying  right  off. 

Mr.  Woods.  At  the  end  of  the  first  year? 

Mr.  Coulter.  Yes;  right  off. 

Mr.  Woods.  What  becomes  of  that  money  after  the  first  five  years! 

Mr.  Coulter.  It  is  used  to  buy  the  bonds. 

Senator  Hollis.  That  is,  if  the  loan  is  over  five  years,  the  amortiza- 
tion plan  must  apply  to  it ;  and  if  he  does  not  want  that  feature,  he 
could  agree  to  pay  within  five  years,  or  less. 

Mr.  Hayes.  For  a  six-year  loan  or  less  he  would  not  pay  an  equal 
amount,  but  he  would  pay  approximately  one-sixteenth  of  the  prin- 
cipal at  every  interest  period.  Of  course  it  would  be  a  little  less 
than  that  at  the  beginning  and  more  at  the  end. 

Mr.  Platt.  Of  course,  when  bonds  had  issued  on  loans  of  more 
than  five  years  which  have  the  amortization  feature,  no  doubt  some 
of  them  would  come  in  and  be  paid  off  within  the  five-year  period. 

Mr.  Moss.  The  bond  itself  can  be  called  in  at  any  time  the  bank 
chooses;  and  therefore  while  the  borrower  would  be  repaying  the 
obligation  to  the  bank,  the  bank  can  call  in  its  corresponding  obli- 
gation at  any  time  after  it  is  issued,  under  the  terms  of  this  bill. 


90  RURAL    CREDITS. 

Senator  Hollis's  observation  is  correct.  The  borrower,  if  he  desires 
to  escape  the  amortization  feature,  must  choose  a  five-year  or  under 
loan.  He  can  then  make  his  contract  with  the  bank  regarding  par- 
tial payments  with  the  same  freedom  he  would  enjoy  in  dealing  with 
any  other  bank  or  loan  agency. 

Another  feature  in  this  bill  is  the  special  reserve  for  interest  guar- 
anty. I  think  the  committee  will  at  once  concede  that  there  is  no 
reason  for  holding  a  special  reserve  against  the  principal,  because 
under  these  provisions  the  amortization  is  at  once  credited  on  the 
bond,  and  at  the  end  of  the  time  the  mortgage  is  paid  off  and  the 
bonds  will  be  retired.  Therefore,  so  far  as  the  principal  of  the  bond 
is  concerned,  there  is  no  necessity  for  a  special  guaranty  reserve. 

But  the  question  is  met  in  connection  with  the  payment  of  the 
interest  on  the  bond.  It  is  reasonable  to  presume  that  there  will  be 
a  number  of  defaults  among  the  borrowers  in  paying  the  interest 
(to  the  bank)  on  the  particular  day  on  which  it  falls  due.  Or,  in 
instance  of  a  foreclosure,  there  would  naturally  be  a  period  in  which 
there  would  be  no  interest  payments.  I  think  you  will  find  on  care- 
ful study  that,  although  it  is  not  required  in  European  banks,  prac- 
tically all  of  the  prudent  banks  do  ordinarily  carry  a  special  re- 
serve of  5  per  cent  for  this  purpose,  recognizing  the  fact  that  the 
bondholder  ought  to  have  his  interest  promptly  when  it  falls  due, 
as  without  that  the  bond  itself  can  not  be  considered  a  first-class  in- 
vestment. Hence  the  commission  wrote  into  the  bill  a  provision  that 
out  of  the  net  profits  of  the  bank,  before  any  dividends  can  be  de- 
clared, there  shall  be  set  aside  a  special  reserve  of  5  per  cent,  based 
upon  its  annual  interest  charge,  and  I  think  you  will  agree  with  me 
that  this  will  be  very  prudent.  I  have  no  doubt  that  every  bank 
would  carry  such  a  reserve,  anyhow,  so  far  as  that  is  concerned;  if 
it  was  well  managed  it  certainly  would  do  so.  But  that  provision 
was  written  in  here  in  order  to  make  sure  that  the  bondholders  would 
be  protected. 

Senator  Holeis.  Yes ;  I  think  it  would  give  the  system  a  black  eye 
if  the  bondholders  did  not  get  their  interest  promptly  when  due. 
They  get  a  low  rate  of  interest,  and  they  ought  to  be  sure  of  getting 
it  when  due,  and  it  ought  not  to  be  made  possible  for  any  cry  to  be 
raised  in  any  part  of  the  country  that  the  bonds  were  not  a  good 
security. 

Mr.  Moss.  Yes,  sir.  These  banks  being  given  the  dignity — and  I 
think  the  prestige  of  the  national  name  and  national  supervision — it 
ought  to  be  made  absolutely  sure  that  there  will  be  no  default  in  the 
payment  of  principal  or  interest,  and  that  it  is  necessary  to  have  a 
prudent  reserve,  because  a  bank  might  be 

Mr.  Hayes  (interposing).  Short  of  funds? 

Mr.  Moss.  Yes;  short  of  funds  for  the  moment  to  pay  the  interest 
when  due. 

Mr.  Seldomridge.  Where  is  that  reserve  provision  contained  in  the 
bill? 

Mr.  Moss.  It  comes  in  under  the  heading  of  "  dividends." 

Mr.  Hayes.  It  is  on  page  35.  line  10. 

Mr.  Moss.  Yes ;  the  bill  reads : 

Provided  further.  That  a  special  reserve  fund  shall  be  maintained  by  each 
national  farm-land  bank,  which  special  reserve  fund  shall  be  created  out  of 
the  net  earnings  of  the  bank  and  shall  at  all  times  be  equal  to  5  per  cent  of 


RURAL    CREDITS.  91 

the  total  annual  interest  charge  on  the  land-bank  bonds  which  are  outstanding 
against  such  banks  at  the  close  of  the  last  fiscal  year.  Such  special  reserve 
fund  shall  not  be  disbursed  for  any  other  purpose  except  to  meet  arrears  in 
interest  payment  on  land-bank  bonds  issued  by  said  bank. 

Mr.  Seldomridge.  While  we  are  on  that  subject  let  me  ask  you  an- 
other question.  Is  there  any  provision  in  this  bill  regarding  the  fail- 
ure of  a  mortgage  to  meet  the  interest  payment  as  to  what  should 
be  done? 

Mr.  Moss.  No,  sir.  That  is  a  question  of  contract  between  the  bank 
and  its  borrower  and  would  depend  upon  the  terms  of  the  contract; 
it  would  also  be  controlled  by  the  laws  of  the  State. 

Mr.  Seldomridge.  Well,  suppose  a  man  defaults  in  the  payment 
of  interest? 

Mr.  Moss.  The  special  reserve  fund  will  meet  that  contingency. 
The  next  feature  that  I  will  call  attention  to  is  the  investment  of  the 
capital.  This  bill  is  drawn  upon  the  theory  that  every  holder  of  a 
bond  will  have  three  sources  of  protection.  The  first  and  primary 
source,  of  course,  is  the  value  of  the  land  that  is  mortgaged ;  second, 
the  capital  of  the  bank;  and  third,  the  guaranty — the  liability  that 
the  stockholders  assume. 

Mr.  Hayes.  Would  there  not  also  be  after  awhile  a  surplus? 

Mr.  Moss.  Yes;  but  the  surplus  would  be  counted  as  capital,  and 
therefore  it  would  not  count  as  a  guaranty. 

Mr.  Hayes.  Yes. 

Mr.  Moss.  Now,  we  have  prohibited  the  permanent  investment  of 
the  capital  in  the  main  business  of  the  bank;  that  is,  in  the  long-time 
loans  upon  which  they  are  issuing  bonds.  I  think,  if  you  permit  that, 
the  capital  would  not  be  the  most  certain  protection  to  the  bond 
holder.  We  have,  however,  provided  certain  profitable  forms  of 
investment  for  the  capital.  It  can  be  invested  in  five-year  loans ; 
it  can  be  invested  temporarily  in  long-time  loans,  which  must  be 
replaced  later  by  the  proceeds  of  land  bank  when  they  are  issued 
and  sold ;  and  there  are  several  other  forms  of  investment.  But  the 
capital  of  the  bank  itself  is  used  on  the  outside  and  in  separate  lines 
of  venture  from  the  main  purpose,  which  is  the  issue  of  long-time 
loans.  That  provision  was  put  in  the  bill  in  order  to  make  the  capi- 
tal an  absolute  protection  to  the  bondholder  and  at  the  same  time 
giving  the  bank  an  ample  opportunity  to  invest  it  so  as  to  make  a 
reasonable  interest  upon  its  capital. 

There  is  one  feature,  Mr.  Chairman,  that  I  overlooked,  and  if 
you  will  pardon  me  I  will  now  go  back  to  it.  It  is  in  regard  to  the 
liability  of  the  stockholders.  We  have  made  this  an  American 
banking  bill  and  have  provided  that  every  stockholder  in  the  bank 
shall  assume  a  double  liability,  the  same  as  is  commonly  assumed  by 
persons  holding  shares  in  other  national  banking  institutions.  But 
in  the  case  of  a  cooperative  bank  there  is  a  provision  made  for  a 
larger  liability,  if  two-thirds  of  the  stockholders  care  to  assume  it. 

There  was  a  very  wealthy  man — a  good  business  man — from  New 
York  who  appeared  before  the  commission  and  suggested  that  we 
ought  to  make  a  banking  system  which  would  have  a  small  cash 
capital  and  a  very  large  credit  capital ;  that  is,  to  permit  persons  of 
wealth  and  financial  responsibility  to  underwrite  a  series  of  bonds 
similar,  I  was  told,  as  the  Lloyds  do,  for  instance,  in  marine 
insurance;  in  other  words,  putting  up  a  certain  amount  of  cash  capi- 


92  RURAL    CREDITS. 

tal  and  then  assuming  a  large  credit  liability,  which  credit  liability 
would  guarantee  to  the  outstanding  bond.  This  credit  liability  would 
not  be  called  except  on  failure  of  the  mortgagor  to  pay  his  obliga- 
tions upon  which  the  bonds  or  liability  of  the  underwriters  was 
based.  The  commission  did  not  approve  that  idea.  And  }ret  the 
landschaften  associations  permit  an  unlimited  liability  to  be  as- 
sumed by  the  shareholders,  if  they  care  to  do  so. 

Mr.  Platt.  Is  it  not  in  principle  an  unlimited  liability  which  you 
suggest  ? 

.Mr.  Moss.  Yes,  sir.  In  principle  I  do  not  believe  in  unlimited 
liability,  and  I  do  not  think  that  the  farmers  of  the  country  will 
take  kindly  to  it — at  least  without  years  of  operation  of  the  system. 
The  whole  system  of  credit  capital  as  a  guaranty  of  obligation  is  to 
be  one  of  growth  and  development.  I  expect  Dr.  Coulter  to  speak 
particularly  of  the  cooperative  feature  of  the  bill,  and  I  am  not 
going  to  speak  at  length  upon  it,  because  Dr.  Coulter  has  studied 
that  subject  as  much  as  or  more  than  any  other  man  in  the  United 
States;  and  this  cooperative  feature  in  the  bill  is  particularly  his 
feature,  and  I  feel  that  Dr.  Coulter  will  discuss  that  feature  much 
more  entertainingly  and  much  better  than  I  can. 

But  under  this  provision,  if  two-thirds  of  the  stockholders  in  a 
cooperative  bank  desire  to  do  so,  they  can  assume  a  liability  of 
three  or  four  or  five  times  the  value  of  their  shares,  and  even  an 
unlimited  liability,  and  thus,  if  they  cared  to  do  so,  put  a  larger 
credit  capital  behind  the  bond,  with  the  object  of  giving  them  a 
greater  security  and  sale.  This  puts  the  question  up  to  the  business 
judgment  of  the  individuals.  The  cooperative  land  bank  under  the 
provisions  of  this  bill  may,  with  the  consent  of  two-thirds  of  its 
stockholders,  organize  a  new  landschaften  association  after  the  Ger- 
man model. 

Now,  that  is  the  widest  variation  that  comes  in  the  bill;  you  can 
assume,  in  a  cooperative  bank,  just  precisely  the  same  liability  as  in 
a  joint-stock  bank,  or  you  can  extend  the  liability  as  far  as  you  like, 
giving  an  opportunity  for  growth  of  cooperative  ideas  in  banking. 

At  the  beginning.  I  do  not  think  I  violate  any  confidence  in  say- 
ing that  I  was  opposed  to  the  writing  of  the  cooperative  idea  in  this 
bill.  And  yet,  after  a  careful  study  of  the  matter  and  after  coming 
into  contact  with  what  I  believe  to  be  the  very  best  thought  at  the 
present  lime.  I  wish  to  say  that  it  would  be  a  very  grave  mistake  to 
strike  it  out  of  the  bill ;  and  I  am  going  to  make  the  prediction  that 
the  great  growth  in  the  future  among  farmers  toward  better  business 
methods  is  going  to  be  along  cooperative  lines. 

Mr.  Hayes.  In  some  places  I  think  that  is  true. 

Mr.  Moss.  And  that  is  one  of  the  reasons  that  you  can  not  put  this 
system  or  any  system  of  personal  credit  into  operation  in  a  day. 
There  is  not  any  thought  of  trying  to  do  that.  "We  ought  to  build 
for  the  future;  and  just  as  farmers  come  together  in  a  cooperative 
way  on  business  lines  and  find  that  they  operate  on  cooperative  lines 
very  much  better  than  individually,  and  with  absolute  safety,  so  Avill 
their  cooperation  and  their  business  ability  grow  along  those  lines. 
And  it  was  thought  a  good  plan  to  give  them  an  opportunity  to  do 
this  in  this  bill.  And  there  are  some  places  where,  perhaps,  this 
cooperative  system  can  go  into  immediate  effect,  because  we  have  in 
a  great  many  centers — and  you  would  be  surprised,  gentlemen,  if 


RURAL    CREDITS.  93 

Dr.  Coulter  should  take  the  time  to  show  you  in  how  many  sections 
of  the  United  States  there  is  cooperation  now  among  farmers,  and 
how  actively  they  are  at  work;  of  course,  Mr.  Hayes,  you  are  familiar 
with  cooperative  conditions  in  California,  which  is  a  very  apt  illus- 
tration— and  there  are  a  great  many  other  centers  where  cooperation 
in  rural  industry  in  already  practiced.  The  more  you  study  the 
matter  the  more  you  will  be  surprised  at  the  extent  to  which  the 
cooperative  idea  has  grown  among  the  farmers  of  the  country. 

Mr.  Hayes.  Nearly  all  of  our  fruit  in  California  is  marketed  by 
means  of  cooperation. 

Mr.  Moss.  Yes.  Now,  I  am  getting  down  to  a  subject  on  which 
there  will  be  some  controversy,  and  that  is  permitting  cooperative 
banks  to  do  a  banking  business  for  and  with  their  own  stockholders. 
You  will  find  it  at  the  bottom  of  page  17  of  the  bill  H.  K.  12585. 
I  will  read  that  provision;  but  before  I  read  it  I  will  say  that  it  can 
be  stricken  out  of  the  bill  and  still  leave  the  bill  as  a  land-mortgage 
bank  measure  intact.     The  provision  reads  as  follows : 

Provided,  hotcever,  That  farm-laud  banks,  cooperative,  may,  for  and  with 
their  stockholders,  also  do  and  transact  the  business  now  possessed  and  exercised 
by  national  banks  under  the  laws  of  the  United  States,  under  such  rules  and 
regulations  as  may  be  prescribed  by  the  commissioner  of  farm-land  banks. 

This  provision  is  already  enacted  into  law  in  the  Indiana  State 
building  and  loan  association  act,  the  last  law  that  was  passed  on  that 
subject  in  Indiana,  and  which  is  said  to  be  the  most  forward  and 
progressive  act  in  the  United  States  on  this  subject. 

If,  as  a  matter  of  fact,  this  committee  reports  out  a  bill  on  per- 
sonal credit  loans,  then  I  can  see  no  reason  why  this  provision  should 
not  be  stricken  out  of  the  bill.  It  does  not  permit  the  banks  to  do 
anything  more  than  a  banking  business  with  their  own  membership. 
It  would  permit  them  to  take  deposits  from  any  stockholder  in  the 
bank.  It  would  permit  them  to  make  loans  for  personal  purposes 
to  their  own  members.  That  is  all  it  would  permit;  so  that  it  would 
give  an  opportunity  for  these  cooperative  land  banks,  so  far  as  their 
own  bank  membership  is  concerned,  to  do  a  full  banking  business 
and  retain  the  profits  of  their  own  banking  in  their  own  hands. 

Mr.  Hayes.  Do  you  not  think  that  is  dangerous?  Take  the  trade 
of  a  small  bank,  where  the  men  at  the  head  of  it  are  not  skilled  in 
commercial  banking. 

Mr.  Moss.  I  will  give  you  my  reasons  why,  as  a  member  of  the 
commission,  I  favored  putting  this  provision  in. 

At  the  present  time  there  are  9,000  banks  in  the  United  States  with 
a  capital  below  $25,000  each.  These  banks  are  located  very  largely 
in  farming  sections  of  the  United  States.  For  instance,  in  Connec- 
ticut, I  do  not  think  there  is  a  bank  chartered  which  has  a  capital 
less  than  $25,000.  I  think  in  the  great  State  of  New  York  there  are 
but  three  banks  appearing  in  the  bank  directory  which  have  a  capi- 
tal below  $25,000.  Yet,  in  the  State  of  Missouri,  you  will  find  that 
there  are  850  of  such  banks.  If  you  will  take  that  group  of  States 
there  in  the  Middle  West,  which  is  the  best  group  of  farming  States 
in  the  Union — Oklahoma,  IowTa,  Missouri,  Kansas,  North  and  South 
Dakota — those  six  States 

Mr.  Hayes  (interposing).  And  Nebraska? 

Mr.  Moss.  And  Nebraska  and  Minnesota,  you  will  find  that  in  that 
group  of  States  there  are  4,000  banks,  at  least,  with  a  capital  so  small 


94  RURAL    CREDITS. 

they  can  not  enter  the  Federal  reserve  system.  That  means  that 
these  banks  can  have  no  direct  advantage  of  the  rediscount  feature 
of  that  Federal  reserve  system. 

And  it  seemed  to  me  it  might  very  well  be  an  advantage  in  many 
rural  sections  to  give  these  cooperative  banks  the  right  to  do  a  bank- 
ing business  among  their  own  members.  And  yet  I  admit  that  the 
question  is  well  open  to  debate.  The  system  in  the  Indiana  law  has 
not  been  tested.  It  has  gone  into  effect  but  has  not  yet  been  tested 
sufficiently  by  actual  experience. 

If  that  provision  were  stricken  out  of  the  bill  by  the  committee 
I  should  not  mourn  very  much,  although  it  seemed  to  me  that  it 
would  be  a  good  provision  in  the  case  of  the  cooperative  bank. 

Mr.  Hayes.  Mr.  Moss,  you  agree  with  me,  do  you  not,  that  if  there 
was  a  bill  providing  for  cooperative  banks  to  make  personal  loans 
it  would  be  better  to  confine  this  to  farm-lands  loans  ? 

Mr.  Moss.  I  agree  with  that  perfectly.  At  the  moment  this  was 
written  into  the  bill  the  commission  was  of  the  opinion  that  they 
would  not  attempt  to  work  further  upon  the  matter  of  personal  credit 
at  this  time  on  account  of  the  difficulties  involved.  I  wish  to  say 
that  the  more  I  study  the  question  of  personal  credit  the  more  I  am 
impressed  with  the  difficulty  in  the  way  of  it  at  this  time;  and  I 
believe  that  personal  credit  among  farmers  is  something  that  will 
have  to  be  the  subject  of  growth.  It  is  a  question  that  in  nearly 
every  other  country  sprang  up  after  the  land-mortgage  banks  had 
been  established.  The  land-mortgage  banks  appeared  to  be  a  fore- 
runner of  the  personal-credit  loans. 

And  along  that  line,  and  while  we  are  discussing  that  feature,  I 
do  not  think  I  violate  any  confidence  in  saying  that  Dr.  Coulter  has 
a  great  many  doubts  as  to  being  able  to  work  out,  under  present  con- 
ditions, a  system  of  personal  credit ;  and  he  is  a  very  competent  man 
to  pass  judgment  on  this  question.  And  yet  that  provision  was  put 
in  there  by  the  commission.  And  I  agree  at  once  with  you,  Mr. 
Hayes,  that  if  the  committee  is  going  to  consider  the  question  of 
personal  credit  this  question  of  doing  business  for  their  own  stock- 
holders ought  to  be  stricken  out  of  the  bill. 

Mr.  Platt.  Would  you  say,  Mr.  Moss,  that  that  was  a  matter  that 
might  better  be  left  to  the  different  States  ? 

Mr.  Moss.  What  matter? 

Mr.  Platt.  The  matter  of  the  personal-credit  associations. 

Mr.  Moss.  Well,  I  would  prefer  at  the  present  time  not  to  express 
an  opinion  on  that  point.  I  will  say  this,  that  this  whole  system  of 
land-mortgage  banks  can  very  well  be  chartered  by  the  States. 
There  is  no  reason  why  land-mortgage  banks  should  not  be  splendidly 
chartered  under  State  legislation. 

Mr.  Hayes.  Is  there  not  some  reason  to  suppose  that  they  will 
not  be? 

Mr.  Moss.  Yes;  and  that  is  the  only  reason  for  the  Federal  Gov- 
ernment taking  this  action.  Now,  as  a  matter  of  fact,  all  students 
of  our  Government  will  agree  that  there  are  very  many  things  that 
the  States  can  do  if  they  care  to;  and  if  the  States  fully  exercised 
their  sovereign  powers,  there  would  be  very  much  less  for  the  Na- 
tional Government  to  do.  And  at  the  beginning  of  this  work  I  was 
very  much  of  the  opinion  that  the  subject  ought  to  go  back  to  the 


RURAL   CREDITS.  95 

individual  States;  and  yet  to-day  that  would  simply  throw  away,  as 
Mr.  Hayes  has  suggested,  in  a  great  many  States,  all  hope  of  carry- 
ing out  the  proposition  and  of  securing  to  the  farmers  located  in 
such  States  the  advantages  of  rural  credit. 

Senator  Hollis.  Now,  Mr.  Moss,  you  feel  very  strongly,  do  you 
not,  that  it  would  not  be  wise  at  this  time  to  undertake  to  pass  a  per- 
sonal credit  bill?  You  would  confine  it  to  the  land-mortgage  bank, 
would  you  not?  The  section  you  have  referred  to  seems  to  look  a 
little  in  that  direction. 

Mr.  Moss.  If  this  legislation  were  to  be  enacted  just  as  it  is 
drafted,  with  no  additional  legislation,  I  should  feel  that  the  situa- 
tion had  been  very  well  met  at  this  time. 

Now,  on  the  question  of  taxation,  I  desire  to  speak  at  some  length 
upon  that  subject.  And  first  I  feel  myself  compelled  to  criticize  the 
bill  a  little  on  that  point.  As  Dr.  Coulter  is  going  to  follow  me,  I 
will  not  have  very  much  more  to  say  upon  this  bill  to-day. 

Dr.  Coulter.  I  do  not  know  that  I  have  anything  in  particular  to 
say  at  all.     I  am  merely  an  onlooker  here. 

Mr.  Moss.  But  I  desire  to  discuss  the  question  of  taxation,  Federal 
agents,  and  a  few  other  propositions  contained  in  the  bill.  I  will 
leave  it  to  the  committee  as  to  just  how  much  time  I  shall  occupy. 

Mr.  Hayes.  So  far  as  I  am  concerned,  I  want  to  hear  everything 
that  Mr.  Moss  has  to  say. 

Senator  Hollis.  Yes ;  I  also  want  to  hear  everything  he  has  to  say, 
and  in  the  greatest  detail,  too. 

Mr.  Bulkley.  By  all  means,  Mr.  Moss,  take  all  the  time  you  need 
to  present  this  matter. 

Mr.  Moss.  Thank  you,  gentlemen,  for  your  courtesy  and  patience. 
So  far  as  the  question  of  taxation  is  concerned — you  will  find  that 
on  page  20 — I  do  not  find  myself  in  complete  harmony  with  all  the 
provisions  of  section  18.  I  should  oppose  exempting  the  income  of 
the  banks  from  taxation.  I  believe  in  an  income  tax,  and  I  think 
it  would  certainly  be  a  very  dangerous  precedent,  after  having  just 
enacted  an  income-tax  law,  for  Congress  to  create  a  corporation  and 
exempt  it  from  the  income  tax.  I  was  opposed  to  that  in  the  commis- 
sion, and  reserved  the  right,.  I  remember,  of  criticizing  that  feature 
of  the  bill.  And  I  hope  when  the  committee  considers  the  proposi- 
tion that  they  will  be  willing  to  strike  out  of  the  bill  the  provision 
exempting  the  net  income  of  the  bank.  I  can  conceive  of  no  possible 
reason  why  you  should  create  a  corporation  and  give  it  valuable 
franchises  and  very  favorable  opportunities  for  doing  business  and 
then,  when  you  are  taxing  every  citizen  of  the  United  States  and 
every  other  corporation  on  their  respective  incomes  of  a  certain 
volume,  exempt  this  corporation  from  like  taxation.  It  would  be  a 
bad  precedent  to  begin  with.  Other  corporations  will  then  ask  to 
have  their  income  exempted;  and  it  seems  to  me  that  the  provision 
for  exempting  the  income  of  the  bank  from  taxation  ought  to  be 
stricken  from  the  bill. 

But  while  I  feel  that  the  net  income  of  the  bank  ought  to  be  taxed 
under  the  income-tax  law,  you  understand  that  I  am  just  as  strongly 
in  favor  of  exempting  the  bonds  and  the  mortgages  securing  them 
from  taxation.     I  think  it  will  be  admitted  by  every  student  of  the 


96  RURAL    CREDITS. 

subject  that  a  tax  upon  a  debt  simply  adds  to  the  interest  rate  which 
the  debtor  pays. 

There  is  a  curious  prejudice  in  this  country  and  a  feeling  that  an 
exemption  of  an  instrument  of  credit  from  taxation  is  an  exemption 
in  favor  of  the  man  who  holds  the  instrument:  and  there  is  no  doubt 
that  this  provision  of  the  bill  will  be  criticized  by  some  ignorantly 
and  by  others  malevolently  along  that  line — that  you  are  exempting 
the  bondholders  from  taxation.  And  yet  there  is  no  student  of  the 
subject  whose  opinion  is  of  value  that  will  not  admit  the  fact  that 
taxing  a  mortgage  or  any  other  debt  adds  to  the  interest  rate.  But 
under  the  system  provided  in  this  bill  there  are  created  or  pro- 
vided two  credit  instruments  to  cover  one  transation.  If  both  these 
credit  instruments  are  taxed  there  is  such  a  load  of  taxation  that 
the  system  itself  falls  to  the  ground. 

Mr.  Hayes.  Is  it  not  also  true  that  in  most  of  the  States  there  is 
a  double  system  of  taxation  now?  The  mortgage  is  taxed  and  the 
land  is  taxed  besides  at  its  assessed  value. 

Mr.  Moss.  Yes,  sir;  that  is  true.  Now,  dealing  with  real  estate, 
which  is  the  basis  of  these  credit  instruments,  it  is  one  thing  that 
can  not  escape  from  taxation  under  our  present  system  of  State 
taxation. 

Mr.  Hayes.  Yes. 

Mr.  Moss.  All  the  property  involved  in  these  transactions  will  be 
subject  to  certain  taxation ;  and  by  leaving  these  bonds  and  mort- 
gages exempt  from  taxation  you  simply  make  it  possible  for  the 
individual  in  an  organized  capacity  to  borrow  money  for  individual 
purposes  on  precisely  the  same  terms  that  the  community  now  bor- 
rows upon.  In  Indiana  we  are  wonderfully  proud  of  our  good-roads 
system. 

I  remember  that  the  editor  of  the  Indiana  Farmer,  Mr.  Kings- 
bury, did  me  the  honor  once  of  coming  down  and  staying  overnight 
with  me  on  my  farm.  We  had  at  that  time  wonderfully  villainous 
roads;  and  in  driving  from  the  station  to  my  house  he  commented 
on  the  bad  roads.  I  said,  "  We  could  build  better  roads  if  we  wanted 
to,  but  we  do  not  care  about  them." 

And  he  said,  "Well,  the  fox  does  not  care  for  the  grapes  that 
hang  too  high." 

But  under  the  system  of  issuing  bonds  which  are  tax  free  we  have 
built  the  most  magnificent  system  of  roads  of  any  State  in  the  Union, 
spending  at  least  $75,000,000  for  them;  and  it  would  not  have  been 
possible  to  build  these  roads  if  bonds  had  not  been  issued  and  ex- 
empted from  taxation. 

I  was  in  the  State  senate  at  the  time  that  exemption  was  made, 
and  I  voted  for  it.  At  the  same  time  I  tried  to  get  the  mortgages 
exempted;  and  yet,  such  was  the  prejudice  at  the  time  against  such 
a  measure  that  it  was  impossible  to  get  them  exempted,  although  we 
finally  did  get  a  partial  exemption.  I  think  Senator  Hollis  also 
stated  that  in  New  Hampshire  mortgages  are  exempt  at  5  per  cent 
interest  or  less? 

Senator  Hollis.  Yes;  if  the  mortgages  are  on  New  Hampshire 
land  and  bear  5  per  cent  interest  per  annum  or  less,  they  are  exempt 
from  taxation:  and  that  system  has  worked  admirably. 


EURAL    CREDITS.  97 

Mr.  Moss.  Yes.  In  Mississippi  a  mortgage  is  exempt  from  taxa- 
tion if  it  bears  0  per  cent  interest  or  less. 

Now,  in  this  particular  matter,  bearing  in  mind  that  the  mortgage 
is  one  credit  instrument  and  the  land  bond  is  another  credit  instru- 
ment covering  the  same  transaction,  unless  you  exempt  both  from 
taxation  you  will  have  double  the  burden  of  taxation  on  the  debt. 

Mr.  Hayes.  And  the  farmer  will  have  to  pay  it? 

Mr.  Moss.  Yes ;  the  borrower  will  have  to  pay  it. 

Mr.  Platt.  It  would  be  a  triple  taxation,  I  should  think,  at  least 
in  some  States. 

Mr.  Moss.  That  is  entirely  true.  So  that  the  system  rises  and  falls 
with  this  one  paragraph  of  the  bill.  But  there  is  no  necessity  what- 
ever to  extend  that  exemption  from  taxation  to  the  income  the  bank 
may  have.  So  the  point  I  want  to  make  clear  is,  that  I  am  criticizing 
the  exemption  of  the  income  of  the  bank  and  at  the  same  time  mak- 
ing as  strong  an  argument  as  I  possbily  can  in  favor  of  the  exemption 
of  the  land  mortgage  and  the  land  bond.  And  unless  the  committee 
sees  fit  to  extend  that  exemption  so  far,  you  had  just  as  well  throw 
the  bill  in  the  wastebasket. 

Mr.  Platt.  I  do  not  think  there  will  be  any  doubt  as  to  our  attitude 
on  that  question. 

Mr.  Hayes.  How  about  the  capital  stock?     Does  not  the  same  rea 
soning  apply  to  that? 

Mr.  Moss.  Well,  as  to  that  matter,  there  was  no  one  feature  of  the 
bill  to  which  so  much  thought  was  given  as  to  the  question  of  the 
exemption  from  taxation.  "We  first  worked  this  out  upon  the  princi- 
ple that  whenever  the  State  exempted  from  taxation  the  mortgage, 
then  the  National  Government  should  exempt  from  taxation  the  bond. 
And  our  thought  ran  around  this  cooperative  action  on  the  part  of 
the  State  and  the  Nation,  until  finally  the  legal  minds  on  the  commit- 
tee decided  that  this  was  a  better  system;  and  this  language  was 
copied  from  the  Federal  reserve  act — but  I  now  recall  that  it  is  not 
the  ordinary  Federal  reserve  bank  that  is  exempted ;  it  is  the  regional 
reserve  bank  that  is  exempted  from  taxation  upon  capital  stock  and 
surplus. 

Senator  Hollis.  Mr.  Moss,  I  wish  you  would  please  tell  me  this: 
"What  is  the  rule  in  regard  to  taxation  on  the  capital  of  the  national 
banks  themselves  ?     Perhaps  you  know,  Mr.  Hayes  ? 

Mr.  Hayes.  They  are  taxed.  That  is  what  I  say,  that  the  same 
principle  should  be  applied  to  taxation  of  the  capital  and  surplus  as 
to  taxation  of  income. 

Senator  Hollis.  In  our  State  they  are  not  taxed  on  capital  and 
surplus. 

Mr.  Platt.  Is  it  clearly  settled  that  the  United  States  Govern- 
ment can  exempt  the  stock  of  a  corporation  from  local  taxation  in  a 
State? 

Mr.  Hayes.  I  would  like  to  get  a  little  more  definitely,  if  I  can, 
Mr.  Moss,  your  view  as  to  the  exemption  of  capital  and  surplus  from 
taxation,  if  there  is  any  reason  for  that. 

Mr.  Moss.  I  say  the  language  in  this  bill  follows  that  in  the  bank- 
ing and  currency  bill  regarding  the  regional  banks.  Now,  my  own 
thought  about  it  is  this :  It  is  going  to  be  a  rather  difficult  matter  to 

37031—14 7 


98  RURAL    CREDITS. 

organize  these  banks  throughout  the  United  States  within  any  short 
time.  It  would  be  a  favor  to  that  extent — and  that  is  the  only  extent 
it  would  be  favored — if  it  were  exempted  from  taxation  on  capital 
and  surplus. 

Now,  considering  that  we  are  undertaking  a  great  work  to  aid  agri- 
culture, and  that  it  is  a  national  industry  and  one  upon  which  all 
other  industry  is  based,  it  seems  to  me  that  we  might  overlook  the 
favoritism  and  extend  that  favor  to  these  banks ;  if  you  do  not  do  it 
upon  that  ground,  there  is  absolutely  no  other  ground  upon  which 
you  can  do  it. 

And  to  this  extent,  and  to  this  extent  only,  would  it  be  a  favor 
extended  by  the  Government  to  these  banks,  and  to  this  extent  it 
would  be  an  indirect  subsidy  to  the  system. 

Senator  Hollis.  But  why,  on  principle,  is  it  not  just  as  proper  to 
do  that  as  it  is  to  exempt  the  regional  banks — on  principle,  not  expe- 
diency ?     I  think  it  is. 

Mr.  Moss.  Yes.  That  provision  in  the  bill  was  taken  from  the 
regional-bank  provision,  and  the  exact  language  contained  in  that 
act  was  written  here  to  extend  the  same  favor  to  those  banks  which 
is  shown  to  the  regional  banks,  without  creating  any  precedent. 

Senator  Hollis.  You  see  we  did  not  need  to  encourage  the  incor- 
poration of  national  banks,  because  we  already  have  7,500  of  them; 
but  here  we  are  undertaking  to  go  into  a  new  field  and  encourage  the 
establishment  of  banks  that  are  sorely  needed,  and  therefore  I  think 
we  should  have  this  exemption.  Now,  I  am  not  sure  that  we  have 
the  power  to  do  that ;  but  I  will  find  out  about  that. 

Mr.  Moss.  Yes;  the  commission  thought  it  was  commendable  to 
offer  every  possible  advantage  that  could  be  offered  to  these  land- 
mortgage  banks  with  perfect  safety,  in  order  to  encourage  them  to 
organize;  and,  recognizing  the  fact  that  it  was  not  creating  a  new 
precedent,  as  the  regional  reserve  banks  had  the  same  exemption, 
we  copied  the  language  of  the  banking  act  exempting  the  regional- 
reserve  banks,  and  gave  these  banks  the  same  exemption  in  the  way  of 
taxation  which  the  regional  banks  are  given  by  that  act. 

Mr.  Platt.  I  think  it  is  everywhere  recognized  that  national-bank 
stock  should  not  be  taxed  at  a  local  personal  property  rate.  I  do  not 
know  that  that  is  true  in  all  the  States ;  but  most  of  the  States  have  a 
tax  on  national-bank  stock  that  is  much  lower  than  the  local  State 
tax  on  personal  property. 

Mr.  Seldomridge.  Mr.  Chairman,  I  move  that  the  committee  take 
a  recess  until  to-morrow  morning. 

Mr.  BiiLKLEY.  Well,  I  want  to  do  exactly  what  the  committee  de- 
sires; but  we  have  a  pretty  good  attendance  here  to-day,  and  I  think 
it  would  be  a  good  idea  for  us  to  continue  until  about  20  minutes  of 
1,  if  that  is  agreeable  to  the  committee. 

Mr.  Seldomridge.  Well,  we  want  to  allow  Mr.  Moss  to  finish,  and 
we  then  want  an  opportunity  to  ask  him  questions. 

Mr.  Moss.  If  the  committee  desires  to  adjourn  at  this  time,  that 
will  be  very  agreeable  to  me.     Dr.  Coulter  is  to  follow  me  to-morrow. 

Mr.  Plait.  Personally.  I  think  all  of  this  personal  credit  ought  to 
be  exempted  from  taxation. 

Mr.  P>rLKLF.v.  Those  letters  to  which  you  have  referred,  Mr.  Moss, 
will  be  printed  with  the  record  of  the  hearing. 


RURAL    CREDITS.  99 

Mr.  Moss.  Yes,  sir.     I  will  put  them  in.  without  any  exception; 
those  that  are  favorable  and  those  that  are  not  favorable  to  the  bill. 
(The  papers  referred  to  are  as  follows:) 

[Editorial  from  the  American  Agriculturist,  Feb.  7,  1914,  vol.  93,  No.  6,  p.  176.] 

Farm-Land  Mortgage  Banks — Fletcher-Moss  Bill. 

let  congress  act  promptly. 

The  administration's  bill  for  a  national  system  of  farm-land  mortgage  banks 
has  been  introduced.  Only  harm  can  arise  from  delay.  Farmers  are  ready  and 
eager  to  avail  themselves  of  the  new  system.  The  commission  has  done  well  in 
framing  this  measure.  If  its  plan  for  local  savings  and  short-time  loans  is  as 
good,  that  body  will  be  entitled  to  the  fullest  praise. 


[Editorial  from  the  National  Stockman  and  Farmer,  Feb.  7,  1914,  v.  37,  No.  45,  p.  1163.] 
Farmers'  Banks  :  An  Opportunity  for  Farmers  to  Finance  Themselves. 

the  rural  credit  plan. 

The  administration's  plans  for  a  rural  credit  system  appeared  last  week. 
Two  kinds  of  farmers'  banks  are  provided— cooperative  and  profit-making. 
[Abstract  of  bill  given.]  Just  how  a  bank  can  accumulate  a  surplus  and  yet 
reward  its  stockholders  under  one  clause  of  the  bill  the  editor  can  not  see.  The 
whole  plan  is  simply  an  opportunity  for  farmers  to  organize  banks  and  provide 
credit  for  themselves,  which  is  all  it  should  be. 


[Editorial  from  the  Farmers'  Review,  Feb.  7,  1914,  v.  46,  No.  6,  p.  115.] 
Land  Banks  :  Legislation. 

credit  bills. 

Bills  for  the  extension  of  rural  credits  have  been  introduced  into  Congress 
by  members  of  the  commission  sent  abroad  to  study  foreign  systems.  These 
bills  provide  for  long-term  loans.  Short-time  loans  will  be  covered  by  separate 
measures,  to  be  considered  later.  [Abstract  of  bill  is  given.]  Whether  such 
legislation  will  provide  the  best  solution  of  the  long-time  loan  problem  remains 
to  be  seen.  There  are  many  varying  opinions  as  to  its  practical  value.  Land 
banks  must  be  worked  out  cooperatively  by  individuals  and  communities  to  meet 
business  needs,  which  vary  in  different  places.  Methods  which  have  been  suc- 
cessful in  other  countries  may  fail  here.  Legislation  alone  can  not  provide 
long-time  credits. 


[Editorial  from  the  National  Stockman  and  Farmer,  Feb.  7,  1914,  v.  37,  No.  45,  p.  1163.] 
Money  Can  Not  Be  Made  Cheap  by  Law. 

cheap  money. 

Money  can  not  be  made  cheap  by  law  or  any  other  artificial  means.  It  will 
flow  naturally  into  the  channel  most  advantageous  to  its  owner.  It  can  not, 
therefore,  be  cheap  where  the  demand  exceeds  the  supply.  Foreign  credit  sys- 
tems have  the  advantage  that  money  is  normally  cheap,  the  result  of  centuries 
of  accumulations.  The  systems  of  rural  credit  proposed  may  make  money 
cheaper  by  improving  the  security  on  which  it  is  loaned,  but  they  can  not  per- 
form the  miracle  of  making  it  absolutely  cheap. 


100  RURAL    CREDITS. 

[Kditorlal  from  the  Pennsylvania  Fanner,  Jan.  17,  1914,  v.  35,  No.  3,  p.  50.] 
Currency  Law  :  T'njust  to  Farmers. 

farmers  am)  the  currency  law. 

The  farms  and  the  men  operating  them  form  practically  the  only  class  that  is 
harred  from  doing  credit  business  with  the  national  banks.  This  condition 
existed  under  the  old  banking  law,  and  it  was  not  remedied  in  the  bill  recently 
passed.  The  lawmakers  recognized  the  injustice  of  the  provisions  of  the  cur- 
rency bill,  but  were  not  willing  to  rectify  it.  Instead,  they  are  now  preparing 
to  pass  a  rural  credit  bill  or  establish  special  banks  for  farmers. 


[Editorial  from  Farm  and  Home,  Feb.  1,  1914,  v.  35,  No.  736,  p.  98.] 

Land-Mortgage  Banks  :  Advantage  to  Farmers. 

land-mortgage  banking  reform. 

If  farmers  can  win  the  present  fight  in  Congress  for  a  national  system  of  land 
mortgage  and  cooperative  banks,  the  American  poeple  will  enjoy  the  best  finan- 
cial system  in  the  world.  It  will  be  a  great  improvement  upon  the  European 
aystem. 

[Editorial  from  the  Country  Gentleman,  Feb.  7,  1914,  v.  79,  p.  244-] 

Rural  Credit:  Farm  Lands  and  the  Money  Market. 

rural  credit  boiled  down. 

Net  results  of  the  agitation  of  the  past  two  years  on  rural  credit  and  the 
trip  of  the  commission  to  Europe  are  awakened  public  interest;  a  900-page  re- 
port on  European  systems;  and  a  bill  in  Congress  to  establish  land-mortgage 
banks.  Our  rural-credit  problem  is  money  for  development  and  improvement. 
The  commission  has  done  good  work  in  starting  public  opinion  and  the  wheels 
of  Congress  toward  the  end  of  putting  agriculture  on  the  same  basis  as  the 
railroads,  manufacturers,  etc.  The  owners  of  land  asks  no  special  privileges, 
but  he  has  a  right  to  expect  that  farm  land  will  be  made  equal  to  city  real 
estate  in  the  money  market. 


[Charles  A.  Conant  in  the  Country  Gentleman,  Feb.  7,  1914,  v.  79,  p.  235.] 

Federal  Banking-  Law  :  Benefit  to  Agriculture. 

uncle  sam  finances  the  farmer. 

In  addition  to  the  general  advantages  which  the  agricultural  producers  will 
share  with  others,  the  new  Federal  banking  law  embodies  several  provisions 
inserted  for  the  special  benefit  of  the  farmer.  Among  these  are  the  following: 
The  farmer  may  get  money  to  buy  supplies  instead  of  taking  pay  in  store 
credits;  notes  drawn  for  agricultural  purposes,  or  based  on  live  stock,  may 
run  for  6  months  instead  of  !><>  days  when  presented  to  a  Federal  reserve  bank 
for  discount;  the  farmer  can  get  his  money  at  once  on  a  draft  for  goods  ex- 
ported instead  of  having  to  wait  for  a  return  from  abroad;  the  farmer  may 
borrow  money  on  his  lands  from  national  banks. 


[Editorial  from  the  Field  and  Farm,  Feb.  7,  1914,  v.  29,  No.  1462,  p.  4.] 

Financing  the  Farmer:  Necessity  for  Long-Time  Loans. 

helping  out  the  farmer. 

The  present  Congress  must  give  the  farmer  better  banking  facilities  or  there 
will  be  great  dissatisfaction.  The  manufacturer  can  hasten  production,  the 
storekeeper  can  restock  his  store  several  times  a  year,  but  the  farmer's  dates 


RURAL    CREDITS.  101 

are  fixed  by  nature.  Loans  long  enough  to  cover  the  period  of  production  are 
a  necessity  for  the  farmer.  "People's  banks"  serve  this  purpose  abroad,  and 
Congress  can  do  the  country  a  good  turn  now  by  enacting  legislation  to  meet 
this  need. 


[Extract  from  the  New  England  Homestead,  Feb.  7,  1914,  vol.  68,  No.  6,  p.  162.] 

Farm-Land  Banks:  Everyone  Should  Try  to  Aid  in  Passage  of  Bill. 

national  farm-mortgage  plan. 

Acting  for  the  rural  credits  commission  sent  abroad  last  summer,  Mr. 
Fletcher,  of  Florida,  introduced  into  the  Senate,  and  Mr.  Moss,  of  Indiana,  in- 
troduced into  the  House,  the  administration's  bill  for  farm-land  banks.  This 
bill  provides  for  long-time  loans  only;  later  on  another  will  be  introduced  to 
provide  for  cooperative  savings  and  loan  banks  and  short-term  personal  credits. 
Everyone  who  is  interested  should  write  for  a  copy  of  the  bill,  and,  after  study- 
ing it  carefully,  write  his  suggestions  to  his  Congressman  or  Senator.  [Abstract 
of  bill  is  given.] 

[Extract  from  the  Orange  Judd  Farmer,  Feb.  7,  1914,  vol.  56,  No.  6,  p.  188.] 

Money  Market  :  Interest  Rates  Lower. 

the  money  market. 

Interest  rates  on  money  are  lower  at  this  time,  and  it  is  the  general  con- 
sensus of  opinion  that  money  will  work  easier  for  some  weeks  or  perhaps 
months.  This  state  of  affairs  should  facilitate  the  carrying  out  of  the  pro- 
posed farm  finance  plan  which  Congress  has  before  it. 


[Extract  from  the  Nebraska  Farmer,  Feb.  4,  1914,  vol.  56,  No.  5,  p.  135.] 
Land-Mortgage  Banks  :  To  Help  Tenants  to  Buy  Land. 

LAND-MORTGAGE   BANKS. 

Bills  have  been  introduced  into  both  Houses  of  Congress  to  provide  for  th« 
organization  of  land-mortgage  banks.  These  bills  are  supposed  to  represent 
the  views  of  the  administration  on  this  question.  [Abstract  of  bill.]  It  is 
questioned  whether  any  land-mortgage  system  would  help  tenants  to  buy  land, 
because  making  it  easier  to  buy  would  increase  the  demand  and  raise  the  price, 
thus  offsetting  the  advantage  of  cheap  money. 


[Editorial  from  Campbell's  Scientific  Farmer,  Jan.,  1914,  vol.  7,  No.  1,  p.  12.] 

Farm  Credit  :  Need  for  Legislation. 

now  for  a  farm-credit  law. 

The  farmer,  with  the  best  and  most  permanent  assets  in  the  world,  has  hereto- 
fore been  kept  outside  the  railings  of  the  national  banks.  If  he  wanted  to 
borrow  money,  he  had  to  pay  10  per  cent  and  a  commission  besides.  We  hope 
this  regime  is  about  to  end.  If  President  Wilson  can  release  farm  credit 
from  its  60  years  of  bondage  he  will  have  accomplished  a  great  good. 


[Editorial  from  Farm,  Stock,  and  Home,  Jan.  15,  1914,  vol.  30,  No.  2,  p.  38.] 

Rural  Credit — History  of  Movement. 

rukal  credit  matters. 

The  work  of  the  American  Credit  Commission  to  Europe  divulges  nothing 
new.  A  certain  amount  of  publicity  was  accomplished,  however.  The  history 
of  the  rural-credits  movement    began   by   the  appointment  of  a   committee   of 


102  RURAL    CREDITS. 

the  Tri-State  Grain  Growers  in  mil!.  The  report  of  this  commission  was 
published  in  Farm,  stock',  and  Borne  In  a  series  of  articles  called  "The  road 
to  cheaper  money."  The  aexl  move  occurred  at  the  Chicago  convention  on 
marketing  and  credits  In  1913  when,  through  Prof.  Spillman,  of  the  United 
States  Department  of  Agriculture,  a  Federal  investigation  in  the  rural  credits 
was  secured.  Congress  lias  the  material  in  hand  to  work  out  a  system  suited 
to  the  needs  of  the  American  farmer. 


[Extract  from  Farm  and  Home,  Feb.  15,  1914.] 

ONE    STEP    X TAKER    TO    VICTORY. 

The  national  farm-land  bank  bill',  submitted  to  House  and  Senate  at  Washington 
January  29,  is  fine.  Changes  that  will  be  made  will  further  perfect  it  can  be 
made  before  it  is  enacted.  The  United  States  commission  has  done  a  good 
job.     Congratulations.     Now  lot  Congress  enact  it  into  law  before  May. 


[Extract  from  the  National  Farmer  and  Stock  Grower,  February,  1914,  vol.  31,  No.  2,  p.  13.] 

National  Farmer  and  Stock  Grower  Started  Rural  Credit  Agitation. 

farm   loans   and  credits. 

The  agitation  originally  started  by  the  National  Farmer  and  Stock  Grower 
on  the  subject  of  the  "  High  rates  of  interest  on  farm  loans  "  is  about  to  bear 
fruit.  The  administration  rural-credit  bills  were  introduced  in  the  Senate  and 
House  on  January  2'.t.     [Abstract  of  bill  given.] 


[Editorial  from  the  Pacific  Rural  Press,  Feb.  7,  1914|  vol.  87,  No.  G,  p.  163.] 

Farm-Land  Banks  Will  Make  Money  Cheaper. 

that  cheaper  money  is  coming. 

President  Wilson  has  commended  to  Congress  the  establishment  of  a  bureau 
of  farm-land  banks.  These  banks  may  do  only  agricultural  business.  These 
banks  will  insure  cheaper  money. 

Mr.  Seldomridge.  Did  you  say  there  had  been  an  effort  made  to 
institute  a  campaign  against  this  bill?  I  have  had  two  letters  from 
people  in  my  district  protesting  against  the  passage  of  the  Moss  bill 
as  being  a  banker's  bill. 

Mr.  Moss.  I  know  there  has  been  such  an  effort.  I  have  the  infor- 
mation, and  if  the  committee  cares  to  have  to  do  so  I  can  put  the 
letters  showing  that  in  the  record  to-morrow. 

Mr.  Hayes.  I  notice  the  Practical  Farn  er,  which  seems  to  be  a 
high-class  publication,  has  an  article  commending  the  Moss  bill. 

Mr.  Moss.  I  have  seen  that  editorial.  It  is  quite  favorable.  I 
would  like  to  withhold  the  editorials  until  I  can  go  over  them  again. 

Mr.  Seldomridge.  It  occurs  to  me  that  if  Members  of  Congress  are 
going  to  become  the  recipients  to  any  great  extent  of  those  antago- 
nistic letters  Ave  ought  to  have  those  letters  which  favor  the  bill  in- 
serted in  the  Congressional  Record. 

Mr.  Hayes.  They  could  be  printed  in  the  record  of  these  hearings. 

Mr.  Platt.  xVnd  we  can  send  them  a  copy  of  the  record. 

Mr.  Seldomridge.  But  it  will  be  some  time  before  this  record  is 
available,  and  they  will  not  all  see  that. 


RURAL    CREDITS.  103 

The  Chairman.  If  we  are  going  to  insert  all  the  letters  commend- 
ing or  protesting  against  the  measure,  we  will  have  the  printing  bill 
out  of  all  proportion.  I  am  getting  letters  every  day  on  the  subject 
from  people  from  every  State  in  the  Union.  But  these  letters  that 
Mr.  Moss  has  presented  here  to-day  are  newspaper  comments  upon 
the  bill,  and  they  have  some  responsibility  behind  them,  and  I  think 
they  ought  to  be  printed  with  our  record ;  but  while  I  think  we  may 
from  time  to  time  have  further  documents  and  papers  presented  that 
will  be  worth  printing,  I  would  not  want  to  consider  printing  indi- 
vidual letters  in  the  record  of  the  hearing. 

Mr.  Seldomridge.  Well,  I  do  not  want  the  Members  of  the  House 
prejudiced  against  this  bill. 

Mr.  Bulkley.  I  think  Mr.  Seldomridge  is  right  in  the  purpose  he 
has  in  mind,  but  it  would  not  be  practicable  to  encumber  the  record 
with  too  many  letters  from  individuals. 

Mr.  Hates.  His  thought  is  that  if  we  could  get  the  letters  where 
they  could  be  read  by  the  Members  of  Congress  and  the  people  it 
would  stop  that  campaign. 

Mr.  Bulkley.  I  hope  that  Mr.  Moss  will  explain  fully  to  the  com- 
mittee all  that  he  knows  about  any  campaign  against  this  bill,  because 
that  is  part  of  the  subject  matter  before  us. 

Now,  gentlemen,  it  is  near  the  time  for  the  funeral  services  in 
honor  of  Senator  Bacon  to  begin,  and  without  objection  the  meeting 
will  stand  adjourned  until  10.30  o'clock  to-ir.orrow  morning  in  this 
room. 

(Thereupon,  at  12.35  p.  m.,  the  committee  adjourned  until  to- 
morrow, Wednesday,  February  18,  1914,  at  10.30  o'clock  a.  m.) 

(The  following  additional  statement  of  Mr.  Moss  was  made  at  the 
session  of  the  committee  on  February  18,  1914,  but  is  placed  at  this 
point  to  preserve  the  continuity  of  his  argument.) 

STATEMENT  OF  HON.  RALPH.  W.  MOSS— Continued. 

Mr.  Moss.  Mr.  Chairman,  with  the  permission  of  the  committee, 
there  are  two  things  that  we  passed  over  yesterday  which,  after  re- 
flection, I  should  like  to  discuss  a  little  more  fully. 

The  first  is,  briefly,  the  length  of  time  of  the  loan.  It  has  been 
placed  in  this  bill  at  35  years.  The  statistics  before  your  committee, 
furnished  by  Mr.  Thompson,  indicate  that  74  per  cent  of  the  farm 
mortgages  are  renewed.  It  is  a  matter  of  common  knowledge  that 
a  great  many  mortgages  are  not  paid  at  the  time  they  are  due,  and 
yet  are  not  renewed;  but  where  statutes  of  limitations  protect  the 
holder  of  the  mortgage  and  make  it  still  a  valid  claim  against  the 
land  after  maturity,  they  are  permitted  to  run  on  from  year  to  year 
until  final  payment  is  made. 

The  significance  of  that  is  that,  under  present  conditions,  five  years 
is  a  shorter  time  than  that  in  which  the  average  man  repays  his  loan. 

Now,  while  I  am  perfectly  willing  to  admit  that  35  years  seems 
to  be  a  long  time — and  in  my  correspondence  on  the  bill  that  feature 
of  it  has  been  criticized — I  want  to  call  the  attention  of  the  com- 
mittee to  the  fact  that  amortization  works  best  under  a  compara- 
tively long  period  of  years.     Amortization  is  not  well  suited  to  a 


104  RURAL    CREDITS. 

short-term  loan,  because  the  rate  of  repayment  would  be  relatively 
too  high. 

The  provision  in  this  bill  giving  the  borrower  the  right  to  repay 
all  or  any  part  of  his  indebtedness  at  any  time  after  five  years  gives 
the  borrower  every  protection;  and  if  we  are  to  adopt  compulsory 
amortization,  we  should  do  so  under  conditions  most  favorable,  which 
is  to  permit  the  loans  to  be  made  for  a  relatively  long  period  of  time. 
Otherwise,  the  rate  of  annual  payments  will  be  so  high  as  to  prevent 
the  plan  from  going  into  general  operation.  So  that  I  feel  that  the 
term  of  years  is  an  important  matter  on  that  account. 

Mr.  Hayes.  Well,  without  studying  these  statistics  very  extensively, 
it  has  occurred  to  me  that  20  or  25  j^ears  would  be  as  long  a  period 
as  they  would  ever  be  called  upon  to  make  loans  for  in  this  country. 
Have  you  any  statistics  showing  whether  any  farm-land  loans  have 
ever  been  extended  beyond,  say,  20  years? 

Mr.  Moss.  Well,  that  is  not  the  primary  question.  The  primary 
question  is  this:  The  annual  rate  of  repayment  that  a  borrower  can 
make  in  justice  to  his  earning  power.  Under  amortization,  if  the 
loan  runs  for  20  years,  the  periodic  payment  must  be  fixed  at  such 
a  rate  as  to  entirely  extinguish  the  loan  within  20  years. 

Mr.  Hayes.  Certainly. 

Mr.  Moss.  xVnd  the  periodic  payment's  must  be  correspondingly 
high.  The  result  is  that  there  would  be  many  persons  in  some  sec- 
tions of  the  United  States  who  would  not  be  able  to  make  with  safety 
as  heavy  a  periodic  payment  as  would  be  required  with  a  short 
amortization. 

Mr.  Hayes.  Of  course. 

Mr.  Moss.  Therefore,  it  is  not  a  question  whether  the  borrower 
would  be  able  to  pay  in  20  years  or  not;  but  the  question  is  whether 
the  people  will  go  into  the  plan  under  an  amortization  system  which 
involved  heavy  forced  payments. 

Now,  in  France,  Germany,  and  other  European  countries,  they 
have  a  provision  whereby  they  can  make  loans  with  amortization  that 
for  the  first  term  of  years — say,  five  years — there  shall  be  no  amortiza- 
tion payments  made,  but  that  amortization  paj-ments  shall  begin  after 
the  expiration  of  the  preliminary  term. 

If  the  committee  sees  fit  to  adopt  that  rule  and  put  it  into  the 
bill,  then  it  ma}7  be  possible  to  reduce  the  term  of  years  from  35, 
as  fixed  in  the  bill.  But  the  point  is  that  amortization  payments 
naturally  lend  themselves  to  loans  for  a  long  period  of  years,  because 
the  amortization  payment  adds  to  the  amount  of  each  interest  pay- 
ment made,  and  a  great  many  persons  will  accept  these  loans  at  a 
longer  period  who  would  not  accept  them  if  they  were  forced  to 
make  a  high  rate  of  payment  by  reason  of  the  short  term.  And  the 
criticism  that  has  reached  me  from  farmers  upon  this  subject  is  that 
the  amortization  would  cause  such  a  high  rate  that  the  farmers  would 
not  enter  the  system. 

Mr.  Hayes.  I  want  to  ask  you.  Mr.  Moss,  if  you  think  it  is  de- 
sirable— you  have  given  this  matter  more  study  than  I  have — to 
encourage  a  man  who  could  not  pay  otf  his  mortgage  in,  say,  20 
years,  or  who  thought  he  could  not  pay  it  off  in  20  years,  to  borrow 
money?  For  instance,  take  the  case  of  a  man  that  thought  he  must 
have  35  years  in  which  to  pay  up;  do  you  think  that  would  be  a 
healthy  thing  to  encourage  in  this  country? 


RURAL    CREDITS.  105 

Mr.  Moss.  Well,  Mr.  Hayes,  under  American  conditions  we  have 
been  in  the  habit  of  paying  our  loans  upon  land  mortgages  in  a  much 
shorter  time  than  that;  but  the  price  of  land  has  been  much  lower 
than  it  is  now.  Land  values  have  doubled  in  the  United  States  in  10 
years.  They  will  probably  go  higher  in  the  future.  And  as  the 
land  increases  in  value,  naturally  the  period  of  repayment  out  of 
the  proceeds  of  the  land  will  be  longer.  And  having  that  view  of 
the  matter  in  mind,  I  can  see  no  reason  why  a  farm-land  bank  should 
not  be  permitted  to  undertake  a  mortgage  for  a  35-year  period 
when  the  borrower  can  pay  it  off  as  much  earlier  than  that  as  his 
interest  would  make  desirable  to  him. 

There  is  one  feature  that  I  would  be  perfectly  willing  to  see  in- 
corporated in  this  bill  which  is  not  now  in  it,  and  that  is  that  where 
a  loan  has  been  made  for  a  long  period  of  time,  with  fixed  periodic 
payments,  the  bank  should  not  be  permitted  to  reloan  to  the  man  hi? 
savings,  which  are  represented  by  his  amortization  payments. 

In  Europe  it  is  a  constant  practice  for  a  man  to  return  to  the  same 
institution  to  renew  his  loan  to  the  original  amount,  and  thus  it  is  a 
constant  temptation  to  a  person  in  debt  to  draw  his  savings  back 
from  the  bank  and  put  them  in  his  business  instead  of  paying  his 
loans.  That  is  on  the  same  principle  as  where  a  life  insurance  com- 
pany will  lend  a  person  money  on  the  security  of  the  paid-up  value 
of  his  life  insurance  policy.  This  makes  the  system  popular,  but 
strips  it  of  its  savings  feature.  When  a  loan  is  made  to  the  farmer, 
and  then  the  institution  encourages  him  to  make  supplemental  loans 
and  keeps  him  perpetually  in  debt,  the  practice  might  become  a 
real  fundamental  objection  to  this  system.  We  did  not  attempt  to 
meet  it  in  the  bill ;  but  I  want  to  point  out  that  it  is  the  one  objec- 
tionable feature;  and  if  the  committee  can  see  any  way  to  check  that 
practice,  it  would  strengthen  this  bill. 

Mr.  Hayes.  The  thought  I  wanted  to  suggest  is  whether  it  would 
be  a  healthy  thing  to  encourage  men  to  run  in  debt  and  use  the  money 
they  borrowed  as  their  working  capital  for  such  a  long  period  of 
time  as  35  years  as  a  practical  proposition.  Is  that  a  healthy  thing, 
to  pay  interest  for  35  years  on  the  mortgage? 

Mr.  Moss.  I  am  confident,  Mr.  Hayes,  that  there  is  no  valid  ob- 
jection to  that,  where  land  is  selling  for  $250,  as  it  is  in  the  corn 
States,  and  in  the  trucking  sections  very  much  higher  than  that, 
and  where  purchasers  must  assume  these  very  heavy  capitalization 
risks,  together  with  the  necessary  improvement  that  will  be  made — 
it  seems  to  me  that  if  a  person  could  pay  for  a  farm  even  in  35  years 
he  ought  to  be  encouraged  to  undertake  the  purchase. 

But  that  is  not  the  point  in  this  question  of  permitting  this  pro- 
vision to  remain  in  the  bill.  The  condition  I  want  to  urge  upon  the 
committee  is  this,  that  if  you  limit  the  period  to  20  or  25  years  you 
compel  the  farmer  who  borrows  the  money  to  make  very  heavy 
periodical  payments,  and  you  will  deter  a  great  many  people  from 
assuming  that  debt,  because  their  first  payments  would  be  too  heavy. 
The  amortization  feature  lends  itself  very  readily  to  loans  for  a 
long  period  of  time.  I  do  not  believe,  however,  that  you  should 
name  a  period  longer  than  35  years. 

Mr.  Bulkeey.  The  provision  in  the  bill  means  that  35  years  is  the 
outside  limit  for  which  loans  may  be  made,  does  it  not,  Mr.  Moss? 

Mr.  Moss.  Yes.  sir. 


106  RURAL    CREDITS. 

Mr.  Bulkley.  And  they  may  be  made,  of  course,  for  a  lesser 
period.    Is  that  at  the  option  of  the  borrower? 

Mr.  Weaver.  The  bill  provides,  at  any  time  after  five  years  the 
loan  may  be  paid  off  at  the  option  of  the  borrower. 

Mr.  Platt.  Is  not  the  long  period  of  amortization  going  to  in- 
crease the  price  of  the  land  to  the  purchaser?  For  instance,  if  I 
am  selling  a  piece  of  land,  will  I  not  be  apt  to  say  to  the  man  who 
desires  to  purchase,  "  You  do  not  need  to  pay  this  off  for  35  years ; 
consequently  you  can  afford  to  pay  me  $12,000  instead  of  $10,000  for 
the  land."    Would  it  not  have  that  effect? 

Mr.  Moss.  I  do  not  see  how  it  would  have  that  effect,  because  the 
man  who  buys  the  land  receives  his  credit  from  the  bank,  and  the 
purclia.se  money  is  paid  to  the  seller  in  cash.  The  purchase  of  the 
land  is  made  upon  a  cash  basis,  the  credit  being  given  by  the  bank, 
which  has  no  interest  whatever  in  the  land  before  it  is  sold. 

Mr.  Hayes.  I  do  not  recall  whether  your  bill  provides  that  at  the 
end  of  five  years  the  mortgagor  may  pay  off  a  part  of  the  debt? 

Mr.  Moss.  Yes,  sir;  any  part. 

Mr.  Hayes.  Well,  that  would  remove  one  objection  to  the  long 
time  of  the  mortgage. 

Mr.  Brown.  It  is  all  optional  after  five  years? 

Mr.  Moss.  Yes.  The  35  years  named  in  the  bill  is  the  maximum 
time ;  and  it  could  be  paid  in  a  much  shorter  time  than  that. 

Mr.  Hayes.  Well,  if  that  provision  was  made,  that  the  borrower 
could  pay  any  part  of  the  debt  after  five  years,  that  would  remove 
much  of  the  objection  I  spoke  of. 

Mr.  Coulter.  The  European  period  is  longer  than  35  years;  it  is 
50  or  60  years. 

Mr.  Moss.  Yes;  it  is  50  or  60  years,  and  sometimes  as  high  as  75 
years.  But,  then,  the  difference  between  European  conditions  and 
our  conditions  is  the  high  price  of  land.  Referring  back  to  Mr. 
Brown's  question,  the  time  of  repayment  must  be  fixed  in  the  con- 
tract and  can  not  be  changed,  because  the  periodic  payments  remain 
always  the  same. 

Mr.  Brown.  The  same ;  yes,  I  see. 

Senator  Shafroth.  You  say.  Mr.  Moss,  that  Europe  has  lands  that 
are  very  high  in  price.  Do  you  know  about  what  the  agricultural 
farm  sells  for  per  acre  in  Europe  ? 

Mr.  Moss.  Yes,  sir;  agricultural  lands  in  Europe  have  a  value  of 
$200  to  $700  an  acre;  and  from  $300  to  $500  is  a  common  price  on 
agricultural  lands  in  Europe.  I  inquired  about  that  when  I  was 
over  there. 

Senator  Shafroth.  In  what  country  was  that? 

Mi-.  Weaver.  Were  you  in  Holland  and  Belgium  and  that  part  of 
Europe  ? 

Mr.  Moss.  No,  sir. 

Mr.  Bulkley.  Why  do  you  limit  the  period  to  35  years?  What 
would  be  the  harm  of  having  a  longer  period? 

Mr.  Moss.  Just  exactly  on  account  of  Mr.  Hayes's  objection.  It 
seems  to  me  that  we  ought  not  to  encourage  a  longer  period  than 
one  in  which  the  average  time  of  repayment  can  be  met  by  the  average 
farmer.  I  take  it  that  the  average  farmer's  income  in  America  is 
greater  than  the  average  European  farmer's;  and  therefore  the 
American  farmer  ought  to  repay  in  a  shorter  period  than  the  European 


SURAL    CREDITS.  107 

farmer;  and  the  farmer  in  America  ought  to  accumulate  as  much  in 
35  years  as  the  European  farmer  in  54J  years;  besides,  the  price  of 
land  is  lower  here  than  over  there. 

Mr.  Hayes.  Probably  more. 

Mr.  Moss.  Yes,  sir. 

Mr.  Platt.  As  these  amortization  payments  are  made,  the  mort- 
gage still  stands  recorded  for  the  full  amount  of  the  loan,  does  it 
flOt? 

Mr.  Moss.  Yes,  but  under  this  bill  the  credits  are  at  once  made  in 
favor  of  the  borrower  by  the  Government  agent ;  a  man  can  not  lose 
the  payments  he  has  made,  although  on  the  record  it  will  remain 
the  same. 

Mr.  Platt.  Then  there  would  not  be  anything  to  prevent  the  bor- 
rower from  going  to  another  source — for  instance,  a  savings  bank 
or  some  other  kind  of  bank — and  borrowing  more  money  on  a  second 
mortgage? 

Mr.  Moss.  Oh,  no;  he  could  do  that,  of  course.  He  has  that 
privilege  now,  and  this  bill  would  not  influence  the  practice  of 
negotiating  second  martgages  in  any  respect.  Now,  in  the  mortgage 
itself  under  this  bill,  there  is  set  out  on  the  face  of  the  mortgage 
the  periodic  payments  that  must  be  made;  and  every  payment  that  is 
made  is  credited  on  the  instrument  itself. 

Mr.  Platt.  On  the  mortgage? 

Mr.  Moss.  Yes;  on  the  mortgage;  and  the  Government  agent  is 
compelled  by  the  bill  to  see  that  the  credit  is  given,  as  wTell  as  to  see 
that  the  money  wdien  paid  is  turned  over  to  the  bondholder.  The 
Government  agent  must  protect  both  the  borrower  and  the  bond- 
holder. 

Referring  to  the  question  of  Mr.  Bulkley  yesterday,  concerning  the 
limitations  on  loans,  I  wish  to  discuss  that  and  present  some  statis- 
tics which  I  have  gathered. 

I  stated  yesterday  that  I  was  certain  the  limitation  was  too  low 
in  this  bill.  The  chairman  suggested  a  double  limitation,  in  which 
I  fully  concur. 

The  average  amount  of  loans  on  mortgage  in  the  United  States 
is  $1,700.  But  that  is  not  of  as  much  imporance  to  you  as  if  you 
had  the  actual  face  value  of  a  large  number  of  mortgages;  and  I 
have  taken  the  pains  to  go  over  some  mortgage  statistics,  both  in 
Austria  and  in  Germany,  to  secure  this  result. 

I  have  here  the  loans  made  by  the  National  Small  Holders  Insti- 
tute of  Hungary.  I  wish  to  say  to  the  committee  that  there  are  two 
great  mortgage  institutions  in  Hungary,  one  that  is  created  by  the 
nobles  for  large  holdings  and  the  other  is  created  to  make  small 
loans. 

I  have  selected  the  one  that  makes  the  small  loans.  They  had  on 
their  books  66,264  mortgages.  Now,  the  average  loan  of  the  66,264 
mortgages  was  $868.  The  loans  amounting  to  $400  or  less  comprised 
53  per  cent  of  the  total  number  of  loans.  Between  $400  and  $2,400, 
the  loans  were  41.2  per  cent  of  the  total  loans.  The  loans  of  $2,400 
and  over  comprised  5.67  per  cent  of  the  total. 

As  I  have  stated,  that  is  not  a  fair  example,  because  it  designedly 
comprehends  only  the  small  holder,  and  the  figures  are  therefore 
below  a  fair  average. 


108  RURAL    CREDITS. 

Taking  the  Hungarian  Land  Mortgage  Institute,  which  is  adapted 
to  the  larger  landowners,  the  average  amount  of  their  mortgages 
was  $('.,400. 

I  have  here  complete  statistics  of  three  credit  associations  in  Ger- 
many; and,  as  it  will  only  take  a  moment,  I  should  like  to  read  them 
to  the  members  of  the  committee. 

Taking  the  Bavarian  Agricultural  Bank  that  had  on  its  books  at 
the  time  I  visited  it  25,327  mortgages,  those  for  amounts  up  to 
$250  comprised  1,835  mortgages,  or  7.24  per  cent  of  the  total 
amount — I  mean  in  number.  Those  mortgages  aggregated  $353,550 
in  amount;  and  that  was  0.8G  per  cent  of  the  total  amount  of  money 
that  this  institution  had  loaned. 

Taking  the  mortgages  between  $250  and  $750,  there  were  7,885 
of  those.  That  comprised  31.13  per  cent  of  the  total  number.  Now, 
remember  that  there  are  two  percentages,  one  in  the  total  number 
and  the  other  as  to  the  total  amount.  The  aggregate  amount  for 
this  class  of  loans  was  $4,257,950,  and  amounted  to  10.37  per  cent 
of  the  whole  amount  of  money  they  had  loaned. 

Between  $750  and  $1,250  there  were  6,599  mortgages,  aggregating 
$G,8G5,850,  which  comprised  16.72  per  cent  of  their  total  business. 
This  amount  was  26  per  cent  of  the  whole  amount. 

Between  $1,250  and  $2,500  there  were  5,550  mortgages,  aggregating 
in  amount  $10,495,750,  or  25.54  per  cent.  It  is  between  these  limits 
that  the  large  amount  of  business  is  done. 

Between  $2,500  and  $5,000  there  were  2,449  mortgages,  amounting 
to  $8,886,775,  which  was  21.64  per  cent  of  their  total  amount  of 
business. 

Between  $5,000  and  $12,500  there  were  882  mortgages,  aggregating 
$6,186,000,  which  comprised  14.87  of  their  business. 

Between  $12,500  and  $25,000  there  were  129  mortgages,  aggre- 
gating $2,275,400,  or  5.33  per  cent  of  their  business. 

Over  $25,000  they  had  42  mortgages,  aggregating  $1,833,000,  or 
4.47  per  cent.  There  are  some  other  figures  here  which  it  is  not 
necessary  for  me  to  read. 

Now,  it  seems  to  me  that  any  mortgage  institution  in  this  country 
ought  to  have  the  right  to  loan  up  to  $5,000 

Mr.  Hayes  (interposing).  Do  you  think  that  is  high  enough? 

Mr.  Moss.  No;  it  is  not  high  enough.  But  I  say  "any  mortgage 
institution."  In  this  bill  wre  commence  with  $10,000  capital;  a  loan 
of  $5,000  would  mean  50  per  cent  of  its  capital.  But  in  the  case  of 
a  larger  institution,  one  with  $50,000  or  $100,000  or  $150,000  capital 
and  surplus,  if  you  made  it  that  rate  the  loans  could  be  too  large. 
My  suggestion  to  the  committee  would  be  this:  To  permit  any  bank 
organized  under  this  system  to  loan  up  to  50  per  cent  of  its  capital 
and  surplus,  with  a  limitation  on  any  individual  loans  to  $10,000. 
Larger  banks  should  loan  at  least  $10,000  on  their  initiative,  and 
may  be  permitted  to  loan  higher  amounts  with  the  permission  of 
the  commissioner  of  farm-land  banks  or  the  national  bank  examiners 
after  they  had  examined  into  the  matter. 

There  are  no  limitations  upon  the  amounts  of  loans  of  European 
land  banks,  with  the  exception  that  the  large  loans  can  not  be  made 
by  the  directors  of  the  bank,  but  only  after  consultation  with  the 
governmental  authority  over  the  bank. 


RURAL    CREDITS.  109 

Mr.  Hates.  Well,  do  you  not  think  that  the  purpose  of  these  land- 
mortgage  banks  might  be  entirely  defeated  by  allowing  the  banks 
to  make  too  large  loans? 

Mr.  Moss.  That  is  true. 

Mr.  Hayes.  I  should  think  that  $10,000  would  be  about  the  limit 
of  what  they  should  be  allowed  to  loan  to  one  borrower. 

Mr.  Platt.  Have  not  the  European  banks  a  limit  of  the  amount 
of  loans,  in  proportion  to  their  capital? 

Mr.  Moss.  No,  sir.  European  banks  are  not  limited,  except  that 
veiy  large  loans  are  made  only  with  the  permission  of  the  Govern- 
ment. But  I  want  to  call  your  attention  to  the  fact  that  land-mort- 
gage banks  in  European  countries  were  first  organized  among  the 
nobles  who  held  large  estates,  and  it  was  at  first  only  the  wealthy 
class  that  could  take  advantage  of  the  loans ;  and  hence  the  first  loans 
were  very  large. 

Now,  the  intensive  work  on  these  small  farms  and  the  growth 
of  democratic  principles  has  forced  the  amounts  of  the  loans  down. 
But  the  trouble  has  been  all  the  time  in  Europe  to  get  the  benefits 
of  the  mortgage  loans  to  the  small  landowner.  And  you  will  find 
that  the  average  loans  made  by  these  land-mortgage  institutions  in 
Europe  are  larger  than  they  ought  to  be  in  this  country,  because 
small  loans  there  are  handled  largely  by  the  savings  banks,  which 
are  more  democratic  than  these  other  institutions  were  in  the  begin- 
ning. 

In  drawing  this  bill  the  commission,  knowing  these  facts,  sought 
to  overcome  that  trouble  by  making  it  possible  to  organize  small 
banks  and  to  bring  this  system  at  once  under  the  influence  of  the 
average  farmer,  and  in  that  way  avoid  the  years  of  struggle  which 
they  had  in  Europe  to  carry  the  system  from  the  big  landholder  down 
to  the  small  landholder. 

For  this  reason  I  think  that  any  bank  ought  to  be  permitted  to 
loan  a  small  amount  of  money;  but  even  a  bank  with  only  $10,000 
capital  ought  to  be  permitted  to  make  a  loan  at  least  to  the  extent 
of  $5,000,  which  is  of  itself  only  half  the  value  of  40  acres  in  the 
corn  belt  or  even  10  acres  in  the  trucking  section. 

And  I  think  that  a  bank  which  is  somewhat  larger  ought  to  be 
allowed  to  handle  $10,000  loans.  And  that  being  true,  you  can 
fix  a  limit  based  upon  the  capital  stock  and  surplus  plus  an  absolute 
limitation.  And  if  the  committee  will  agree  to  larger  loans  than 
that  limit  I  would  suggest  that  the  larger  loans  should  be  accepted 
with  the  permission  of  the  national  bank  examiner  or  the  commis- 
sioner of  farm-land  banks,  or  some  other  governmental  authority. 

Mr.  Bulkley.  Do  I  understand  you  to  say,  Mr.  Moss,  that  a  limit 
should  be  placed  upon  the  amount  of  money  which  any  one  indi- 
vidual could  borrow  from  the  farm-land  bank? 

Mr.  Moss.  Decidedly  so. 

Mr.  Bulkley.  But  you  have  not  reached  a  conclusion  as  to  how 
much  that  limit  should  be? 

Mr.  Moss.  I  was  just  about  to  say  that  if  I  was  drafting  this  bill 
finally  I  would  not  give  the  directors  of  the  bank  the  power  to  make 
a  loan  of  their  own  initiative  for  an  amount  larger  than  $10,000  to 
any  one  individual;  but  I  would  not  absolutely  limit  it  to  $10,000; 
but  if  the  bank  desired  to  make  a  larger  loan  than  that  to  an  indi- 


110  RURAL    CREDITS. 

vidual  they  should  call  the  matter  to  the  attention  of  some  govern- 
mental authority — for  instance,  the  commissioner  of  farm-land 
banks — and  get  their  permission  to  make  a  larger  loan  in  that  case. 

Mr.  Bulklev.  AVould  you  put  any  limit  on  the  amount  of  a  loan 
to  any  one  individual  which  the  commissioner  of  farm-land  banks 
could  permit  the  bank  to  make? 

Mr.  Moss.  1  would  not  think  that  necessary,  if  you  were  going  to 
call  in  a  governmental  authority. 

Mr.  Woods.  Mr.  Moss,  your  referring  to  this  class  of  loans  reminds 
me  of  the  statement  I  understood  you  to  make  yesterday,  that  the 
establishment  of  a  system  to  loan  on  farm  mortgages  was  established 
in  all  the  European  countries  before  the  personal-security  credit  sys- 
tem was  established  in  those  countries. 

Mr.  Moss.  That  is  true. 

Mr.  Woods.  Well,  a  little  further  investigation  of  that  question 
would  be  a  good  thing,  because  I  think  you  are  entirely  wrong  about 
that.  The  first  statement  in  your  report,  with  regard  to  France, 
shows  just  the  contrary — that  the  personal  credit  was  established 
first. 

Mr.  Moss.  Well,  Mr.  Woods,  in  that  matter  I  do  not  want  to 
argue- 


Mr.  Woods  (interposing).  That  it  was  established  several  years 
before  the  other. 

Mr.  Moss.  Yes.  I  do  not  wish  to  take  issue  with  you  upon  that 
matter;  I  will  just  let  your  remark  stand  in  the  record.  As  a  matter 
of  fact,  however,  the  present  personal-credit  system,  which  is  work- 
ing well  in  France,  has  been  put  in  operation  since  1895.  That  is  a 
fact. 

Mr.  Woods.  That  is  what  it  says  here  [indicating]. 

Mr.  Moss.  Yes. 

Mr.  Woods.  And  that  the  land-mortgage  bank  was  established  in 
France  after  that. 

Mr.  Platt.  Oh,  no. 

Mr.  Moss.  No;  not  after  that. 

Mr.  Woods.  That  is  one  of  the  first  statements  contained  in  these 
printed  reports. 

Mr.  Moss.  No;  the  land-mortgage  system  was  established  in  1850 
or  1852,  showing  that  the  land-mortgage  credit  preceded  personal 
credits  in  France  by  nearly  half  a  century — not  quite  that. 

And,  going  back,  the  first  land-mortgage  association  in  Germany 
was  founded  in  1770,  whereas  the  Raeffeissen  Bank  and  the  Schulze- 
Delitzsch  Cooperative  Societies  were  founded  almost  within  the 
memory  of  living  men. 

Mr.  Woods.  That  is  true  in  Germany. 

Mr.  Seldomridge.  Mr.  Moss,  what  policy  is  pursued  by  European 
countries  in  the  handling  of  their  land-mortgage  institutions  to  elimi- 
nate the  land  speculator? 

Mr.  Moss.  I  do  not  quite  understand  what  you  mean  by  "land 
speculator." 

Mr.  Seldomridge.  I  mean  the  preventing  of  men  going  out  and 
buying  farm-  one  man  buying  several  farms  and  earning  mort- 
gages in  those  banks  on  those  farms. 

Mr.  Moss.  Yes,  sir. 


RURAL    CREDITS.  Ill 

Mr.  Seldomridge.  And  then  putting  the  farms  in  the  hands  of 
tenants. 

Mr.  Moss.  There  is  nothing  that  would  prevent  that  practice.  But 
that  is  overcome  by  the  method  by  which  the  land  itself  is  trans- 
ferred. For  instance,  in  Germany,  when  any  large  farm  is  offered 
for  sale  and  the  owner  of  the  farm  comes  to  an  agreement  with  the 
bu}Ter,  before  that  transfer  can  be  made  it  must  be  reported  to  the 
Government,  and  then  if  any  cooperative  society  desires  to  buy  the 
farm  for  the  purpose  of  dividing  it  up  among  small  holders  the  co- 
operative society  has  the  first  opportunity  of  buying  it  at  the  same 
price  which  was  offered  by  the  private  individual;  and  it  would 
therefore  be  bought  up  for  the  purpose  of  division  among  small 
farmers  rather  than  permitting  one  person  to  buy  it  in  its  entirety. 
To  be  specific,  I  am  speaking  now  of  the  Kingdom  of  Bavaria. 

But  the  whole  system  in  Europe  is  worked  with  the  object  of  di- 
viding the  farms  up  into  small  holdings.  That  is  just  one  of  the 
ways  by  which  they  undertake  to  do  that. 

Mr.  Seldomridge.  I  can  conceive  of  a  policy  here  that  might  per- 
mit men,  for  the  purpose  of  speculation,  to  go  out  and  buy  farms 
that  have  been  mortgaged  for  one-half  their  value  and,  by  the  pay- 
ment of  5  or  10  per  cent  of  the  purchase  price  down,  getting  posses- 
sion of  large  tracts  of  land  and  then  leasing  those  out  to  tenants — a 
policy  which  we  do  not  wish  to  favor. 

Mr.  Moss.  They  could  not  do  that  under  the  provisions  of  this 
bill,  because  the  loan  is  limited  to  50  per  cent  of  the  value  of  the 
land  and  the  purchaser  would  have  to  put  up  50  per  cent  in  cash  in 
order  to  buy  the  land  and  obtain  possession  of  it. 

Mr.  Hayes.  And  he  could  not  make  a  second  loan ;  one  loan  is  all 
he  could  make  with  these  land  banks. 

Mr.  Seldomridge.  He  could  not  get  the  second  mortgage  from  the 
land  bank,  but  he  might  secure  it  from  other  sources? 

Mr.  Hayes.  Yes;  of  course. 

Mr.  Seldomridge.  We  have  a  very  inventive  class  of  people  in 
this  country  in  the  real  estate  business,  and  it  seems  to  me  that  we 
ought,  if  possible,  to  put  in  the  bill  safeguards  that  would  prevent 
those  speculative  practices. 

Mr.  Moss.  Yes. 

Mr.  Brown.  Is  there  as  much  real  estate  speculation  abroad  as 
there  is  in  this  country?  Do  the  farms  change  hands  as  rapidly 
there  as  they  do  here? 

Mr.  Moss.  No,  sir.  That  is  one  of  the  reasons  that  makes  farm- 
land mortgages  such  good  security,  because  the  farms  have  passed 
through  the  stage  of  speculation ;  the  value  of  the  land,  as  a  rule,  is 
settled.  I  am  confident  that  there  is  not  nearly  the  same  change  in 
land  values  in  European  countries  that  there  is  here. 

Mr.  Seldomridge.  Could  we  not  put  a  provision  in  the  bill  pre- 
venting the  giving  of  a  second  mortgage  on  any  of  the  land  upon 
which  loans  are  made  by  these  banks? 

Mr.  Moss.  The  banks  have  not  the  power  to  do  that  under  the 
provisions  of  the  bill. 

Mr.  Seldomridge.  But  I  mean  loans  by  some  other  institutions. 

Mr.  Platt.  We  could  hardly  do  that. 


112  RURAL    CREDITS. 

Mr.  Moss.  No;  you  could  not  do  that,  I  am  reasonably  sure.  Now, 
coming  to  the  point  where  we  finished  yesterday,  I  should  like  to  call 
attention  to  the  Federal  agents. 

Mr.  SixnoMRiDGE.  But  could  you  not  provide  that  the  first  mort- 
gage should  become  due  if  a  second  mortgage  was  given? 

Mr.  Hayes.  You  could  do  that,  if  it  was  desirable. 

Mr.  Seldomridge.  Yes;  or  a  percentage  of  it. 

Mr.  Moss.  The  fiduciary  agent  provided  here  in  the  bill  is  a  broad 
original  feature  which  I  do  not  think  you  will  find  in  any  mortgage 
system  anywhere. 

Mr.  Hayes.  What  page  is  that  on? 

Mr.  Moss.  Page  20.  It  is  quite  evident  that  there  must  be  some 
governmental  authority,  or  some  third  party  that  would  either  take 
physical  possession  of  the  mortgage  or  in  some  way  guarantee  the 
holder  of  the  bond  that,  as  the  mortgage  is  paid,  he  will  get  his 
money. 

Under  the  Woodruff  plan,  which  has  been  referred  to  in  these  hear- 
ings, Mr.  Woodruff  deposits  his  mortgages  with  a  trust  company  in 
Chicago,  which  holds  possession  of  the  mortgage  and  guarantees  that 
the  bonds  are  protected  by  these  mortgages,  and  the  money  passes 
really  through  the  central  trust  company  in  Chicago. 

Now,  that  makes  the  holder  of  the  bond  absolutely  secure,  of 
course,  because  there  is  a  great  trust  company  holding  the  security; 
and  yet  you  could  not  organize  a  general  system  on  that  same  central- 
holding  plan ;  and  the  commission  believes  that,  by  authorizing  a 
fiduciary  agent  who  can  neither  be  an  officer  or  a  director  in  the  bank, 
but  who  may  be  an  employee — for  instance,  there  is  no  reason  why 
he  should  not  be  a  bookkeeper — having  him  appointed  by  the  Gov- 
ernment, and  making  him  in  all  senses  of  the  word  responsible  to  the 
Government  and  having  no  financial  responsibility  whatever  to  the 
bank ;  his  sole  official  duties  are  to  see  that  the  mortgages  are  credited 
with  the  payments  made  on  them,  and  that  the  money  is  turned  over 
to  the  bondholders,  and  having  him  stand  there  as  an  agent  between 
the  two  parties — the  commission  believes,  I  say,  that  that  would 
solve  all  of  the  difficulties  and  make  it  practically  easy  to  put  this 
system  into  operation. 

We  have  given  this  agent  the  powers  enumerated  under  section  19, 
which  it  is  not  necessary  to  read  now.  You  will  notice,  however, 
that  the  Federal  agent  certifies  to  every  national  land  bond  that  is 
issued,  and  that  no  national  land  bond  can  be  valid  without  his 
signature. 

That  is  for  the  protection  of  the  buyer  of  the  bond. 

Second,  that  section  provides  he  shall  have  joint  possession  and 
control  with  the  bank  of  the  mortgages  and  deeds  of  trust  which  are 
deposited  as  security.  And  that,  again,  is  for  the  protection  of  the 
bondholder. 

And  third,  it  provides  that  he  shall  have  supervisory  control  of 
all  entries  in  the  mortgage  ledger  kept  by  the  bank:  and  it  is  made 
his  duty  to  see  that  the  payments  are  credited  to  the  borrower.  That 
is  for  the  protection  of  the  borrower. 

So  that  this  man,  the  "  Federal  fiduciary  agent,"  stands  there  as 
a  Government  agent  in  the  bank,  protecting  alike  the  bondholder 
and  the  mortgagor;  and  under  a  system,  I  say,  that  would  make  this 
feature  entirely  workable. 


RURAL    CREDITS.  113 

I  would  not  say  that  this  is  the  very  best  system  that  could  be 
devised,  but  it  is  the  best  system  that  the  commission  could  devise 
to  meet  this  situation. 

Mr.  Woods.  Did  the  American  commission  join  the  United  States 
commission  in  this  report,  Mr.  Moss? 

Mr.  Moss.  No,  sir.  They  neither  joined  in  the  report  nor  took  any 
part  in  the  preparation  of  the  report  or  the  bill. 

In  the  first  place,  the  American  commission  had  no  funds  with 
which  to  keep  a  committee  here  to  help  in  working  out  this  matter. 

Second,  they,  after  careful  study,  decided  that  their  responsibility 
was  to  their  respective  States  or  to  the  respective  institutions  which 
had  commissioned  them.  And  they  were  making  their  reports  di- 
rectly back  to  the  bodies  and  not  making  a  report  to  Congress. 

The  resolution  under  which  the  United  States  commission  was 
appointed  made  it  its  specific  duty  to  make  a  report  to  Congress ;  it 
did  not  make  it  the  specific  duty  of  the  commission  to  frame  a  bill, 
of  course,  but  the  commission  felt  that  if  we  were  going  to  make  a 
report  we  should  make  it  along  specific  lines,  so  that  there  would  be 
something  tangible  to  work  upon,  and  that  it  would  be  better  to  make 
it  in  the  form  of  a  bill  than  in  the  form  of  general  suggestions. 

Mr.  Weaver.  What  sort  of  cooperation  was  there  between  the 
United  States  commission  and  this  American  commission,  Mr.  Moss? 

Mr.  Moss.  Well,  the  cooperation  was  to  this  extent:  The  money 
that  was  appropriated  by  Congress  was  spent  very  freely  to  carry 
out  the  educational  activities  of  both  commissions.  As  a  matter  of 
fact  the  American  commission  raised  $1,200  for  each  delegate;  $900 
of  that  was  spent  for  travel  and  other  minor  expenses.  The  com- 
mission was  at  quite  a  heavy  expense  in  assembling  the  commission; 
and  it  appeared  that  this  $300  that  was  to  have  gone  toward  the 
payment  of  expenses  for  educational  activity  in  Europe  was  practi- 
cally spent  before  the  commission  started. 

As  a  matter  of  fact,  the  United  States  commission,  not  entirety, 
but  in  large  part,  met  stenographic  expenses,  for  instance,  and  di- 
vided with  the  American  commission  the  expenses  of  headquarters, 
and  we  have  borne  quite  a  large  expense  in  preparing  this  joint  report 
which  is  going  out — -which  is  entirely  legitimate,  because  Ave  were 
ordered  to  cooperate,  and  we  were  working  on  a  joint  report;  that 
is  the  extent  to  which  we  cooperated — the  funds  of  each  commission 
being  expended  jointly  to  secure  a  common  result. 

The  American  commission  gave  us  every  advantage  they  could 
and  all  the  material  they  gathered  was  placed  at  our  disposal;  and  all 
the  material  we  gathered  was  placed  at  their  disposal;  and,  as  a 
matter  of  fact,  the  officers  of  the  American  commission  were  chosen 
directly  from  the  United  States  commission.  I  believe  I  am  the 
only  member  of  the  United  States  commission  traveling  with  the 
American  commission  that  was  not  given  an  office  in  the  American 
commission;  but  there  were  some  reasons  for  that,  I  believing  that, 
as  a  Member  of  Congress,  I  had  a  somewhat  different  responsibility 
from  the  others,  and  that  I  ought  not  to  accept  a  position  of  that 
kind.  I  believed  that  I  ought  to  remain  free  from  any  other  re- 
sponsibility. There  was  the  very  closest  cooperation  between  the 
two  bodies  and  the  utmost  expression  of  good  wTill  between  them 
through  their  travels  in  Europe. 

37081—14 8 


114  RURAL    CREDITS. 

Mr.  Woods.  Now,  this  joint  report  that  you  speak  of;  what  is  that? 
Has  it  been  published? 

Mr.  Moss.  The  joint  report  is  (his  document  [indicating  document 
on  table]. 

Mr.  Bulkley.  Senate  Document  214. 

Mr.  Moss.  Yes;  Senate  Document  214  is  the  joint  report — not  the 
complete  joint  report,  because  there  are  some  other  matters  to  follow. 

A.nd  I  may  say  that  the  United  States  commission  in  its  official 
capacity  did  nothing  except  to  study  the  financial  feature  of  the 
situation— the  financial  institutions.  The  American  commission, 
however,  made  a  Aery  much  broader  study;  they  took  up  the  study 
of  country  life,  markets,  general  cooperation,  and  educational  mat- 
ters. And  while  the  members  of  the  United  States  commission  as 
individuals  worked  with  the  American  commission  in  this  broader 
field,  yet  the  distinctive  work  of  the  United  States  commission  was 
limited  to  the  financial  field;  and  so  we  made  a  report  only  upon  the 
financial  features,  and  the  American  commission  reported  upon  the 
broader  field  that  they  covered;  and  we,  uniting  our  financial  data 
with  that  gathered  by  them,  called  that  a  joint  report.  And  this 
special  report  of  ours  was  called  the  United  States  Commission 
Report.  But,  as  I  understand  it,  there  is  no  criticism  of  this  report 
from  any  member  of  the  American  commission,  except  such  criticism 
as  has  been  made  by  certain  members  of  that  commission  in  their 
minority  report. 

The  next  question  to  which  I  wish  to  call  the  attention  of  the  com- 
mittee is  the  admission  of  existing  institutions.  We  feel  that  the 
bill  is  broad  enough  in  this  way  and  provides  a  further  protection 
against  possible  monopoly.  "x\.ny  existing  institution  "  will  include 
a  certain  class  of  building  and  loan  associations;  and  I  want  to  say 
on  this  point  that  the  "Woodruff  institution  would  have  no  trouble 
whatever  in  organizing  under  this  statute  if  it  were  enacted  into 
law  as  drawn  by  the  commission. 

Mr.  Woodruff  traveled  with  us  quite  a  good  deal  in  Europe.  I 
have  a  personal  acquaintance  with  him  and  am  familiar  with  his 
ideas;  and  I  say  that,  so  far  as  the  Woodruff  institution  is  concerned, 
it  would  have  no  trouble  whatever  in  operating  under  this  law;  and 
I  am  confident  that  the  commission's  plan  would  also  appeal  to  a 
great  many  trust  companies  at  the  present  time  in  the  United  States, 
and  to  practicallv  all  of  these  mortgage-loan  associations  in  the 
United  States. 

Mr.  Hayes.  Well,  there  is  no  objection  to  their  reorganizing  under 
this  statute,  is  there? 

Mr.  Moss.  No;  on  the  contrary,  it  is  to  be  desired;  and  that  provi- 
sion was  put  in  the  bill  as  an  express  encouragement  for  them  to 
join  the  system. 

Mr.  Hayes.  Yes. 

Mr.  Moss.  So  that  not  only  would  new  organizations  be  formed 
under  the  bill,  but  there  is  the  broadest  possible  opportunity  given 
for  the  reorganization  of  existing  institutions,  making  it  as  highly 
competitive  and  as  attractive  to  as  many  institutions  as  possible. 
There  has  been  every  effort  made  in  framing  the  bill  to  prevent 
these  institutions  from  coming  into  competition  with  existing  com- 
mercial banks,  and,  on  the  other  hand,  to  make  it  of  great  value  to 
all  of  those  institutions  that  are  loaning  upon  real-estate  security; 


KURAL    CREDITS.  115 

that  is,  to  standardize  loaning  on  farm  mortgages.  But  there  is  a 
provision  in  the  bill  in  regard  to  trust  funds,  and  some  of  the  Mem- 
bers of  the  House  have  spoken  to  me  about  that,  and  I  would  like 
to  discuss  that  matter  for  a  moment. 

Whenever  the  State  legislation  in  any  State  shall  meet  the  ap- 
proval of  the  Federal  authorities,  so  that  the  banks  in  that  State  are 
working  under  such  conditions  under  State  laws  that,  in  the  opinion 
of  the  Federal  authorities,  give  ample  protection  to  the  holders  of 
their  securities,  it  is  provided  that  the  bonds  emitted  by  these  banks 
shall  be  available  for  the  investment  of  all  funds  that  are  so-called 
trust  funds  that  are  under  the  control  of  the  Federal  courts,  and  also 
shall  be  available  for  State  trust  funds  where  it  is  permissible  under 
State  law. 

Now,  there  are  two  purposes  in  view  in  this  provision,  not  only 
to  broaden  the  market  for  the  bonds,  but  particularly  to  make  them 
more  attractive  to  the  private  investor.  There  are  a  great  many 
private  investors  who  would  purchase  a  bond  if  it  were  recognized 
that  it  were  a  good  enough  bond  for  the  Government  and  the  State 
to  accept  it  as  security  for  trust  funds. 

And  it  seems  to  me  that  the  United  States  Government  ought  not 
to  give  its  sanction  and  its  supervision  to  the  issuance  of  a  bond  that 
of  itself  would  not  be  good  enough  and  safe  enough  to  be  taken  as 
security  for  the  investment  of  trust  funds  under  the  protection  of  the 
Government.  And  I  feel  that  this  is  quite  an  important  feature  of 
the  bill ;  beyond  any  question,  all  the  land-mortgage  bonds  issued  by 
the  continental  countries  of  Europe  are  made  available  for  trust 
funds,  except  in  certain  countries  where  they  reserve  that  investment 
field  as  a  monopoly  for  Government  operations.  So  that  there  is 
nothing  unusual  in  the  preferment  here  given. 

The  other  feature  is  the  value  of  the  buildings.  Under  this  bill 
the  amount  loaned  upon  the  buildings  is  limited  to  20  per  cent  of  the 
appraisement,  which  means  that  90  per  cent  of  the  loans  must  be 
made  upon  the  value  of  the  real  estate.  Then  it  is  provided  that  the 
buildings  must  be  insured  for  the  benefit  of  the  bank  holding  the 
mortgage.  Now,  these  provisions  may  be  overcautious  on  the  part 
of  the  commission. 

With  regard  to  that  limitation  of  20  per  cent  on  the  buildings,  it 
seems  to  me  that  when  we  consider  the  very  poor  character  of  the 
buildings  on  the  average  American  farm,  the  fact  that  the  improve- 
ments on  those  farms  are  often  short  lived,  and  considering  the  long 
time  for  which  the  loans  will  be  made,  we  must  put  a  rather  small 
limit  upon  the  amount  to  be  loaned  on  the  value  of  the  buildings ;  and 
we  believe  90  per  cent  of  the  loan  should  be  upon  the  land  itself  and 
that  is  a  conservative  provision.  In  Europe  the  buildings  are  very 
much  more  substantial  than  in  this  country. 

Mr.  Hayes.  They  are  generally  constructed  of  stone  and  brick,  are 
they  not? 

Mr.  Moss.  Yes ;  generally  of  stone  and  brick.  And  in  Europe  they 
have  almost  eliminated  entirely  the  fire  hazard.  In  fact,  one  of  the 
greatest  differences  which  you  will  observe  in  traveling  through 
Europe  is  the  high  character  of  the  improvements  upon  the  farm, 
and  the  almost  negligible  loss  that  comes  from  fire  and  decay.  Their 
buildings  are  very  much  more  substantial,  and  are  better  fire  risks 
than  ours. 


116  RURAL    CREDITS. 

Mr.  Seldomridge.  Excuse  me,  Mr.  Moss,  for  interrupting  you,  but 
I  should  like  to  ask  a  question  al  tins  point. 

Mr.  Moss.  Certainly. 

Mr.  Seldomridge.  How  do  the  rates  of  fire  insurance  in  Europe 
compare  with  the  rates  in  the  United  States? 

Mr.  Moss.  Farm  insurance  in  Europe  is,  I  think,  almost  all  carried 
by  mutual  risks.    That  extends  so  far  as  to  include  the  farm  animals. 

With  regard  to  cities,  I  was  told  by  the  American  ambassador  at 
Rome  that  he  was  carrying  a  policy  of  $10,000  on  his  household  effects 
in  the  city  of  Rome ;  and  he  said  he  had  forgotten  the  fee,  but  it  was 
so  small  he  did  not  see  how  the  insurance  company  could  afford  to 
write  the  policy  for  the  small  amount  which  he  was  paying  to  insure 
$10,000  on  his  furniture.  He  said  he  had  been  in  Rome  four  years 
and  did  not  recall  having  seen  a  fire  there  in  that  time. 

And  everywhere  in  Europe  the  fire  risk  has  been  almost  totally 
and  absolutely  eliminated  by  their  system  of  buildings.  I  noticed 
particularly  the  barns.  They  were  generally  made  of  stone  or  con- 
crete; they  were  of  one  story,  and  if  you  inquired  why  they  did  not 
have  a  second  story  the}7  said  if  there  was  hay  above  the  first  floor  it 
might  catch  fire  and  drop  down  and  burn  their  animals,  and  there- 
fore they  have  eliminated  that  danger.  The  risk  of  fire  is  almost 
entirely  eliminated. 

And  I  think  the  committee  ought  to  take  these  facts  into  consid- 
eration in  fixing  the  limit  which  may  be  loaned  on  buildings. 

And  that  brings  up  the  question  whether  or  not  you  ought  to  make 
any  provision  for  the  deterioration  of  the  value  of  the  property 
mortgaged.  I  am  sure  you  will  reach  that  question  before  you  per- 
fect the  bill.  It  is  the  conclusion  of  our  commission  that  it  is  not 
necessary  to  provide  for  it  under  this  bill.  And  I  wish  to  say  that 
I  consulted  briefly  with  Secretary  Houston  upon  that  point,  and 
Secretary  Houston's  opinion  coincided  with  that  of  the  commission, 
that  if  you  limit  the  amount  of  the  loans  as  rigidly  as  they  are 
limited  in  this  bill,  with  an  amortization  feature,  you  can  safely  loan 
50  per  cent  on  the  average  value  of  the  American  farm  without  any 
great  fear  that  the  deterioration  of  the  farm  itself  will  overcome  and 
destroy  the  value  of  the  security. 

I  should  like  to  call  the  attention  of  the  committee  now  to  the  ques- 
tion of  postal  savings  funds,  sections  40  and  41  of  the  bill.  There 
has  been  quite  a  movement  in  this  country,  by  some  persons  who  are 
worthy  of  consideration,  for  the  adoption  of  a  law  providing  that 
the  postal  funds  should  be  made  wholly  available  for  loaning  upon 
farm  property.  You  know  the  Government  has  about  $40,000,000 
in  the  postal  deposits  now.  But  under  the  new  Federal  reserve  act, 
those  funds  can  only  be  deposited  in  national  banks.  I  call  attention  to 
that  provision  in  the  new  bank  law.  A  change  has  been  made  in 
this  bill  to  remove  that  limitation  of  law  and  permit  these  funds  to 
be  deposited  in  this  system  of  banks. 

Mr.  Coulter.  It  is  in  section  16  of  the  bill,  under  the  heading, 
"  Specific  powers." 

Mr.  Moss.  Yes,  section  16.  It  is  under  subheading  (a).  It  reads 
as  follows: 

Every  national  farm-land  bank  shall  have  the  following  specific  powers: 
(a)  To  accept  and  pay  interest  on  deposits  to  an  amount  not  exceeding  50 
per  centum  of  the  amount  of  its  combined  paid-up  capital  and  surplus;  to  re- 


RURAL    CREDITS.  117 

ceive  deposits  of  postal  savings  funds  to  the  same  extent,  and  to  pay  interest 
thereon  at  the  rate  required  of  other  banks  receiving  such  deposits.  The  trus- 
tees of  the  Postal  Savings  System  are  hereby  authorized  and  empowered  to  select 
national  farm-laud  banks  as  depositories  for  such  funds,  which  banks,  when 
required  by  the  Secretaiy  of  the  Treasury,  sball  act  as  fiscal  agent  of  the 
United   States. 

You  will  notice  that  there  is  no  preference  given  to  these  banks 
over  existing  banks  with  regard  to  receiving  postal  savings  on  de- 
posit. There  is,  however,  a  provision  in  the  bill  requiring  these 
banks  if  they  receive  postal  savings  funds  to  use  them  to  make 
loans  on  real  estate ;  they  can  use  them  for  no  other  purpose. 

It  was  the  opinion  of  the  commission  that,  in  order  that  there 
should  be  no  charge  of  favoritism,  it  would  be  well  at  the  present 
time  to  give  the  new  banks  just  the  same  right  to  receive  postal  deposits 
as  other  banks,  and  leave  it  with  the  postal  authorities  to  make  an 
equitable  distribution  between  banks  of  postal  funds.  Certainly 
land  banks  ought  not  to  be  prohibited  from  receiving  those  funds  on 
deposit;  but  if  they  receive  them  under  this  provision,  they  must 
invest  the  funds  in  farm-land  mortgages ;  they  can  invest  them  in  no 
other  securities. 

Senator  Shalroth.  What  section  of  the  bill  is  that  you  have  just 
been  reading  ? 

Mr.  Moss.  That  was  section  16,  but  you  will  find  in  section  41, 
Senator  Shafroth,  this  language: 

The  postal  savings  deposits  held  by  any  such  bank,  except  the  5  per  cent 
reserve,  may  be  invested  only  in  first  mortgage  or  first  deed  of  trust  loans  on 
farm  land. 

So  that,  under  this  provision,  the  trustees  of  the  postal  savings 
system  could  easily  divert  postal  savings  fund,  if  they  desired  to 
do  so,  and  make  them  available  for  farm-land  loans.  It  is  not 
mandatory,  but  permissive,  under  the  provisions  of  this  bill. 

Mr.  Platt.  Mr.  Moss,  would  this  bill  permit  the  Government  to 
divert  the  postal  saAdngs  funds  away  from  the  neighborhoods  in 
which  they  were  deposited  ? 

Mr.  Moss.  I  should  not  think  that  it  would.  The  only  modifica- 
tion in  the  law  here  is  that  it  makes  it  permissible  to  deposit  those 
funds  in  these  banks  to  the  same  extent  that  they  can  deposit  them  in 
the  Federal  reserve  banks;  and  the  restriction  in  the  case  of  the 
Federal  reserve  bank  is  that  they  shall  be  deposited  in  the  immediate 
locality  in  which  they  are  received. 

Mr.  Platt.  Yes;  I  see.  Would  it  not  be  well  to  repeat  that  limi- 
tation in  this  bill,  somewhere  ? 

Mr.  Moss.  That  would  be  entirely  agreeable  to  me  personally. 
Would  it  be  agreeable  to  you,  Dr.  Coulter  ? 

Mr.  Coulter.  Yes,  indeed. 

Mr.  Moss.  I  wish  to  say  that  this  section  was  written  by  the  com- 
mission at  our  last  sitting,  because  the  law  had  been  changed  in 
regard  to  postal  savings  funds,  and  it  was  necessary  to  rewrite  it, 
and  that  specific  thought  had  not  occurred  to  the  commission. 

It  is  not  necessary,  I  belive.  for  me  to  speak  of  the  reserves  in  this 
system.  We  adopted  the  same  system  of  reserves  of  deposits  that  is 
used  under  the  new  banking  and  currency  act,  namely,  12  per  cent 
of  checking  deposits  and  5  per  cent  of  time  deposits. 

I  want  to  call  the  attention  of  the  committee  to  the  charges  pro- 
vided for  administration.     In  this  bill  these  charges  are  fixed  at  1 


118  RURAL    CREDITS. 

per  cent.  It  is  not  the  feeling  of  the  commission  that  the  administra- 
tion charges  will  amount  to  1  per  cent,  once  the  system  is  actually  in 
operation.  The  Credit  Foncier  and,  I  think,  some  other  institutions 
are  limited  to  0.G0  of  1  per  cent.  But  competition  regulates  this 
charge,  and  almost  universally  in  Europe  0.35  per  cent  in  joint-stock 
companies  is  the  charge  made  for  administration  expenses,  and  in  the 
purely  mutual  associations  it  drops  as  low  as  0.15  per  cent. 

As  this  is  a  very  competitive  bill,  involving  widely  competing  in- 
stitutions, we  may  safely  accept  that  competition  will  finally  control 
the  charges  of  the  bank.  Banks  in  Europe  charging  0.35  per  cent 
for  administration  and  limited  to  the  issue  of  15  times  their  capital 
and  surplus  in  bonds  were  making  anywhere  from  9  to  15  per  cent 
annual  profits  and  dividends.  So  that  there  is  no  question  about 
reasonable  profits.  And  yet  those  European  banks  have  a  some- 
what better  opportunity  to  make  money  than  these  farm-land  banks 
in  this  country  will  have,  because  the  joint-stock  banks  have  the 
right  to  loan  upon  all  classes  of  real  estate,  and  they  also  do  business 
with  cities,  a  communal  business,  that  banks  in  the  United  States 
would  not  have.  Cities  in  Europe  do  a  loan  business  through  mort- 
gage banks  that  would  be  done  here  through  the  issuance  of  munici- 
pal bonds. 

Mr.  Hayes.  You  would  not  hold  out  the  hope  that  the  cost  of 
administration  could  be  reduced  in  this  country  under  anything 
like  present  conditions  to  anywhere  near  0.35  per  cent,  would  you? 

Mr.  Moss.  If  the  commission  had  thought  that,  we  would  have  put 
that  limit  in  the  bill.  We  thought  we  ought  to  be  liberal  in  fixing 
maximum  charges  and  allow  competition  to  name  the  minimum. 
The  opinion  of  the  commission  is  that  competition  will  bring  it 
below  1  per  cent.  The  point  I  want  to  make  is  that  we  put  it  at  the 
maximum  and  leave  it  to  competition  to  regulate  it.  I  think  it  would 
be  a  serious  mistake  to  put  the  administration  charges  too  low. 

Mr.  Hayes.  Yes;  of  course,  a  man  must  have  some  hope  of  profit 
or  he  will  not  go  into  this  business. 

Mr.  Moss.  Yes;  and  I  do  not  believe  that  under  present  circum- 
stances 1  per  cent  is  too  high. 

I  want  to  call  particular  attention,  however,  to  the  fact  that  these 
administration  charges  are  to  be  computed  on  the  principal  sum  re- 
maining unpaid.  Now,  there  is  a  difference  between  this  plan  and 
the  Woodruff  plan.  Under  the  Woodruff  plan  their  administration 
charge  is  based  upon  the  par  value  of  the  original  loan,  and  that 
runs  all  the  way  through  the  life  of  the  loan.  But  under  the  pro- 
visions of  this  hill  as  we  have  drawn  it  the  administration  charges 
will  fall  with  each  payment  upon  that  part  of  the  principal  which  is 
unpaid— which  I  think  is  undoubtedly  the  correct  principle — and 
will  not  remain  upon  the  par  value  of  the  loan.  The  committee,  of 
course,  will  decide  which  it  deems  to  be  the  best.  But  it  seems  to 
me  that  administration  charges  ought  to  be  upon  the  sum  the  bor- 
rower owes  the  bank  and  not  upon  the  original  sum  which  he  bor- 
rowed, and  much  of  which  may  have  been  repaid  to  the  bank. 

Mr.  Platt.  Will  not  that  be  a  complicated  thing  to  determine? 

Mr.  Moss.  No;  one  system  is  as  easy  of  computation  as  the  other. 
It  is  a  question  of  mathematics,  and  while  I  am  not  an  expert  mathe- 
matician I  can  figure  it  out  easily ;  there  is  not  a  bank  in  the  United 


RURAL    CREDITS.  119 

States  that  will  be  troubled  in  the  least  about  making  the  computa- 
tion, Mr.  Piatt. 

Mr.  Hates.  Well,  it  just  occurs  that  there  might  be  a  variation  as 
to  that;  but  your  bill  applies  to  each  individual  case? 

Mr.  Moss.  Yes.  And  I  want  to  call  the  attention  of  the  committee 
to  the  fact  that  the  amount  and  number  of  payments  to  be  made  by 
the  borrower  are  set  forth  in  the  mortgage  and  can  not  be  changed, 
so  that  each  instrument  will  bear  upon  its  face  just  what  sum  the  bor- 
rower has  to  pay  in  order  to  meet  his  periodic  payments,  which,  I 
think,  is  a  very  good  provision,  as  it  enables  the  borrower  to  under- 
stand precisely  the  nature  of  the  obligation  he  is  entering  into  at  the 
time  he  makes  it. 

I  would  not  speak  of  the  appraisement  committee  if  it  were  not  for 
the  fact  I  have  received  in  my  correspondence  from  critics  of  the  bill 
certain  criticisms  of  the  appraisement  committee  as  organized  under 
the  terms  of  the  bill. 

The  appraisement  committee  is  to  be  composed  of  three  persons, 
who  shall  be  directors  of  the  bank.  However,  the  provision  is  that 
they  shall  appraise,  or  cause  the  appraisement  to  be  made;  therefore 
they  are  given  full  opportunity  to  employ  an  expert  or  to  seek  out- 
side advice,  if  they  care  to  do  so.  But  the  three  directors  must  be 
the  responsible  committee  to  the  bank,  which  is  entirely  right  and 
proper;  but  under  the  language  of  the  bill  they  may  make  the  ap- 
praisement themselves  or  cause  it  to  be  made  by  others.  Therefore 
the  persons  who  are  criticizing  that  feature  certainly  have  not  read 
the  language  of  the  bill  carefully  upon  that  point. 

In  regard  to  the  examinations,  we  have  provided  for  the  same 
examinations  that  are  given  national  banks,  and  have  provided  also 
that  they  shall  be  made  by  the  same  examiners,  provided  the  Treas- 
ury Department  wishes  that  to  be  done.  I  would  probably  feel  that 
if  the  system  becomes  widely  extended  there  would  be  special  exam- 
iners appointed,  and  such  provision  is  written  in  the  bill;  but  in  the 
early  stages,  where  there  would  be  just  a  bank  here  and  a  bank  there, 
certainly  it  would  not  be  economical  to  detail  a  special  examiner  to 
go  out  to  make  these  examinations ;  and  so,  under  the  provisions  of 
the  bill,  any  regular  bank  examiner  may  be  detailed  by  the  Treas- 
ury Department  to  make  the  examination,  or  the  Treasury  Depart- 
ment may  select,  if  it  cares  to  do  so,  a  special  examiner  for  this  work. 

There  is  one  other  question  under  the  head  of  "  privileges  "  that 
I  would  like  to  discuss ;  and  then  I  want  to  sum  up  the  whole  matter. 
The  word  "  privileges "  probably  ought  not  to  appear  in  the  bill. 
It  would  be  very  much  better  to  have  the  word  "powers"  rather 
than  the  word  "  privileges."  As  this  bill  is  constructed  the  banks 
have  two  powers.  One  is  general,  and  every  bank  organized  under 
the  bill  will  have  certain  powers.  That  is  set  forth  in  section  16. 
There  they  are  given  general  powers,  and  they  are  also  given  specific 
powers  that  are  inherent  in  every  bank  that  is  organized;  and  it 
makes  no  difference  in  what  State  the  bank  may  be  located,  all  banks 
stand  equal.  There  can  be  no  objection  to  that.  But  later  on  in  the 
bill,  section  34,  there  are  certain  other  powers  which  are  here  called 
"  privileges."  I  am  going  to  suggest  that  the  word  "  powers  "  would 
be  very  much  better  than  the  word  "  privileges." 


120  RURAL    CREDITS. 

Mr.  Hayes.  Excuse  me,  Mr.  Moss,  but  the  word  "  powers  "  would 
hardly  cover  it. 

Mr.  Platt.  No;  that  word  would  hardly  cover  it. 

Mr.  Moss.  You  are,  perhaps,  right;  but  I  was  fearful  lest  the 
language  might  be  const  rued  to  mean  special  privileges,  which  would 
be  in  violation  of  good  public  policy.    The  bill  reads: 

The  foregoing  privileges,  or  such  of  them  as  the  commissioner  of  farm-laud 
banks,  with  the  approval  of  the  Secretary  of  the  Treasury,  may,  by  general 
rules  applicable  to  all  banks  organized  hereunder,  from  time  to  time  designate, 
shall  apply  to  national  land-bank  bonds  issued  under  authority  of  this  act  only 
as  when  the  following  conditions  (or  such  of  them  as  the  commissioner  of  farm- 
land banks,  with  the  approval  of  the  Secretary  of  the  Treasury,  may,  from 
time  to  time,  by  Like  general  rules  designate),  are  likewise  put  into  effect  in 
any  State  or  States. 

Mr.  Weaver.  "Why  can  you  not  use  both  words,  Mr.  Moss? 

Mr.  Moss.  Very  well.  I  am  gratified  that  the  committee  correctly 
comprehends  the  purpose  of  the  language.  Now,  I  want  to  call  j^our 
attention  to  the  fact  that  these  privileges  or  powers,  whichever 
word  you  choose  to  use,  are  given  to  all  the  banks  in  any  one  State 
at  the  same  time,  and  are  given  to  every  State  at  the  same  time 
that  meets  the  rules  and  regulations  laid  down  by  the  Federal  au- 
thorities. There  is  absolutely  no  discrimination  against  any  bank 
or  against  the  banks  of  any  State.  So  that,  while  at  the  beginning 
these  general  powers  that  every  bank  would  inherently  have  would 
be  given  to  every  bank  in  the  United  States,  these  additional  powers 
would  be  given  just  State  by  State  as  the  States  may  met  the  regula- 
tions and  requirements  laid  down  by  the  Federal  authorities.  That 
is  a  feature  that  I  called  the  attention  of  the  committee  to  yesterday, 
that  Ave  were  trying  to  create  an  inducement  or  better  State  legis- 
lation. 

I  think  there  is  no  use  to  speak  about  the  loan  agencies  or  the  sale 
agencies,  but  I  will  speak  a  word  or  two  about  the  general  adminis- 
trative features  of  the  bill. 

It  is  modeled  after  the  national  banking  law  and  placed  under  the 
Treasury  Department,  and  gives  very  large  discretionary  powers 
to  the  commissioner  of  farm-land  banks,  but  not  as  great  powers  as 
have  been  given  to  the  Comptroller  of  the  Currency.  The  national- 
bank  system  is  the  model  for  the  world  for  efficiency  of  general 
administration,  freedom  from  graft,  for  honesty,  and  for  publicity, 
I  say  it  is  a  model  for  the  world  in  its  purely  administrative  features, 
and  we  do  not  believe  you  could  have  any  better  model  than  that. 

But  the  commission  has  no  pride  about  whether  you  call  the 
ruling  Federal  ollicer  "Commissioner  of  land  banks"  or  by  some 
other  name;  whether  you  give  him  $6,000  a  year,  or  more  or  less 
than  that  sum.  That  is  a  matter  that  I  should  have  no  pride  of 
opinion  about.  But  it  seemed  to  us,  as  the  national-bank  system 
has  been  honest  and  has  been  administered  so  well,  that  we  could  not 
adopt  a  better  system  of  administration  than  our  well-known  Amer- 
ican model. 

Now.  as  to  the  result  of  the  establishment  of  these  banks  in 
Europe.  I  think  it  may  fairly  be  said  that  they  have  banished  usury: 
they  have  given  to  agriculture  as  low  rates  of  interest  as  other  lines 
of  business,  and  often  as  low  rates  as  communities  in  their  organized 
capactiy  enjoy. 

Mr.  Weaver.  Let  me  ask  you  a  question,  just  for  information. 


RURAL    CREDITS.  121 

Mr.  Moss.  Yes;  certainly. 

Mr.  Weaver.  With  regard  to  the  laws  in  Europe,  with  which  I  am 
not  familiar,  with  regard  to  usury,  what  penalties  do  they  have 
under  the  laws  there?  We  have  a  national-bank  act  which  pre- 
scribes a  penalty,  and  all  the  States  have  laws  on  the  subject,  some 
of  which  are  very  radical.  For  instance,  in  the  old  Indian  Territory, 
where  I  used  to  live,  a  man  who  charged  usury  lost  both  principal 
and  interest ;  and  that  was  formerly  the  law  also  in  Arkansas  and  in 
some  of  the  other  States. 

Mr.  Moss.  I  would  not  want  to  speak  with  definiteness  upon  that ; 
I  presume  Dr.  Coulter  could  reply  to  that  more  definitely,  and  I  will 
ask  him  to  do  so  in  a  moment.  I  know,  however,  that  in  nearly 
every  country  of  Europe  the  statement  was  made  that  before  these 
banks  were  organized  the  interest  ran  from  20  per  cent  to  even  100 
per  cent,  and  usury  was  rampant.  Dr.  Coulter,  what  are  the  laws  of 
Europe  in  regard  to  usury? 

Dr.  Coulter.  Some  of  the  countries  are  entirely  without  any  spe- 
cial law  on  the  subject,  depending  upon  their  financial  system  to 
settle  the  whole  question.  Others  have  special  laws  against  usury, 
and  many  of  them  are  very  local.  For  instance,  in  parts  of  Russia 
I  found  that  the  local  administrative  officers  decided  what  was  the 
proper  or  legal  rate  of  interest.  But  the  practice  in  Europe  is  so 
varying  that  it  would  be  very  difficult  to  answer  the  question  exactly. 

Mr.  Hates.  The  conditions  are  the  same  in  this  country.  In  some 
States  there  are  no  usury  laws.    We  have  none  in  California. 

Senator  Siiafroth.  And  we  have  none  in  Colorado. 

Mr.  Moss.  I  wanted  to  say  that  the  fact  that  impressed  me  most 
in  Europe  was  that  there  was  very  lax  Government  supervision. 
The  banks  in  Europe  have  either  a  large  capital  or  a  high  degree  of 
responsibility  to  the  shareholders.  They  have  eliminated  specula- 
tion by  declaring  the  purpose  of  the  loan,  as  a  rule;  and  these  facts 
have  been  a  great  protection,  without  the  necessity  for  governmental 
supervision.  They  do  not  have  the  degree  of  governmental  super- 
vision that  we  have  in  this  country. 

Mr.  Platt.  It  is  usually  agreed  by  students  of  finance  that  usury 
laws  are  out  of  date,  and  are  either  detrimental  or  inoperative. 

Mr.  Moss.  Yes. 

Mr.  Weaver.  I  would  not  agree  with  that  if  all  the  political  econo- 
mists and  financiers  in  the  world  agreed  to  it.  Of  course,  as  a  gen- 
eral proposition,  you  can  not  fix  the  value  of  money  by  a  statutory 
enactment;  but  you  can  put  penalties  that  will  have  a  deterrent 
effect  on  some  cold-blooded  shylock  who  wants  to  take  his  pound  of 
flesh. 

Air.  Hayes.  Did  you  ever  know  of  a  case  where  usury  laws  had 
any  effect? 

Mr.  Weaver.  Yes;  in  our  State. 

Mr.  Hayes.  I  have  lived  in  States  where  there  was  a  high  penalty 
for  usury ;  and  I  have  never  seen  any  difference  resulting  from  them. 

Senator  Shafrotii.  I  think  the  difference  is  in  having  a  high  usury 
rate. 

Mr.  Weaver.  Yes. 

Senator  Siiafroth.  I  advocated  a  usury  rate  of  12  per  cent,  whicn 
was  high  enough  to  allow  for  extreme  and  unusual  cases.  But,  as 
a  matter  of  fact,  some  of  the  borrowers  did  pay  that. 


122  RURAL    CREDITS. 

Mr.  Hayes.  They  will  all  do  it;  they  will  all  find  some  way  to 
get  outside  of  the  law. 

Senator  Siiafrotii.  But  there  is  always  a  tendency  for  a  man  to 
keep  within  the  law  and  have  his  actions  lawful,  if  he  can. 

Mr.  Weaver.  We  had  an  illustration  of  that  in  Indian  Territory, 
where  a  man  who  had  loaned  money  at  usury  lost  both  interest  and 
principal. 

Mr.  Haves.  But  he  can  put  the  transaction  in  the  hands  of  a 
broker,  and  have  the  broker  charge  a  commission,  and  accomplish 
just  the  same  thing. 

Mr.  Platt.  Yes. 

Mr.  Moss.  I  think  the  usury  laws  in  the  District  of  Columbia  have 
been  generally  disregarded.  But  it  is  the  universal  testimony  that 
in  Europe  competition  under  this  system  of  banks  has  driven  usury 
out  of  those  countries ;  that  the  power  of  usury  has  been  broken  down, 
not  by  law,  but  by  competition,  which  is  much  more  effective  than 
if  it  was  a  question  of  law. 

Mr.  Hayes.  That  is  the  only  way  to  prevent  it. 

Mr.  Moss.  These  banks  have  been  very  much  greater  foes  to  usury 
than  all  the  restrictive  laws  that  might  be  enacted. 

Mr.  Brown.  One  is  a  natural  restraint  and  the  other  is  an  ar- 
tificial one. 

Mr.  Hayes.  Yes;  one  naturally  enforces  itself,  and  the  other  can 
not  be  enforced  against  the  people  who  do  not  want  it  enforced. 

Mr.  Moss.  These  banks  have  also  had  the  effect  of  checking  emigra- 
tion from  practically  every  country  where  these  banks  have  become 
established.  And  you  have  only  to  look  over  the  report  of  the 
United  States  Commissioner  of  Immigration  to  see  that  a  very  small 
proportion  of  our  immigration  comes  from  the  countries  we  are  now 
discussing,  but  nearly  all  of  it  comes  from  the  southern  countries  of 
Europe  where  these  banks  and  the  development  of  agriculture  are 
not  well  established.  There  is  no  question  that  this  system  of  banks, 
in  connection  with  short-time  personal  credit,  has  been  one  of  the 
great  factors  in  checking  emigration  of  those  w7ho  are  desirable 
citizens. 

Mr.  Hayes.  I  was  just  going  to  suggest  that  thought. 

Mr.  Platt.  Is  there  a  difference  between  northern  Italy  and 
southern  Italy,  for  instance,  in  the  organization  of  these  banks  % 

Mr.  Moss.  The  line  of  credit  in  Italy  is  a  question  which  I  myself 
did  not  study.  While  I  was  in  Italy  I  was  just  taking  my  first  lessons 
in  Europe,  and  was  looking  around  generally  over  the  subject.  In 
fact,  I  went  to  Italy  prejudiced  against  Italy  and  its  institutions, 
and  believing  that  there  was  nothing  in  Italy  worthy  of  study;  I 
gave  my  attention  there  almost  exclusively  to  personal  credits;  and 
through  a  mishap  at  the  last  moment,  I  think,  no  member  of  the 
United  States  commission  accompanied  the  subcommittee  of  the 
American  commission  that  went  through  southern  Italy  to  make  a 
study  of  land-mortgage  credits. 

Mr.  Coulter.  None  of  them  went  south,  but  we  got  practically  all 
of  those  reports. 

Mr.  Moss.  None  of  them  went  south;  and  I  am  basing  my  opinion 
on  my  personal  studies,  and  therefore  I  can  not  answer  your  question 
as  to  Italy. 


RUEAL    CKEDITS.  123 

These  banks  have  increased  the  production  of  European  farms. 
There  is  no  question  that  in  this  country  intelligence  is  more  widely 
diffused  than  it  is  among  European  farmers,  and  yet,  even  under 
existing  conditions  there,  they  are  not  only  excelling  us  in  produc- 
tion, but  the  principal  thing  is  that  their  production  has  increased 
almost  exactly  in  proportion  as  this  system  of  rural  credits  has  in- 
creased in  those  countries. 

The  system  has  given  to  the  European  farmers  permanent  im- 
provements on  their  farms — I  spoke  of  that  a  few  moments  ago — as 
compared  with  the  improvements  of  American  farms.  An  American 
farmer  is  surprised  at  the  permanent  character  of  the  improvements 
on  farms  in  Europe;  when  they  construct  a  house  or  a  barn  they  build 
it  for  the  ages  to  come,  and  not  merely  for  the  few  years  to  come.  It 
has  stocked  their  farms  with  a  very  much  better  quality  of  live  stock 
than  the  farmers  have  in  this  country.  No  person  can  go  through 
Europe  without  being  struck  with  the  immense  superiority  of  their 
live  stock  over  ours ;  and  while  you  might  expect  to  see  that  superi- 
ority upon  the  larger  and  better  farms,  you  will  be  surprised  to  find 
to  what  large  extent  the  high  quality  of  live  stock  there  has  ex- 
tended; and  I  was  told  that  this  spread  of  the  best  quality  of  live 
stock  has  been  one  of  the  direct  results  of  and  has  been  almost  in 
proportion  to  the  spread  of  the  system  of  rural  credits. 

The  system  has  led  to  better  business  methods  among  the  farmers 
of  Europe.  I  spent  10  days  out  in  the  country,  away  from  a  rail- 
road, among  the  farmers  of  Germany,  living  in  one  of  their  homes, 
to  which  Mr.  von  Engelken,  of  Florida,  a  native  of  Germany,  and 
who  can,  of  course,  speak  their  language  perfectly  well,  introduced 
me.  You  can  go  into  one  of  those  communities  where  they  have  their 
cooperative  banks  and  where  they  have  their  mutual  life  insurance 
companies  and  will  be  surprised  at  what  you  observe.  I  was  present 
on  the  day,  which  occurs  once  a  year,  when  the  stock  was  to  be 
brought  up  to  be  reappraised;  every  horse  in  that  community  had  to 
be  presented  to  an  officer  of  a  farm  company  to  show  the  exact  condi- 
tion it  was  in.  And  those  farmers  can  tell  you  in  a  moment  the 
exact  condition  of  their  local  bank;  and  all  the  way  through  this 
system  of  banks  had  led  to  better  business  methods  among  farmers  in 
Europe  than  you  will  find  among  farmers  in  America. 

It  has  encouraged  cooperation  in  all  lines  of  rural  business.  You 
will  find  in  the  countries  I  visited  a  very  much  closer  cooperation 
among  the  farmers  in  business  methods  than  you  will  find  among 
farmers  in  the  United  States.  It  has  given  birth,  as  I  have  said,  to 
personal-credit  systems. 

And,  finally,  it  has  broken  up  or  is  breaking  up  the  large  estates 
and  subdividing  them  or  parceling  them  out  into  smaller  farms. 
We  must  remember  that  Europe  inherited  certain  disabilities  from 
its  political  systems,  its  feudal  systems,  and  its  systems  of  entailed 
estates.  It  is  overcoming  these  disabilities  by  having  the  power  to 
break  down  entailed  estates.  It  has  overcome  other  disabilities  by 
breaking  down  the  feudal  systems  there  and,  to  some  extent,  the  mon- 
archial  institutions.  Wherever  you  go  in  Europe  you  will  find  that 
even  the  highest  officers  of  the  Government  are  carefully  studying  the 
question  of  how  to  apply  this  rural  credit  system  and  make  it  reach 
down  to  the  peasant  class.     This  system  is,  more  than  any  other  one 


124  RURAL    CREDITS. 

force  at  the  present  time,  standing  between  the  organized  Govern- 
ments of  Europe  and  the  absolute  control  of  these  Governments  by 
socialism.  If  vou  take  away  this  union  among  farmers  in  Europe, 
their  cooperation  along  business  lines,  socialism  would  sweep  over 
Europe  at  the  wit  first  election.  One  of  the  great  benefits  that 
Government  itself  is  receiving — organized  government  as  against 
socialism:  I  am  not,  of  course,  using  the  word  socialism  as  referring 
to  an  overthrow  of  government;  but  you  will  find  that  the  control 
of  the  Governments  of  Europe  to-day  rests  upon  the  solidarity  of  the 
agricultural  classes  that  have  been  knit  together  by  this  system. 

And,  lastly,  the  system  has  caused  a  permanent  rural  population — 
something  that  we  do  not  have.  By  a  permanent  rural  population 
I  mean  a  people  who  expect  to  live  and  die  upon  the  particular  farm 
which  is  their  home,  and  give  it  to  their  children,  who  in  turn  will 
live  and  die  upon  it. 

Mr.  Weaver.  Right  there,  is  there  any  tendency  in  those  countries, 
as  there  is  in  this  country,  for  the  men  to  get  away  from  the  farms 
and  into  the  cities? 

Mr.  Moss.  Just  the  same  kind  of  growth  of  the  cities  there  as 
here.  There  is  no  question  that  the  tendency  is  there;  it  is  ap- 
parently world-wide.  It  has  been  checked  more  in  France  than  it 
has  been  checked  in  Germany.  But  it  has  been  checked  in  France 
by  certain  laws  more  of  a  social  nature  than  of  on  economic  nature. 
There  are  three  laws  recently  passed  in  France  which  are  said  to  be 
largely  of  a  social  purpose  or  origin.  One  is  the  Government  loan- 
ing money  at  2  per  cent  interest  in  small  amounts  to  any  person  for 
the  purpose  of  buying  a  farm  home.  The  second  is  that  any  person 
living  on  a  farm  until  he  has  reached  the  age  of  65  years  shall  be 
entitled  to  receive  the  same  pension  as  if  he  were  a  Government 
official ;  and  the  third  is  that  if  any  person's  crop  is  lost  by  hail  the 
Government  itself,  without  any  insurance  fee,  meets  the  loss.  Those 
three  laws  were  passed  by  France  in  order  to  check  the  immigration 
into  the  cities. 

Mr.  Weaver.  When  were  they  passed? 

Mr.  Moss.  Just  a  few  years  ago.     How  long  was  it,  Dr.  Coulter? 

Mr.  Coui/teb.  They  have  hardly  gone  into  effect  yet. 

Mr.  Moss.  I  think  the  one  relating  to  hail  has  just  gone  into 
effect. 

Mr.  Coulter.  Yes. 

Mr.  Moss.  The  minister  of  agriculture  said  that,  after  the  Gov- 
ernment of  France  had  pensioned  all  Government  officials  when  they 
reached  the  age  of  65  years,  he  noticed  some  husky  boys  on  farms 
trying  to  get  Government  positions  in  order  to  be  in  line  for  that 
pension.  So  it  suddenly  occurred  to  him  that  it  would  be  a  very 
good  thing  to  give  the  pension  to  the  man  on  the  farm,  so  as  to  take 
that  temptation  away  from  the  farmers.  And  so  they  have  pro- 
vided in  France  that  if  a  man  remains  on  the  farm  until  he  is  Go 
years  old,  he  shall  draw  a  Government  pension  to  the  same  degree 
as  if  he  were  a  Government  oflicial.     [Laughter.] 

Mr.  Seldomridge.  What  has  been  the  effect  on  the  rural  popula- 
tion of  Germany  of  the  military  conscription  program  which  they 
have? 

Mr.  Moss.  Upon  that  question  I  spoke  more  with  the  United 
States  consuls  than  with,  any  other  persons,  and  I  was  surprised  to 


RURAL    CREDITS.  125 

find,  without  exception,  that  the  United  States  consuls  are  in  favor 
of  enforcing  compulsory  service  in  the  Army,  stating,  without  ex- 
ception, that  the  man  who  was  in  the  Army  and  came  back  was  a 
better  citizen.  His  army  life  taught  him  sanitation;  it  taught  him 
self-control;  educated  him  along  broader  lines;  and  that  he  came 
home  a  better  citizen  and  a  better  business  man  than  the  person  who 
did  not  go  into  the  Army. 

Mr.  Seldomridge.  Do  these  men  who  go  into  the  Army  come  back 
to  the  farm  willingly  and  remain  there,  or  do  they  seek  the  cities? 

Mr.  Moss.  They  generally  stay  on  the  farm  in  Germany.  In 
France  it  was  noted  that  when  they  came  back  there  was  more  of  a 
tendency  to  go  to  the  city. 

Mr.  Seldomeeoge.  Let  me  ask  you  another  question.  What  is  the 
condition  of  female  labor  on  the  farms  of  Europe? 

Mr.  Moss.  I  think  that  the  general  employment  of  female  labor 
on  the  farms  in  Europe  is  the  one  great  blot  on  European  agricul- 
ture. The  thing  that  makes  it  impossible  for  an  American  to  go 
there  and  come  away  without  a  feeling  of  utter  disgust  is  the  extent 
to  which  women  work  on  the  farms,  the  long  hours  of  labor,  and  the 
hard  tasks  they  are  given  to  do.  As  a  general  rule,  women  do  vastly 
more  work  on  agriculture  than  the  men. 

Mr.  Seldomridge.  Do  you  think  that  female  labor  has  been  a  con- 
tributing factor  to  the  success  of  German  agriculture? 

Mr.  Moss.  Not  at  all.  It  has  been  a  contributing  factor  to  the 
industrial  supremacy  of  Germany,  because  it  has  set  free  a  great  deal 
of  their  man  labor  on  the  farm  and  transferred  it  to  the  factory. 
You  will  find  in  Germany  men  living  30  miles  from  the  city  where 
they  work,  going  back  and  forth  daily.  They  may  live  80  or  40 
miles  away  from  their  work.  I  saw  men  who  lived  6  miles  from 
the  railroad  station ;  they  rode  to  the  station  on  wheels  and  then 
went  on  the  train  into  the  city,  worked  through  the  day,  and  then 
returned  to  the  farm  at  night.  The  work  on  the  farm  was  clone  by 
the  women,  so  that  where  the  woman  labor  has  displaced  man  labor 
on  the  farm,  that  condition  has  increased  the  industrial  output  of 
Germany,  but  it  has  not  made  their  agriculture  more  effective. 

Mr.  Platt.  Have  you  any  evidence  that  it  does  the  women  any 
harm? 

Mr.  Moss.  Sir? 

Mr.  Platt.  Have  you  any  evidence  that  it  does  the  women  any 
harm? 

Mr.  Moss.  Well,  I  am  not  a  judge  of  women;  I  do  not  care  to 
express  any  opinion  in  regard  to  that. 

Now,  there  are  no  national  difficulties  in  the  way  of  this  bill  here. 
We  have  a  great  Nation,  but  the  difference  between  our  States  and 
between  the  different  sections  of  our  Nation  are  no  greater  than  the 
differences  between  different  nations  in  Europe.  This  sj^stem  is 
really  a  continental  system;  it  is  modified  a  little  here  and  a  little 
there,  but  if  you  adopt  the  State  as  a  unit  I  am  certain  there  are  no 
inherent  difficulties  in  our  way,  because  our  States  do  not  differ  from 
one  another  more  widely  in  agricultural  conditions  than  do  European 
countries. 

And  I  call  your  attention  to  the  fact  that,  in  my  judgment,  this 
legislation  should  be  enacted  without  any  unusual  delay. 


126  BUBAL    CBEDITS. 

Mr.  Woods.  Do  you  know  of  any  European  countries  which  have 
established  this  system  thai  do  not  directly  or  indirectly  grant  con 
siderable  Government  aid? 

Mr.  Moss.  Oh,  yes. 

Mr.  Woods.  Which  ones? 

Mr.  Moss.  There  is  very  little  Government  aid  given  in  Hungary; 
very  little.  In  Austria,  where  they  started  with  two  national  credit 
institutes,  the  Government  contributed  a  certain  amount  of  founda- 
tion capital  and  then  a  certain  other  amount  was  contributed  by 
nobles  in  "  foundation  shares,"  but  all  the  foundation  shares  have 
been  repaid  and  of  the  Government  capital  a  small  amount  has  not 
been  repaid.  Theje  is  no  other  aid  given  in  Hungary  except  merely 
the  small  contribution  toward  the  foundation  capital.  Is  not  that 
true,  Doctor? 

Mr.  Coulter.  Yes,  sir. 

Mr.  Moss.  In  France  the  Government  contributed  $2,000,000  to 
the  Credit  Foncier  at  the  beginning,  in  18G2,  and  there  has  been  no 
further  monetary  assistance  given,  either  directly  or  indirectly,  to 
the  Credit  Foncier  since  1850.  It  has,  however,  certain  privileges, 
which  I  spoke  of  as  giving  to  it  a  monopoly,  that  were  granted  bylaw. 

Mr.  Platt.  How  about  loans  in  France?  Is  there  not  a  consid- 
erable amount  the  Government  loans? 

Mr.  Moss.  There  are  Government  loans  for  special  governmental 
purposes.  I  will  speak  about  that  in  a  moment.  I  am  now  speaking 
about  the  Credit  Foncier.  The  vast  volume  of  real-estate  loans 
are  made  from  private  capital  by  the  Credit  Foncier. 

Mr.  Bulkley.  Does  the  French  Government  deposit  funds  with 
the  Credit  Foncier? 

Mr.  Moss.  No,  sir.  The  deposits  of  the  Credit  Foncier  come 
largely  from  the  system  of  lottery.  They  have  a  drawing  that  takes 
place,  we  will  say,  every  six  months,  or  oftener,  as  the  case  may  be. 
A  ticket  is  really  a  bond.  You  buy  a  ticket,  and  that  is  really  a  bond 
of  the  same  par  value  as  the  price  of  the  ticket,  repayable,  we  will 
say,  in  75  years,  and  it  bears  a  low  rate  of  interest,  payable  semi- 
annually. There  is  no  security  given  except  the  good  will  of  the 
bank.  Now,  then,  when  the  drawings  take  place,  if  your  particular 
ticket  draws  a  prize,  then  you  surrender  your  bond  at  once  and  get 
a  large  cash  payment ;  but  there  are  only  one  or  two  wTho  get  these 
large  cash  prizes  or  bonuses.  If  you  do  not  draw  a  prize  you  would 
have  the  bond,  which  is  a  note  of  the  Credit  Foncier,  payable  in 
about  75  years  and  drawing  interest  every  six  months.  It  has  no 
lottery  feature  except  in  that  way — not  in  the  sense  that  you  put 
something  in  and  get  nothing  back.  You  put  something  in  and  you 
may  get  a  great  deal  back,  and  you  are  sure  of  getting  a  small  rate 
of  interest  and  at  the  end  of  75  years  getting  your  money  back. 
And  the  gambling  instinct  of  the  French  nation  has  been  so  great 
that  it  has  in  fact  enabled  the  Credit  Foncier  to  secure  the  great 
bulk  of  the  savings  of  the  French  nation. 

The  Credit  Foncier  emits  two  distinct  classes  of  obligations  to 
secure  loanable  funds,  neither  one  of  which  is  payable  on  demand. 
The  first  class  of  these  obligations  represents  deposits,  and  under 
the  terms  of  this  bill  would  be  either  demand  or  time  deposits.  The 
French  bank,  however,  sells  lottery  tickets.  Each  ticket  is  a  bond 
or  long-time  note  against  the  bank,  bearing  interest  payable  semi- 


KURAL    CREDITS.  127 

annually.  The  bond  itself  usually  matures  75  years  after  the  date  of 
issue.  The  obligations  have  no  security  except  that  of  the  good 
will  of  the  bank.  In  this  manner  the  French  bank  escapes  carrying 
a  long  line  of  demand  or  short-time  obligations  and  can  loan  its 
deposits  very  freely  on  long-time  amortization  mortgage  loans. 
The  risk,  whatever  it  may  be,  is  carried  by  the  holders  of  the  lottery 
bonds. 

The  second  class  of  obligations  is  land  bonds,  similar  in  every 
feature  to  the  same  class  01  obligations  issued  by  the  banks  under 
the  terms  of  this  bill,  excepting  that  the  French  bank  can  issue  20 
times  its  capital  and  surplus  in  land  bonds,  whereas  under  this  bill 
banks  are  restricted  to  15  times. 

The  investment  of  capital  and  surplus  is  similar  in  both  instances. 
The  capital  must  be  permanently  invested  in  Government  bonds, 
short-time  real-estate  loans,  or  in  promissory  securities,  which  are 
permitted  to  be  rediscounted  by  the  Government  bank. 

It  is  perfectly  obvious  that  the  American  public  would  not  in- 
vest in  such  securities  as  the  low-interest,  long-time,  unsecured  lot- 
tery bonds;  nor  will  the  moral  sense  of  our  people  permit  the  legal 
authorization  of  the  lottery  scheme  to  attract  funds  even  for  as 
laudable  purpose  as  the  reloaning  of  these  funds  for  the  benefit  of 
agricultural  development.  We  have  written  into  this  bill  every 
commendable  feature  of  the  French  bank  which  is  well  adapted 
to  our  environments  and  our  national  ideals. 

Mr.  Woods.  What  does  the  Bank  of  France  do  with  the  franchise 
tax? 

Mr.  Moss.  The  Bank  of  France  has  to  make  a  certain  proportional 
payment  of  its  profits  which  is  based  upon  the  discount  rate.  As  the 
discount  rate  rises,  the  percentage  rises  that  it  pays  over  to  the  min- 
ister of  agriculture  to  be  used  for  the  benefit  of  agriculture,  and  then 
it  is  loaned  to  the  regional  bank  to  be  reloaned  to  the  farmers  in  the 
way  of  personal  credits. 

Mr.  Seldomridge.  Mr.  Moss,  have  you  any  personal  observations 
to  make  upon  the  opportunities  for  investment  in  Germany,  France, 
and  Austria  in  industrial  corporation  shares  or  railroad  stocks,  as 
compared  with  the  opportunities  in  this  country? 

Mr.  Moss.  No. 

Mr.  Seldomridge.  Is  it  not  a  fact  that  the  savings  of  the  peoph* 
or  the  money  free  for  investment  very  largely  has  to  go  in  real 
estate  in  order  to  make  a  return?  Or  is  there  an  opportunity  in  the 
way  of  stock  investments,  such  as  we  have  in  this  country? 

Mr.  Moss.  I  am  quite  sure  your  observation  would  not  be  wholly 
true,  by  the  fact  that  the  German  savings  bank  is  one  of  the  greatest 
institutions  in  all  the  world.  The  fact  that  the  savings  banks  in 
Germany  have  a  deposit  of  over  $4,000,000,000  only  illustrates  one 
way  they  invest  their  savings. 

Mr.  Hayes.  They  do  not  loan  on  real  estate  entirely  or  largely, 
even ;  they  loan  on  bonds  and  stocks. 

Mr.  Moss.  Oh,  yes;  only  20  per  cent  of  these  savings  funds  are 
loaned  on  rural  real  estate. 

Mr.  Seldomridge.  Is  there  such  a  market  over  there  for  stocks  and 
bonds  as  there  is  in  this  country  ? 

Mr.  Moss.  I  could  not  answer  that  question  accurately.  Such 
stocks  and  bonds  are  quoted  in  all  financial  publications. 


128  RURAL    CREDITS. 

Mr.  Plait.  Oh,  yes;  the  German  industrial  enterprises  are  financed 
in  numerous  countries. 

Mr.  Hayes.  I  think  France  beats  all  other  countries.  I  think  there 
are  more  industrials  financed  in  France  than  any  other  country  in 
the  world. 

Mr.  Platt.  I  doubt  that;  I  think  it  is  Germany. 

Mr.  Hayes.  No;  I  think  it  is  France. 

Mr.  Seldomridge.  Are  they  both  colonially  and  locally? 

Mr.  Hayes.  Both  colonially  and  locally.  The  people  in  France 
are  the  greatest  savers  in  the  world  and  invest  their  money  all  over 
the  world. 

Mr.  Moss.  Everywhere  I  went  in  Europe  they  said  France  is  the 
greatest  nation  to  hoard  its  earnings  in  the  world.  Everywhere  the 
credit  was  given  to  the  women  of  France  for  this  result. 

Mr.  Hayes.  I  have  seen  them  working  side  by  side  with  their  hus- 
bands at  all  stages  of  the  proposition. 

Mr.  Seldomridge.  And  they  have  solved  the  problem  of  utilizing 
waste  to  a  considerable  extent. 

Mr.  Moss.  Now,  gentlemen,  I  want  to  speak  of  a  matter  that  was 
touched  on  yesterday,  in  regard  to  the  influences  working  against 
this  legislation. 

Mr.  Hayes.  Before  you  leave  the  subject,  Mr.  Moss,  I  want  to  see 
if  I  am  correct  about  this:  In  Germany,  where  these  credit  associa- 
tions have  reached  the  highest  financial  state  and  where  they  first 
began,  there  is  no  financial  Government  aid  at  all. 

Mr.  Moss.  It  is  true  in  regard  to  land  mortgaging.  The  Raiffeisen 
institutions  for  personal  credit  in  Germany  absolutely  refuse  Govern- 
ment aid  and  work  against  it.  There  are,  however,  a  large  number 
of  the  personal-credit  associations  which  have  been  compelled  by  the 
German  Government  to  be  federated  together  and  to  accept  certain 
Government  aid. 

Mr.  Hayes.  Somebody  spoke  of  the  Landschaften  and  Raiffeisen 
societies.  They  never  have  received  Government  aid  and  do  not 
want  it. 

Mr.  Moss.  That  is  true.  The  land-mortgage  associations  in  Ger- 
many are  absolutely  without  Government  aid.  In  Hungary  they  did 
receive  Government  aid  in  order  to  get  started,  but  nothing  to  ex- 
tend their  operations.  In  France  the  Credit  Foncier  received  Gov- 
ernment aid  to  get  started,  but  nothing  after  organization. 

Xoav,  in  Austria  you  have  the  country  where  the  land-mortgage 
business  is  being  conducted  under  Government  auspices  absolutely. 
It  is  not  under  national  auspices,  but  each  of  the  Provinces  in  Aus- 
tria guarantees  the  bond  and  thus  gives  the  local  association  a  mo- 
nopoly. 

When  Dr.  Coulter  coires  before  you  he  will  speak  to  you  about 
Russia  and  those  countries  I  did  not  visit.  I  think,  however,  in 
Italy— and.  as  I  say.  I  did  not  study  their  mortgage  banks — there 
was  a  foundation  capital  given  to  some  of  the  banks  to  be  loaned  on 
mortgages. 

But.  in  the  case  of  land-mortgage  banks  and  institutions,  in  no 
sense  of  the  word  in  continental"  Europe  has  it  been  generally  de- 
veloped or  is  it  being  generally  sustained  by  Government  aid — abso- 
lutely not. 


SURAL    CEEDITS.  129 

Now,  if  there  are  any  other  questions,  I  am  at  the  service  of  the 
committee.  If  not,  I  am  going  to  speak  of  some  influences  which 
have  come  to  my  mind  working  against  this  legislation. 

First,  I  am  going  to  call  to  your  attention  resolutions  which  have 
been  passed  in  two  States  by  farmers'  congresses  and  call  your  atten- 
tion to  the  important  features  of  such  resolutions. 

Here  is  a  resolution  passed  in  Colorado.  I  will  read  it  complete, 
as  I  desire  to  have  it  in  the  record : 

Whereas  we  recognize  the  great  importance  and  necessity  of  cooperative  effort 

among  our  farmers ;  and 
Whereas  we  recognize  the  vast  difference  in  conditions,  environment,  and  tem- 
perament of  the  European  farmers  (among  whom  cooperation  has  proven  so 

successful)  and  the  American  farmers;  and 
Whereas  we  believe  that  cooperation  can  be  more  generally  employed  by  the 

American  farmers  in  much  of  their  endeavors  to  their  own  advantage  and 

the  advantage  of  the  consumer  as  well :  Therefore  be  it 

Resolved,  That  we  heartily  indorse  all  legitimate  and  conservative  means 
toward  cooperative  effort  in  the  rudimentary  branches  of  their  endeavors,  cau- 
tioning them  at  the  same  time  against  the  risks  that  would  be  involved  in  as- 
suming liability  for  credit  purposes:  Therefore  be  it 

Resolved,  That  the  Colorado  Farmers'  Congress  hereby  heartily  indorses 
the  views  and  recommendations  expressed  in  the  minority  report  of  the  Ameri- 
can commission  and  urges  caution  in  cooperative  credit  undertaken  by  the 
farmers,  which  has  as  its  foundation  the  mutual  liability  feature. 

I  might  call  your  attention  to  the  fact  that  at  the  time  that  reso- 
lution was  adopted  the  report  of  the  United  States  commission  was 
not  public  and,  so  far  as  I  know,  the  minority  report  of  the  Ameri- 
can commission  was  not  public;  it  was  absolutely  not  available. 
There  is  no  question  that  the  farmers  of  Colorado  or  anybody  else 
could  have  known  nothing  about  the  views  of  the  minority  members 
of  the  commission,  and  yet  here  is  a  resolution  bravely  adopted  by  the 
State  indorsing  the  views  of  the  minority  on  a  proposition  that  had 
at  that  time  no  publicity  and  which  is  not  yet  promulgated,  and 
certainly  was  known  probably  only  to  one  man  in  the  State  of  Colo- 
rado at  that  time. 

Mr.  Weaver.  Maybe  there  was  a  leak  through  some  of  the  august 
body. 

Mr.  Moss.  The  gentleman  I  refer  to  is  a  very  competent  banker 
and  a  student  of  this  subject,  but  when  you  come  to  the  question  of 
the  farmers  of  the  State  getting  together  and  adopting  these  reso- 
lutions they  were  following  one  man,  a  banker  of  Denver.  I  do  not 
know  just  what  part  of  this  is  a  rudimentary  proposition,  and  then 
they  have  heartily  indorsed  certain  views  which  certainly  had  no 
publicity  at  that  time  and  which  I  am  told  will  now  have  to  be  very 
radically  changed  before  the  authors  themselves  will  consent  to  its 
publication.  And  I  think  Dr.  Coulter  will  bear  me  out  that  he  has 
received  a  request  to  change  the  minority  report  before  publication. 

The  next  resolution  comes  from  the  State  of  Nebraska.  It  is 
equally  interesting: 

We  note  the  recommendation  of  the  President  of  the  United  States  that 
Congress  speedily  pass  such  legislation  as  shall  provide  an  adequate  system 
of  credit  for  the  farmer,  to  be  coinrnensurate  with  the  resources  and  operate 
for  the  reduction  of  interest  rates  to  a  level  with  those  given  to  other 
enterprises. 

While  this  Congress  commends  the  patriotic  recommendation  of  the  Presi- 
dent, we  believe  that  the  farmers  of  the  country  are  not  yet  sufficiently  in- 
formed on  this  subject  nor  sufficiently  represented  at  Washington  to  bring  to 

37031—14 9 


130  RURAL    CREDITS. 

the  attention  of  Congress  the  information  and  influence  which  is  being  exerted 
by  the  powerful  banking  interests  toward  similar  ends. 

We  believe  tbat  the  subject  of  rural  credits  has  its  proper  foundation  in 
the  local  community  and  that  it  is  a  legitimate  subject  of  State  rather  than 
of  Federal  legislation  until  it  has  been  developed  satisfactorily  in  its  prelimi- 
nary stages. 

We  therefore  express  our  conviction  that  Federal  legislation  upon  this  sub- 
ject at  this  time  is  untimely  and  may  possibly  operate  to  defeat  the  ends  it  is 
designed  to  serve,  and  we  call  upon  our  representatives  in  the  Senate  and 
House  of  Representatives  to  proceed  with  due  caution  and  decline  to  act  upon 
such  measures  as  are  or  may  be  proposed  until  they  shall  have  been  submitted 
to  representative  farmers'  organizations  for  their  approval  or  rejection. 

Mr.  Platt.  It  sounds  like  good  Democratic  doctrine  to  me. 

Mr.  Weaver.  Who  were  the  people  that  passed  that  resolution — 
how  many? 

Mr.  Moss.  This  was  a  State  farmers'  congress  of  the  State  of 
Nebraska. 

Mr.  Weaver.  Of  the  whole  State?  When  was  it  passed  and 
where  ? 

Mr.  Moss.  I  do  not  know  that. 

Mr.  Weaver.  Some  of  these  meetings  will  just  be  simply  of  a  few 
farmers — may  be  5  or  6  or  a  dozen — and  they  pass  resolutions  like 
the  people  of  London  who  said,  "  We,  the  people  of  London,"  when 
there  were  only  three  tailors. 

Mr.  Moss.  Now,  I  have  no  objection  to  the  statement  that  farmers 
should  be  represented  in  Congress.  In  fact,  I  have  tried  to  convince 
the  people  of  my  district  that  it  was  eminently  proper  to  send  a 
farmer  to  Congress. 

Mr.  Weaver.  And  you  succeeded  in  convincing  them? 

Mr.  Moss.  But  I  will  submit  to  the  committee,  if  this  legislation 
be  deferred  until  the  farmers  in  this  country  have  a  majority  of 
Representatives  in  Congress — it  may  be  indefinitely  postponed.  The 
whole  matter  only  shows  that  resolution  was  passed  and  was  framed, 
not  in  the  interest  of  promoting  this  legislation,  but  for  the  purpose 
of  defeating  it. 

Mr.  Platt.  Would  you  say  if  the  Congress  was  largely  composed 
of  farmers  that  the  work  would  be  done  any  better  ? 

Mr.  Moss.  No;  I  have  never  believed,  gentlemen,  in  class  legisla- 
tion or  class  representation.  I  have  never  seen  any  reason,  however, 
why  farmers,  as  a  class,  or  why  a  farmer  who  by  natural  ability  is 
endowed  and  who  has  by  education  fitted  himself  for  the  responsi- 
bility— I  can  see  no  reason  why  he  should  not  be  sent  here  as  a  Repre- 
sentative; and  I  do  not  believe  the  interests  of  that  class  or  of  the 
Nation  would  be  imperiled  by  the  election  of  such  men.  I  would  not 
say  the  interests  of  the  Nation  would  be  promoted  by  the  election  of  a 
large  body  of  farmers,  as  a  class,  but  they  certainly  would  not  be 
imperiled. 

Mr.  Hayes.  Do  you  not  think  all  classes  should  be  represented  ? 

Mr.  Moss.  Surely. 

Mr.  Platt.  Do  you  think  a  body  of  farmers  would  be  likely  to 
pass  any  better  farm-credit  legislation  ? 

Mr.  Moss.  Oh,  no.  I  regret  to  see  that  at  the  present  time  the 
farmers  are  not  organized  and  have  no  effective  methods  of  getting 
together  and  exchanging  views.  They  pursue  their  business  in  isola- 
tion and  along  individual  lines ;  and  a  great  many  farmers  have  not 
sufficient  business  experience  to  pass  on  a  subject  of  this  kind. 


EURAL    CREDITS.  131 

I  regret  it,  but  I  am  going  to  say  that  just  as  surely  as  this  legis- 
lation is  enacted,  just  as  surely  as  any  legislation  is  enacted  which 
makes  it  favorable  for  cooperation,  you  will  thereby  create  an  interest 
by  the  farmer  in  business  of  the  farm.  You  will  find  their  interest 
in  public  affairs  will  grow  and  their  ability  to  discuss  and  compre- 
hend public  questions  will  grow,  and  thev-  will  have  a  profoundly 
larger  power  in  shaping  public  opinion.  After  all,  gentlemen,  it  is 
public  opinion  that  rules  in  this  country.  It  is  not  any  particular 
class  of  citizenship ;  it  is  public  opinion. 

Now,  I  will  call  your  attention  to  a  letter  written  by  a  Member  of 
Congress  upon  this  subject;  and  as  the  chairman  has  expressed  the 
desire  that  there  should  not  be  any  individual  letters  introduced,  I 
shall  cut  out  the  name  and  just  read  the  body  of  the  letter  into  the 
record  as  showing  the  proposition.  It  is  written  under  date  of  Feb- 
ruary 3,  1914,  and  reads : 

Replying  to  your  letter  just  received,  suggesting  a  Nation-wide  movement 
among  farmers  having  mortgages  on  their  farms  to  petition  Congress  for  the 

enactment  of  my  bill   (H.  R.  )   providing  for  direct  loans  to  the  farmers, 

will  say  I  think  it  an  excellent  idea,  and  that  if  you  will  carry  it  out  it  will 
result  in  the  passage  of  my  bill  or  one  similar  to  it. 

Permit  me  to  suggest  that  you  have  a  form  of  petition  printed  on  separate 
slips,  and  also  in  all  agricultural  papers  throughout  the  Union,  reading  something 
like  this : 

"  I ,  a  farm  'owner  of  your  congressional  district,  urge  you  to 

support  H.  R.  ,  creating  a  genuine  rural-credit  system  and  providing  for 

the  loaning  of  Treasury  notes  by  the  Government  direct  to  the  farmers  at  2 
per  cent  interest  on  gilt-edge  real-estate  security." 

Mr.  Platt.  Do  you  think  it  is  necessary  to  leave  the  blank  in  there  ? 

Mr.  Weaver.  Don't  you  think  they  have  the  rate  of  interest  too 
high? 

Mr.  Moss.  Now,  gentlemen,  I  have  spoken  to  your  chairman,  Mr. 
Bulkley,  privately,  and  I  want  to  make  the  statement  publicly  to 
the  committee  that  I,  acting  on  my  own  behalf  and,  I  am  certain, 
for  every  member  of  the  commission,  have  not  any  degree  of  pride  of 
authorship  in  this  measure.  We  have  given  to  this  matter  the  very 
best  conscientious  study  we  can  give  it.  We  recognized  the  fact  that 
so  far  as  this  country  was  concerned  there  was  no  legislative  guide 
upon  the  matter  and  that  we  had  to  pioneer  along  some  lines.  We 
are  interested  in  having  wholesome  legislation  on  this  subject  passed, 
and  wherever  the  committee  can  suggest  any  improvements  in  our 
labor,  or  can  in  any  way  make  it  better  or  secure  additional  informa- 
tion, we  should  be  glad  to  have  you  do  so ;  but  we  would  appreciate, 
because  I  think  the  country  expects  it,  a  prompt  report  on  the  sub- 
ject matter  treated  in  our  report.  As  soon  as  the  committee  may  find 
its  way  clear  to  put  the  matter  in  official  form  before  the  country, 
the  sooner  you  can  present  your  bill  so  that  the  people  will  understand 
it  is  the  bill  that  is  to  take  the  fire  of  criticism,  the  quicker  the  atten- 
tion of  the  country  will  be  focused  on  some  particular  proposition. 

At  the  present  time,  I  am  free  to  say,  this  measure  the  commission 
has  created  has  been  the  one  that  has  had,  of  course,  this  public  dis- 
cussion and  criticism.  If  you  were  to  take  some  of  these  other  bills 
and  give  them  the  same  publicity,  criticism  would  be  directed  against 
them ;  and,  while  I  do  not  certainly  know  it,  my  opinion  is  that  such 
criticism  would  probably  be  fiercer  than  it  has  been  of  this  bill. 

Our  commission  do  not  believe  there  is  anything  in  the  history  of 
the   mortgage   credit,   or   anything   in   the   development   of   it  in 


132  RURAL    CREDITS. 

Europe,  that  has  stood  the  test  of  years  that  justifies  the  convic- 
tion that  Government  aid  is  necessary  or  desirable  in  order  to 
introduce  the  system  successfully  into  the  United  States.  And 
it  is  not  desirable  that  there  shall  be  any  one  institution  that 
shall  have  an  absolute  monopoly  of  real-estate  loans.  Real  estate 
of  itself  is  one  of  the  very  best  securities  in  the  world  and  ought  to  be 
the  foundation  investment  for  the  savings  of  the  Nation,  in  connec- 
tion with  Government  bonds;  and  all  we  can  hope  of  this  matter  is 
to  create  a  credit  system  that  will  standardize  loans  on  real  estate  and 
make  such  securities  attractive  and  secure;  which  will  obviate  a  great 
many  of  the  present  difficulties;  which  will  do  away  with  a  great 
many  of  the  costs  attaching  to  it  now.  Its  inevitable  effect  will  be 
to  standardize  this  business;  it  will  lower  the  rates  in  certain  sections 
of  the  country,  draw  those  sections  gradually  toward  a  common  level, 
developing  their  agricultural  resources  and  enriching  their  farmers; 
and  will  benefit  the  whole  Nation  without  damaging  any  one  busi- 
ness. There  must  be  the  very  closest  connection  between  the  city  and 
country ;  between  that  section  that  has  accumulated  capital  and  that 
section  that  needs  capital;  and  I  think  you  will  find  in  the  world's 
history  that  the  most  successful  mortgage  institutions  are  those  which 
have  been  developed  as  local  institutions,  whose  bonds  are  taken  in 
large  part  by  local  investors.  And  I  could  not  fail  to  be  impressed 
in  Europe  by  the  fact  that  the  savings  of  the  city  flowed  out  to  assist 
in  financing  the  country,  and  thus  it  is  that  there  is  a  strong  com- 
munity interest  between  the  farm  and  the  city.  There  is  no  necessity 
of  creating  any  monopoly  or  favored  institution  whatever  and  jtou 
will  avoid  it  if  you  will  avoid  the  evil  of  direct  national  aid  of  sub- 
sidizing any  one  interest  in  this  country  at  the  expense  of  every  other 
interest. 

I  believe,  unless  there  are  some  questions,  I  have  nothing  further 
to  say  upon  this  subject, 

Mr.  Woods.  Mr.  Chairman,  it  seems  to  me  that  to  bring  those 
resolutions  and  that  class  of  matter  in  in  the  consideration  of  a  bill 
of  this  kind  brings  up  a  rather  serious  proposition.  I  do  not  know 
of  any  reason  why  these  agricultural  societies  or  farmers  or  any 
other  class  of  men  or  any  Congressman  should  not  try  to  work  up  a 
campaign  for  or  against  any  bill.  Of  course,  I  believe  it  is  right  if 
this  bill  or  any  bill  before  this  committee  can  not  stand  any  criticism, 
we  had  better  go  out  of  business. 

Mr.  Bulkley.  It  seems  to  me  there  is  no  doubt  about  that;  but 
it  seems  if  Mr.  Moss  receives  those  things  he  might  also  have  an 
opportunity  to  reply  to  them. 

Mr.  Platt.  That  is  true ;  but  at  the  same  time  there  is  an  impres- 
sion we  are  too  timid  about  being  criticized.  I  take  it  that  is  not  the 
purpose  of  Mr.  Moss  at  all. 

Mr.  Moss.  Air.  Chairman,  if  there  is  any  objection,  I  ask  permis- 
sion to  withdraw  the  resolutions  from  the  record. 

Mr.  Plait.  I  do  not  object.  I  do  not  want  them  withdrawn  from 
the  record. 

(After  informal  discussion.) 

Mr.  Seldomridge.  Mr.  Chairman,  I  think  it  is  well  to  show  in  the 
record  these  criticisms  have  not  been  the  outgrowth  of  great  study  of 
those  measures  pending  or  the  one  Mr.  Moss  presented,  and  really 
do  not  permit  them  giving  proper  consideration  to  the  matter;  that 


RURAL    CREDITS.  133 

they  are  not  the  outgrowth  of  deliberation,  and  are  really  the  pre- 
senting of  outside  suggestions. 

Mr.  Hayes.  And  would  not  carry  conviction  to  anybody. 

Mr.  Woods.  And  not  aimed  at  this  bill  even,  but  are  general  in 
character. 

Mr.  Seldomridge.  I  have  resolutions  similar  to  those  presented  by 
Mr.  Moss,  which  are  directly  aimed  at  this  measure,  presented  by 
this  farm-credit  commission.  They  simply  say  it  is  the  product  of 
the  bankers'  syndicate. 

Mr.  Woods.  Nobody  has  a  right  to  say  that  on  the  evidence  here. 

Mr.  Moss.  In  this  connection,  as  a  final  word,  I  feel  the  commis- 
sion's work  ought  to  be  criticized  in  the  most  severe  sense  it  can  be. 
I  feel,  however,  the  criticism  ought  to  be  directed  to  what  the  com- 
mission recognizes  rather  than  what  it  does  not  recognize,  just  as  I 
believe  your  deliberations  and  report  should  be  criticized.  It  is  not 
a  fair  criticism  against  the  commission's  work  to  say  that  this  bill 
is  a  bankers'  bill.  There  is  not  a  banker  on  the  commission,  so  far 
as  I  know.  And  in  my  own  life  and  my  own  connections  I  have 
not  had  any  connection  whatever  with  any  banks.  But  if  I  were  a 
banker  or  if  there  had  been  a  banker  on  the  commission,  acting  under 
his  high  sense  of  responsibility,  I  am  satisfied  he  would  take  just 
as  patriotic  a  view  as  our  view  of  this  subject  and  aim  to  frame  legis- 
lation which  would  be  workable  along  this  line,  as  much  as  any  other. 
The  harshest  criticism  is  in  suggesting  that  some  selfish  interest  is 
trying  to  gain  control  of  this  class  of  business;  that  public  men  are 
being  led  by  those  influences,  which,  I  am  free  to  say,  are  less  potent 
now  than  probably  at  any  other  time  in  this  generation. 

The  only  manner  in  which  bankers  can  secure  business  under  this 
bill  is  by  loaning  money  at  a  lower  rate  of  interest  than  is  now  ex- 
tended by  the  creditor  class.  That  is  the  purpose  of  .the  bill;  not 
to  prevent  reasonable  profits  on  this  class  of  business,  but  to  encour- 
age the  funding  of  existing  debts  into  lower  rates  of  interest.  In 
even7  such  instance  the  farmer  will  gain  and  not  the  banker.  It  may 
be  that  the  interest  charge  will  be  paid  to  different  money  lenders, 
but  to  the  extent  that  the  total  charge  is  reduced  the  farmer  gains 
and  the  lender  loses,  as  compared  with  existing  conditions. 

I  want  to  thank  the  committee  very  much  for  its  kindness  and  the 
attention  which  it  has  given  me.  I  have  taken  a  longer  time  than  I 
intended,  but  Senator  Hollis  is  responsible  for  that. 

Senator  Hollis.  I  am  very  glad  to  take  the  responsibility. 

Mr.  Moss.  I  will  ask  the  committee  to  give  Dr.  Coulter  an  oppor- 
tunity to  appear  and  discuss  this  matter,  and  I  am  satisfied  you  will 
find  Dr.  Coulter  not  only  extremely  well  informed  on  the  subject 
and  very  entertaining  but  that  his  contribution  will  have  a  very 
high  educational  value.  And  if  the  members  have  not  read  the 
report  that  has  been  written  on  this  by  the  United  States  Commis- 
sion I  Avould  again  ask,  before  you  pass  upon  this  bill,  that  j7ou  give 
this  report  a  careful  reading. 

Mr.  Bulkley.  I  am  sure,  Mr.  Moss,  we  all  feel  very  much  in- 
debted to  you  for  your  instructive  presentation. 


WEDNESDAY,    FEBRUARY    18,    1914. 

House  of  Representatives, 

Washington,  D.  G. 

The  committees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Robert  J.  Bulkley  presiding. 

Present:  Messrs.  Brown,  Stone,  Seldomridge,  Weaver,  Hayes, 
Woods,  and  Piatt. 

Present  also:  Senator  Shafroth,  of  Colorado. 

Mr.  Bulkley.  Senator  Hollis  sent  word  that  he  is  obliged  to  at- 
tend to  some  business,  but  would  be  present  later  in  the  day,  if 
possible,  and  he  asked  me  to  preside  in  his  absence.  Mr.  Moss,  you 
may  proceed  with  your  statement. 

(The  continuation  of  the  statement  of  Mr.  Moss  may  be  found  at 
page  103,  proceedings  of  February  17.) 

Mr.  Bulkley.  Mr.  Fischer,  we  will  now  hear  from  you. 

STATEMENT  OF  GEORGE  W.  FISCHER,  OF  REDFIELD,  S.  DAK., 
SECRETARY  OF  THE  NORTHWEST  LAND  &  HOME  BUILDERS' 
UNION,  A  STOCK  CORPORATION. 

Mr.  Fischer.  I  want  to  say,  Mr.  Chairman  and  gentlemen,  that 
Federal  legislation  on  rural  credits  is  absolutely  the  only  kind  of 
legislation  that  will  be  of  any  benefit  to  the  agriculturists  up  in  our 
country  and  that  the  principle  of  compulsory  amortization  is  the 
key  to  bringing  order  out  of  chaos,  as  the  conditions  existing  in  the 
Northwest  are  such  that  legislation  of  this  kind  is  an  absolute 
necessity. 

It  is  not  so  much  a  proposition  of  low  interest  rates.  What  I  mean 
by  that  is  2  or  3  or  3^  per  cent.  It  is  a  proposition  of  amortization 
of  the  principal.  I  speak  from  the  Northwest  standpoint.  That 
the  amortization  should  be  uniform  is  most  essential,  and  Federal 
legislation  is  the  one  and  only  way  to  do  this. 

Now,  in  relation  to  that,  we  had  in  our  State  a  very  large  perma- 
nent school  fund.  The  law  was  put  into  effect  in  1892.  The  loans 
are  made  on  a  6  per  cent  basis  east  of  the  river.  What  I  mean  to 
say  by  that  is  the  Missouri  River  divides  the  State.  West  of  the 
river  it  is  6^  per  cent.  They  are  made  for  five  years,  and  if  the 
borrower  can  not  pay  that  loan  he  has  to  pay  an  extra  penalty  of 
one-half  per  cent. 

Now,  coming  back  to  the  fact  that  this  was  started  in  1892,  the 
conditions  are  these,  as  I  found  them:  In  our  own  country,  in  our 
own  county,  I  should  say,  GO  per  cent  of  these  loans  have  been  re- 
newed, some  of  them  as  high  as  three  times.  West  of  the  river  and 
in  a  certain  county  there,  Sully  County,  which  lies  close  to  the  river, 
they  run  as  high  as  85  per  cent. 
134 


EURAL   CREDITS.  135 

Mr.  Weaver.  Is  that  the  Missouri  River  ? 

Mr.  Fischer.  That  is  on  the  east  side  of  the  Missouri  River.  The 
west  side  of  the  Missouri  River  is,  of  course,  practically  new.  We 
are  opening  no  reserve  there  except  the  Black  Hill. 

Mr.  Bulkley.  Are  those  interest  rates  fixed  by  statute  ? 

Mr.  Fischer.  Yes,  sir. 

Mr.  Bulkley.  How  do  you  justify  the  discrimination  in  favor  of 
the  land  east  of  the  river  ? 

Mr.  Fischer.  It  is  an  older  country.  They  look  upon  the  valua- 
tion of  the  land  there. 

Mr.  Hayes.  Do  I  understand  those  rates  are  fixed  by  your  legis- 
lature ? 

Mr.  Fischer.  Yes,  sir. 

Mr.  Weaver.  It  is  an  entirely  different  character  of  land? 

Mr.  Hayes.  It  is  no  wonder  they  do  not  have  any  money  out  there. 

Mr.  Fischer.  I  want  to  tell  you  that  is  right,  too. 

Mr.  Platt.  Mr.  Fischer,  you  represent  this  Northwestern  Land  & 
Home  Builders'  Association? 

Mr.  Fischer.  Yes,  sir. 

Mr.  Platt.  And  some  other  associations,  did  you  say  ? 

Mr.  Fischer.  No,  sir;  I  did  not  say  some  other  associations,  but 
I  make  a  great  many  loans  for  insurance  companies. 

Mr.  Platt.  Is  this  Home  Builders'  Union  a  large  affair? 

Mr.  Fischer.  Oh,  no ;  not  yet.  This  was  organized  on  the  8th  day 
of  June,  1911,  and,  unfortunately,  because  of  the  failure  of  crops 
for  the  last  three  years  it  has  not  built  up  very  strong.  But  what 
there  is  of  it  is  patterned  along  the  lines  of  this  bill  you  have  before 
you.  We  are  making  a  successful  fight  and  pay  4  per  cent  semi- 
annual dividends  to  our  stockholders  and  do  it  easily. 

Mr.  Platt.  It  is  an  incorporated  association  ? 

Mr.  Fischer.  Yes,  sir.  I  will  go  further  and  say  that  if  you  will 
pass  this  bill,  or  one  similar  to  it,  and  it  will  be  put  into  law,  you 
will  have  done  more  for  the  masses,  and  especially  so  in  raising  the 
standard  of  agriculture  and  those  connected  with  it,  than  anything 
else.  That  the  "  back  to  the  land  "  movement  will  then  be  a  reality 
goes  without  saying;  whereas  at  the  present  time  it  is  a  farce. 

Now,  the  question  came  up  here  about  the  farmers  leaving  the 
land.  It  is  not  alone  the  farmer  that  leaves  the  land.  He  can't 
keep  the  boys  and  girls  there. 

Mr.  Seldomridge.  Can  he  get  labor  ? 

Mr.  Fischer.  We  get  labor  when  the  proper  time  comes  for  harvest- 
ing. The  railroads  bring  in  an  immense  crowd  of  people.  They  just 
start  in  Texas,  you  know,  with  the  harvesting  of  the  crops  and  they 
keep  coming  north  until  they  get  into  Canada.  You  understand  we 
are  always  10  days  behind  as  you  go  farther  north.  They  put  in  10 
days  in  the  South,  and  then  they  come  through  Kansas,  and  then 
they  hit  Nebraska  and  then  they  hit  our  country,  North  Dakota, 
which  is  10  days  later,  and  then  they  strike  the  Canadian  country. 

Mr.  Seldomridge.  Are  there  any  statistics  available  as  to  how  large 
that  army  is  ? 

Mr.  Fischer.  That  army  is  a  vast  army,  if  you  would  see  it. 

Mr.  Weaver.  Do  you  want  some  of  them  in  Colorado? 


136  RURAL    CREDITS. 

Mr.  Seldomridge.  No;  I  was  just  wondering  when  they  are  done 
harvesting  the  crops  out  in  that  country  if  they  drift  into  the  cities 
and  constitute  the  population  to  be  fed  and  to  be  taken  care  of  which 
makes  the  so-called  "bread  line." 

Mr.  Hayes.  A  good  many  of  them  take  their  vacations  that  way 
in  the  summer  time. 

Mr.  Fischer.  I  want  to  say  this  that  on  the  return  the  cities  get 
them.  They  do  not  save  their  money.  About  25  per  cent  of  the  men 
who  come  in  there  will  save  their  money,  not  any  more.  The  balance 
of  them  are  hunting  up  saloons  or  gambling  houses,  or  the  red-light 
districts  just  as  fast  as  they  get  their  monej^;  and  when  they  get 
through,  why  Minneapolis,  St.  Paul,  Chicago,  and  Omaha  get  the 
bulk  of  them.  The  Chicago,  Milwaukee  &  St.  Paul  Railroad  takes 
them  up  by  the  thousands  on  their  freight  trains,  free  of  charge,  just 
so  the  farmers  can  get  the  help. 

Mr.  Platt.  Ought  not  the  railroads  to  be  prevented  from  giving 
free  transportation  in  this  way? 

Mr.  Fischer.  They  can  not  be.  There  are  so  many  of  them,  and  it 
has  caused  so  much  trouble  that  they  finally  concluded  the  easiest 
way  out  of  it  would  be  to  let  them  get  into  the  box  cars  and  go. 

Now,  my  experience  in  forming  this  organization  I  got  from  the 
principle  of  amortization,  and  the  first  time  I  put  it  into  practice 
was  on  a  S7.000  loan  on  a  half  section  of  land.  The  man  who  pur- 
chased that  half  section  of  land  did  not  have  funds  sufficient.  He 
wanted  it,  and  he  was  a  good  man,  of  good  character,  and  a  farmer 
well  equipped,  and  it  was  good  land.  Unless  I  could  make  a  10-year 
loan  with  amortization  of  the  principal,  $700  each  j^ear.  he  would  not 
do  it.  I  sat  down  and  figured  that  thing  out  and  finally  got  him  to 
purchase.  I  got  the  money  from  the  insurance  company.  After  the 
first  payment  was  made  they  decided  that  that  was  a  better  plan  than 
what  they  were  working  under,  and  we  get  the  money  right  along 
in  that  way  now,  outside  of  what  we  do  not  have  ourselves. 

Mr.  Woods.  What  was  the  actual  cash  value  of  that  farm  when 
you  made  the  loan,  Mr.  Fischer? 

Mr.  Fischer.  $55  an  acre.    He  had  the  balance  in  cash. 

Mr.  Weaver.  How  much  did  they  loan  on  it  ? 

Mr.  Fischer.  How  is  that? 

Mr.  Weaver.  How  much  did  they  loan  on  it  ? 

Mr.  Fischer.  We  do  not  figure  that  way.  We  just  take  it  as  a 
whole. 

Mr.  Weaver.  One  hundred  and  sixty  acres  ? 

Mr.  Fischer.  Three  hundred  and  twenty  acres  in  this  instance. 

Mr.  Hayes.  It  was  a  little  less  than  $25  an  acre  ? 

Mr.  Fischer.  Yes;  a  little  less  than  $25  an  acre,  but  we  do  make 
loans  as  high  as  $25  an  acre  on  the  same  basis. 

Now,  your  proposition  in  this  bill  of  a  special  reserve  for  interest 
rates,  for  the  interest,  is  very  appropriate,  especially  up  in  our  coun- 
try where  failures  of  crops  are  more  in  evidence  than  good,  big,  large 
crops,  making  it  impossible  for  a  man  to  pay  his  interest  in  those 
years.  That  is,  they  manage  to  get  it  but  it  crowds  them.  They 
must  deny  themselves  of  a  lot  of  comforts  around  the  house  in  order 
to  do  it. 


BUBAL    CBEDITS.  137 

Now,  the  question  of  personal  credit,  we  think — that  is,  our  directors 
there — will  adjust  itself  to  these  conditions  if  once  put  into  effect. 
You  won't  have  any  trouble.  The  way  we  do  that — here  is  a  man 
who  has  a  $2,500  loan;  when  he  comes  around  in  the  spring  and  in 
the  fall  and  needs  a  little  money  we  loan  him  up  to  10  per  cent  of  the 
amount  of  his  loan  that  we  have  on  the  land  and  give  him  three 
months'  time  to  pay  it  in.  If  he  is  not  able  to  pay  it  at  that  time — 
the  whole  thing — he  pays  20  per  cent,  and  we  extend  another  three 
months,  and  so  on;  just  making  it  the  whole  year  as  it  is  now.  It 
gives  him  the  opportunity  to  pay  it ;  and  they  do  pay  it  if  you  give 
it  to  them  in  the  right  way. 

Mr.  Woods.  How  about  the  renter?  What  rates  does  he  pay — ■ 
the  man  who  does  not  own  any  land  ? 

Mr.  Fischer.  Oh,  my !  That  poor  fellow  gets  skinned  from  one 
end  to  the  other.  The  same  way  with  the  homesteader.  Sixty  per 
cent  of  the  homesteaders  lose  their  land,  whereas  99  per  cent  of  them 
come  there  with  good  intentions  to  make  it  their  future  homes.  The 
little  banker  follows  right  in  the  wake  just  as  soon  as  the  lands  are 
open.  He  does  not  loan  any  more  than  enough  to  prove  up  the  land 
when  the  proper  time  comes,  and  if  they  have  got  any  personal  prop- 
erty he  will  keep  feeding  them  $25  or  $50  until  he  gets  that ;  and  then 
the  fellow  walks  out,  or  rides  out  if  he  has  got  anything  to  ride  out 
in.  That  is  the  condition  there.  Our  lowest  interest  rate  we  get 
now  east  of  the  river  is  6  per  cent,  and  that  is  due  to  the  life  insurance 
companies  beginning  to  put  in  their  money  there.  They  are  the  real 
factors  that  brought  down  the  interest  rates  on  the  east  side  of  the 
river,  but  they  give  the  fellow  on  the  west  of  the  river  no  chance. 
They  do  not  go  over  there. 

Now,  to  show  this  committee  I  brought  along  some  of  the  tables. 
Now,  the  1  per  cent  on  all  unpaid  balances — we  do  that  differently. 
The  expense  feature  there  is  figured  at  $5  a  year.  You  see,  here  is 
a  20-year  $1,000  loan  [exhibiting  paper]  ;  here  is  the  principle  amor- 
tized; here  is  the  interest;  here  is  the  expense;  and  here  is  the  first 
payment;  and  here  is  the  last  payment  [indicating]. 

Mr.  Hayes.  What  do  you  figure  for  expense  ? 

Mr.  Fischer.  Five  dollars  a  j^ear. 

Mr.  Hates.  That  is  a  half  of  1  per  cent  ? 

Mr.  Fischer.  Half  of  1  per  cent ;  yes. 

Mr.  Platt.  What  did  you  say  the  rate  was  west  of  the  Missouri 
River? 

Mr.  Fischer.  It  is  as  high  as  20  per  cent. 

Mr.  Platt.  You  said  something  about  your  school  fund  being 
loaned  ? 

Mr.  Fischer.  The  school  funds — if  our  State  legislature  would 
have  enacted  legislation  along  the  lines  you  people  are  proposing 
now  for  the  whole  United  States,  why  our  west  of  the  river  people 
would  be  in  far  better  shape  than  they  are  now ;  they  could  stay  on 
their  homesteads.  But,  as  it  is,  they  have  to  get  off,  and  then  the 
other  fellow  comes. 


138 


RURAL    CEEDITS. 


(The  table  of  payments  above  referred  to  by  Mr.  Fischer  is  as 
follows:) 

[$1,000  loan  for  20  years  at  6  per  cent] 


First  year 

Second  year 

Third  year 

Fourtli  year 

Fifth  year 

Sixth  year 

Seventh  year 

Eighth  y'ear 

Ninth  year 

Tenth  year 

Eleventh  year 

Twelfth  year 

Thirteenth  year.. 
Fourteenth  year . 
Fifteenth  year. .. 
Sixteenth  year . . . 
Seventeenth  year 
Eighteenth  year.. 
Nineteenth  year. . 
Twentieth  year . . 


Principal. 


$50 
50 
50 
50 
50 
50 
50 

.50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 


1,000 


Interest. 


$60 
57 
54 
51 
48 
45 
42 
39 
36 
33 
30 
27 
24 
21 
18 
15 
12 
9 


640 


Expense. 


Total. 


$115 
112 
109 
106 
103 
100 
97 
94 
91 
88 
85 
82 
79 
76 
73 
70 
67 
64 
61 
58 


100 


1,740 


Principal,  $1,000;  interest,  $640;  expenses,  $100;  total,  $1,740. 


Mr.  Fischer.  Now,  here  is  a  15-year  loan.     There  is  a  7  per  cent 
rate  [exhibiting  slip]. 

(The  paper  referred  to  is  as  follows:) 


1,000  loan  for  15  years  at  7  per  cent.] 


Principal. 

Interest. 

Expenses. 

Total. 

$66. 67 
66.67 
66. 67 
66.67 
66.67 
66.67 
66.67 
66.67 
06.67 
66.67 
66.67 
66.67 
66.67 
66.67 
66.62 

$70.00 
65.34 
60.66 
55.99 
51. 32 
46. 65 
41.98 
37.31 
32.64 
27.97 
23. 30 
IS.  63 
13.96 
9.29 
4.63 

$5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 

$141.67 

137. 01 

132. 33 

127. 66 

122. 99 

IIS.  32 

113.65 

108.98 

104. 31 

99.64 

94.97 

90.30 

85.63 

SO  96 

76.25 

• 

1,000.00 

559. 66 

75.00 

1, 634. 66 

Principal,  $1,000;  interest,  $559.66;  expenses,  $75;  total,  $1,634.66. 

Mr.  Hayes.  In  these  figures  that  you  give  here,  the  initial  pay- 
ment is  much  larger? 

Mr.  Fischer.  The  initial  payment  is  higher. 

Mr.  Hayes.  You  do  not  divide  it  equally? 

Mr.  Fischer.  No,  sir.  You  see,  the  idea  was  to  give  that  man  a 
chance — to  make  it  easier  for  him  every  year. 

Senator  Hollis.  Is  it  done  for  that  purpose,  Mr.  Fischer,  or  was  it 
done  so  that  your  first  payment  would  make  the  loan  safe,  so  you 
could  loan  more  money? 

Mr.  Fischer.  The  idea  was  this  was  to  give  that  fellow  a  chance 
on  personal  credits,  too.  We  do  not  loan  over  60  per  cent  of  the  valu- 
ation of  the  land  and  40  per  cent  of  the  buildings,  combining  the  two; 


RURAL    CREDITS. 


139 


and  just  as  fast  as  he  makes  a  principal  payment  you  are  in  just  as 
good  shape  to  lend  him  on  his  personal  credit,  as  you  have  everything 
he  has,  anyhow. 

Senator  Hollis.  And  do  you  do  that  sometimes — loan  him  on  his 
personal  credit? 

Mr.  Fischer.  We  are  doing  that  right  along. 

The  only  salvation  that  country  is  ever  going  to  have  is  diversified 
conditions  of  farming,  and  they  are  doing  that  in  the  past  five  years. 

Now,  here  is  our  10-year  table  [exhibiting  slip]. 

(The  slip  referred  to  is  as  follows:) 


Our  rural-credit  plan. 

[Loan  of  $1,000  for  10  years.] 

[Loan  of  $1,000  for  10  years.] 


Principal. 

Interest. 

Expenses. 

$100 

$80 

$5 

100 

72 

5 

100 

64 

5 

100 

56 

5 

100 

48 

5 

100 

40 

5 

100 

32 

5 

100 

24 

5 

100 

16 

5 

100 

8 

5 

1,000 

440 

50 

Total. 


First  year... 
Second  year. 
Third  year... 
Fourth  year.. 

Fifth  year 

Sixth  "year . . . 
Seventh  year 
Eighth  year. . 
Ninth  year. . 
Tenth  year. . . 


$185 
177 
169 
161 
153 
145 
137 
129 
121 
113 


1,490 


Principal,  $1,000;  interest,  $440;  expenses,  $50;  total,  $1,490. 

Average  rate  of  interest,  $44  per  year,  or  4.4  per  cent,  or  4.9  per  cent  counting  in  the  expense  money— less 
than  5  per  cent. 

Senator  Hollis  asked  me  the  other  day  how  we  got  our  money. 
We  sell  three  savings  contracts,  built  on  the  expectancy  table  of 
life-insurance  companies,  the  same  tables  that  all  life-insurance  com- 
panies now  use.  Our  contract  called  "  class  B  "  we  sell  at  $6.25  a 
month  for  10  years.  It  matures  for  $1,000  at  that  time.  We  take 
75  cents  out  of  that  for  expenses. 

Senator  Hollis.  That  is,  Mr.  Fischer,  as  I  understand  it,  you 
have  adopted  the  endowment  feature  of  insurance,  cutting  out  the 
death  part? 

Mr.  Fischer.  That  is  it  exactly. 

Senator  Hollis.  That  is  a  pure  endowment  plan  without  any 
modifications  ? 

Mr.  Fischer.  No  modifications  except  in  so  far  as  if  the  owner  of 
that  contract  dies  they  get  what  has  been  paid  into  that  loaning  fund 
plus  6  per  cent  for  the  average  time. 

Senator  Hollis.  I  am  glad  you  mentioned  that,  because  I  did  not 
get  that  the  other  day. 

Mr.  Hayes.  You  charge  a  higher  interest  on  the  10-year  plan 
than  you  do  under  the  20-year  plan? 

Mr.  Fischer.  Yes.  I  am  just  showing  you  the  rates  of  interest. 
On  the  10-year  loan  we  make  a  higher  rate  of  interest. 

Mr.  Hayes.  That  makes  it  harder  for  the  10-year  man  ? 

Mr.  Fischer.  That  is  the  only  way  it  will  help  them.  We  had  to 
educate  our  people  to  this  proposition.  They  did  not  grasp  it,  but 
now  as  it  is  going  they  prefer  the  20-year  loan,  which  is  also  lower 
than  the  10. 


140  RURAL    CREDITS. 

I  also  have  a  table  we  expect  to  use  on  a  40-year  plan,  applying 
your  1  per  cent  of  this  bill  on  all  unpaid  balances.  You  see  that 
shows  the  payments  to  be  made  on  a  40-year  plan.    [Exhibiting  slip.] 

(The  paper  referred  to  is  as  follows:) 

Loan  of  $1,000.  and  the  payments  to  be  made  each  year  by  the  borrower: 

First  year $75.  00 

Second  year 73.  75 

Third   year 72.50 

Fourth  year 71.  25 

Fifth  year 70.  O0 

Sixth  year G8.  75 

Seventh  year 67.  50 

Eighth  year 66.  25 

Ninth   year 65.  00 

Tenth  year 63.  75 

Eleventh  year 62.  50 

Twelfth  year 61.  25 

Thirteenth  year 60.  00 

Fourteenth  year 58.  75 

Fifteenth  year 57.  50 

Sixteenth  year 56.  25 

Seventeenth  year 55.  00 

Eighteenth  year 53.  75 

Nineteenth  year 52.  50 

Twentieth  year 1 51.  25 

Twenty-first  year 50.  00 

Twenty-secGnd   year 48.  75 

Twenty-third   year 47.  50 

Twenty-fourth  year 46.  25 

Twenty-fifth  year 45.  00 

Twenty-sixth   year 43.  75 

Twenty-seventh  year 42.  50 

Twenty-eighth  year 41.  25 

Twenty-ninth  year 40.  00 

Thirtieth  year 38.  75 

Thirty-first  year 37.  50 

Thirty-second  year 36.  25 

Thirty-third  year 35.  00 

Thirty-fourth  year 33.  75 

Thirty-fifth  year 32.  50 

Thirty-sixth  year 31.  25 

Thirty-seventh  year 30.  00 

Thirty-eighth  year 28.  75 

Thirty-ninth  year 27.  50 

And  the  40th  year,  the  last  year  of  payment,  the  amount  is  $20.25.  and  the 
loan  is  completely  wiped  out. 

Senator  Hollis.  Now,  explain  just  what  that  1  per  cent  is  you 
refer  to.  generally,  Mr.  Fisher. 

Mr.  Fischer.  That  is  for  the  expense,  the  administration  expense. 

Senator  Hollis.  And  is  it  your  experience  that  that  1  per  cent  is 
sufficient  \ 

Mr.  Fischer.  Yes,  sir;  it  is  a  plenty. 

Senator  Hollis.  Therefore  the  1  per  cent  in  the  bill  before  the 
committee  you  think  is  enough? 

Mr.  Fischer.  It  is  correct.  Yon  will  be  able  to  reduce  this  in 
years  to  come.  Competition  will  do  that,  just  as  Congressman  Moss 
has  said  here. 

Mr.  Seldomridge.  Your  interest  amounts,  in  10  years,  to  almost 
the  rate  of  1\  per  cent  a  year? 


EURAL    CREDITS.  141 

Mr.  Fischer.  With  the  amortization  feature  on  the  40-year  plan  it 
is  just  74  per  cent.  On  the  20-year  plan  here  it  calls  for  a  trifle  more. 
The  people  do  not  object  so  much  to  the  interest  rates  if  they  can  get 
the  amortization  of  the  principal  and  can  reduce  their  payments  each 
year.     That  is  the  feature. 

Mr.  Seldomridge.  If  they  were  borrowing  money  without  that 
plan,  what  would  they  have  to  pay? 

Mr.  Fischer.  They  would  have  to  pay  a  straight  6  and  10,  and  for 
periods  of  three  to  five  years.  While  the  fellow  prospers  it  is  all 
right,  but  just  about  the  year  he  has  got  to  pay  that  principal  along 
comes  a  failure  of  crops,  and  there  he  is ;  and  if  they  have  him,  they 
want  the  money.  Now,  he  has  got  to  get  down  and  beg,  and  the 
result  is  he  pays  an  extra  commission. 

Mr.  Seldomridge.  He  saves  all  those  extra  charges  under  your 
plan  ? 

Mr.  Fischer.  He  saves  extra  commissions  with  us,  and  he  saves 
all  of  those  extra  charges. 

Senator  Hollis.  Mr.  Fischer,  if  this  bill  goes  through,  or  a  bill 
similar  to  it,  is  it  your  intention  to  organize  a  bank? 

Mr.  Fischer.  It  is  our  intention,  just  as  soon  as  ever  it  does,  and 
our  desire — just  as  soon  as  ever  this  bill  is  passed  and  put  into  effect 
we  want  to  be  the  first  bank  of  that  kind  in  the  country. 

Senator  Hollis.  You  think  you  and  your  friends  will  probably 
organize  more  than  one? 

Mr.  Fischer.  I  do  not  know  as  to  that.  They  are  mostly  insurance 
men  that  are  connected  up  with  this.  It  took  a  long  while  for  us  to 
get  them  to  catch  the  idea. 

Senator  Hollis.  Have  you  familiarized  yourself  with  the  commis- 
sion bill  sufficiently  to  offer  any  criticisms  on  it? 

Mr.  Fischer.  I  can  not  find  any  criticism.  The  only  criticism  I 
can  find  is  that  the  homesteader  is  not  taken  into  this  bill,  the  very 
fellow  that  needs  it  the  most.  Now,  here  is  a  young  man  or  a  young 
woman  going  out  here  on  the  plains.  You  gentlemen  have  probably 
watched  this  thing,  but  not  as  much  as  we  do  out  there,  or  I  have. 
Here  comes  an  army  of  people  into  Aberdeen  when  they  opened  up 
Standing  Bock  Reservation — thousands  of  them,  from  the  age  of  21 
clean  up  to  80,  you  will  find  people — and  they  want  that  home,  and 
they  expect  to  make  it  their  home.  But  there  is  no  way  of  those 
people  keeping  that  if  they  have  not  $2,500  to  carry  them  through 
for  the  14  months.  That  is  the  idea.  Now,  our  idea  was  that  there 
might  be  a  feature  put  into  this  bill.  Here  is  a  man  going  out  there, 
or  a  woman,  and  they  break  10  acres  of  land.  Mind  you,  the  Govern- 
ment owns  this  land.  The  homesteader  does  not  own  it  until  he  has 
proved  it  up.  Now,  he  breaks  10  acres,  as  required.  That  costs  him 
$50.  He  ought  to  have  a  credit  somewhere  for  $25,  so  that  he  could 
proceed  again.  It  would  be  an  encouragement  to  go  farther;  and,  as 
he  improves  this  farm,  let  him  have  a  50  per  cent  credit  from  those 
banks  or  some  other  source. 

Now,  we  do  not  believe  in  direct  loans;  I  mean  the  loaning  of 
money  direct  by  the  Government  to  the  farmer.  That  is  absolutely 
no  good  at  all.  It  would  kill  your  farming  industry,  in  my  individual 
opinion. 

Mr.  Hayes.  And  the  country,  too? 


142  RURAL    CREDITS. 

Mr.  Fischer.  Yes. 

Mr.  Platt.  Do  you  think  it  is  wise,  Mr.  Fischer,  to  start  a  man  out 
on  a  farm  who  has  not  got  a  cent  saved  up  ? 

Mr.  Fischeb.  Oh,  well,  now,  he  has  got  to  have  the  $16  to  make  his 
filing,  you  understand,  or  the  $14.  They  usually  have  anywhere  from 
$100  up.  About  15  per  cent  of  the  people  have  sufficient  to  carry 
thorn  through,  but  the  balance  have  not,  and  then  they  have  got  to 
borrow.  When  the  14  months  are  up,  70  per  cent  must  borrow  the 
money  to  prove  up. 

Mr.  Platt.  Are  they  all  farmers? 

Mr.  Fischer.  They  are  just  like  the  fellows  that  struck  our  country 
when  I  came  there  27  years  ago.  Like  myself,  they  did  not  know  a 
darn  thing  about  farming. 

Mr.  Platt.  That  is  the  reason  why  they  fail  ? 

Mr.  Fischer.  No  ;  that  is  not  the  reason  why  they  fail.  That  would 
be  no  reason  why  our  fellows  failed.  A  good  many  of  them  are 
there  yet. 

Mr.  Platt.  Do  you  think  the  average  man  who  does  not  know  a 
"  darn  "  thing  about  farming  can  go  on  a  farm  and  make  a  success 
of  it? 

Mr.  Fischer.  I  saw  a  good  many  up  there  in  my  country  do  it. 
Now,  I  did  not  go ;  and  I  will  tell  you  the  reason  why  I  did  not  go. 
I  was  not  tall  enough  to  harness  a  horse.  That  is  the  only  reason  I 
did  not  go  on  one  of  those  homesteads,  and  at  that  time  when  they 
could  take  three  claims.  And  after  I  sat  down  and  figured  it  out  I 
was  not  a  bit  sorry  I  did  not  go  there. 

Senator  Hollis.  I  was  going  to  ask,  Mr.  Fischer,  if  you  thought 
it  was  practicable  for  us  to  take  care  of  the  homesteader  in  a  bill  of 
this  kind,  knowing  as  we  do  that  the  homesteader  does  not  own  the 
land? 

Mr.  Fischer.  Yes;  with  the  Government  owning  the  land  I  think 
it  is  very  practicable ;  and  you  can  make  it  so,  too. 

Senator  Hollis.  Will  you  work  out  something  along  that  line 
and  send  it  to  us  within  a  week  or  two,  so  we  can  look  it  over  ? 

Mr.  Fischer.  I  will  not  promise  within  a  week  or  two,  because  I 
do  not  expect  to  get  back  within  that  time. 

Mr.  Weaver.  We  want  it  as  soon  as  we  can  get  it,  because,  while 
we  want  to  hold  full  hearings,  it  is  our  desire  to  get  to  work  on  a 
bill  as  soon  as  possible. 

Mr.  Seldomridge.  Let  me  say  in  that  connection,  I  represent  a 
constituency  that  is  very  vitally  interested  in  this  matter  of  taking 
care  of  the  homesteader,  and  we  have  been  face  to  face  with  problems 
in  my  section  that  are  just  as  equally  acute  and  require  as  much 
thought  and  consideration  as  those  presented  by  Mr.  Fischer;  and  I 
will  welcome  any  suggestion  that  he  or  anyone  else  could  offer 
whereby  the  interests  of  those  people  can  be  lawfully  conserved  in 
this  legislation. 

Mr.  Fischer.  My  reason  for  saying  that  the  thing  is  practicable 
is  this :  When  you  open  up  a  new  country  to-day,  you  appraise  the 
land.  You  put  a  fixed  price  on  that.  Do  they  do  that  in  your 
country  ? 

Mr.  Seldomridge.  I  beg  your  pardon  ? 


RURAL    CREDITS.  143 

Mr.  Fischer.  The  Government  appraises  the  land  before  the  man 
can  file  his  homestead  entry  to-day,  you  see,  under  existing  laws. 
J)o  they  do  that  in  your  country? 

Mr.  Seldomridge.  I  do  not  think  that  is  done  in  Colorado. 

Mr.  Hayes.  If  they  open  up  a  reservation,  I  think  it  is. 

Mr.  Seldomridge.  There  is  no  reservation  in  our  State. 

Mr.  Weaver.  Not  any  Indian  reservations  at  all  ? 

Mr.  Seldomridge.  No. 

Mr.  Fischer.  When  you  do  that  you  put  a  fixed  value  on  the  land. 
Now,  that  man  as  a  matter  of  fact  ought  to  have  a  personal  credit 
of  the  amount  of  that  price  per  acre  that  the  Government  puts  on  it. 
That  is  the  way  we  look  on  it. 

Mr.  Platt.  Why  should  not  the  Government  sell  the  lands  out- 
right and  abolish  the  whole  homestead  business.  Is  not  that  the 
best  way? 

Mr.  Seldomridge.  I  am  in  favor  of  that  myself. 

Mr.  Fischer.  The  hunger  for  land  for  the  homesteaders  is  greater 
to-day  than  it  ever  was,  in  my  estimation. 

Mr.  Platt.  That  is  for  purely  speculative  purposes? 

Mr.  Fischer.  No. 

Mr.  Platt.  They  simply  take  up  the  lands  to  sell  again  at  a  higher 
price  and  go  on  to  others? 

Mr.  Fischer.  The  speculator  is  the  man  that  loans  them  75  per 
cent. 

Mr.  Platt.  He  would  not  take  those  risks  if  he  did  not  expect  to 
speculate  on  the  value  of  the  land? 

Mr.  Fischer.  The  speculator  comes  in  after  the  banker  crowd. 
After  they  get  about  60  per  cent,  and  they  are  all  united  on  the 
proposition,  then  they  can  boost  the  land  and  can  sell  it  for  $20  or  $25 
an  acre. 

Mr.  Seldomridge.  And  then  some  blackmailer  comes  along  and 
contests  the  filing  and  it  takes  six  or  eight  months  to  get  a  decision, 
or  even  longer. 

Mr.  Platt.  The  Government  would  get  more  money  and  the  people 
would  be  better  satisfied  if  you  stopped  the  whole  business. 

Mr.  Brown.  And  sell  direct? 

Mr.  Seldomridge.  On  long  time  ? 

Mr.  Hayes.  Sell  on  long  time ;  that  would  be  all  right. 

Mr.  Weaver.  They  sold  agricultural  lands  in  Texas  on  40  years' 
time. 

Mr.  Fischer.  I  know  you  do,  and  so  they  do  in  Minnesota — sell 
their  agricultural  lands  on  40  years'  time — and  I  guess  there  are 
three  States  in  the  Union  which  do  that. 

Now,  Wisconsin  has  established  a  long-time  farm-loan  credit  sys- 
tem. I  have  here  the  text  of  the  bill,  and  I  notice  in  Marionette. 
Wis.,  they  have  organized  the  first  association  of  its  kind.  When  t 
leave  here  and  go  West  again  I  was  going  to  stop  there.  But  the 
States  won't  adopt  this  thing.  Wisconsin  might  and  Oklahoma 
might,  in  my  estimation ;  but  if  you  take  the  rest  of  them  the  bank- 
ers control  your  legislation,  and  anything  that  tends  to  lowering  the 
rate  of  interest  they  do  not  want. 

Mr.  Hayes.  I  am  afraid  they  do  not  in  some  States,  brother. 

Mr.  Fischer.  I  do  not  say  that,  except  in  our  Western  States. 


144  RURAL    CREDITS. 

Mr.  Hayes.  They  do  not  in  California. 

Mr.  Fischer.  Don't  they? 

Mr.  Hayes.  No,  sir. 

Mr.  Fischer.  Well,  they  do  with  us. 

Mr.  Weaver.  The  railroads,  I  am  told,  have  control  of  what  rates 
are  charged  in  California. 

Mr.  Hayes.  They  have  not  had  for  some  years.  If  there  is  any 
State  in  the  Union  that  is  free  from  domination  by  railroads  or  other 
corporations,  I  think  it  is  California  to-day. 

Mr.  Weaver.  I  would  not  make  any  reflection  on  a  State  without 
having  actual  knowledge. 

Mr.  Fischer.  We  are  free  from  railroad  domination. 

Mr.  Hayes.  I  was  one  of  the  pioneers  in  that  fight  in  1898. 

Mr.  Fischer.  The  bankers,  or  the  banking  fraternity,  as  we  call 
them,  and  the  lawyers — they  do.  Now,  that  is  no  reflection  on  you 
gentlemen;  but,  nevertheless,  it  is  a  fact  that  there  are  three  classes 
in  our  State  that  have  practically  beat  the  good  legislation.  This 
banking  fraternity  and  the  legal  fraternity,  they  put  in  themselves. 
They  have  put  in  one  officer  after  the  other  one.  Right  in  our 
county  there  are  15,  and  through  manipulation  in  the  legislature 
there  are  five  of  those  fellows — and  we  cast  a  vote  of  3,500  in  that 
county — that  hold  five  of  the  public  offices. 

Mr.  Bulkley.  Mr.  Fischer,  would  it  be  convenient  for  you  to 
come  back  to-morrow  morning? 

Mr.  Fischer.  Yes;  I  am  at  the  convenience  of  the  committee. 

Mr.  Bulkley.  Then  we  will  adjourn  at  this  time  until  10.30  o'clock 
to-morrow  morning,  to  meet  in  this  room. 

(Thereupon,  at  1.10  o'clock  p.  m..  the  committee  adjourned  until 
to-morrow,  Thursday,  February  19,  1914,  at  10.30  o'clock  a.  m.) 

(The  following  additional  statement  of  Mr.  Fischer  was  made  at 
the  session  of  the  committee  on  February  19,  1914,  but  is  placed  at 
this  point  to  preserve  the  continuity  of  his  argument:) 

STATEMENT  OF  GEORGE  W.  FISCHER,  OF  REDFIELD,  S.  DAK.— 

Continued. 

Mr.  Fischer.  I  want  to  submit  the  figures  of  the  Spectator's  com- 
pound-interest table,  showing  the  amount  of  money  that  must  be 
invested  annually  at  compound  interest  to  amount  to  $1,000  in  a 
definite  number  of  years.  On  the  reverse  side  of  the  sheet  are  our 
plans  for  making  loans,  giving  the  party  the  choice  on  city  property 
of  anywhere  from  10  years  to  30  years  in  which  to  repay. 

Mr.  Bulkley.  Do  you  want  to  put  those  tables  in  the  record.  Mr. 
Fischer  ? 

Mr.  Fischer.  I  do  not  care  particularly  about  that.  I  just  wanted 
the  members  of  the  committee  to  see  how  that  plan  worked. 

Mr.  Brown.  I  think  it  would  be  a  good  thing  to  have  that  incor- 
porated in  the  record,  Mr.  Chairman. 

Mr.  Fischer.  This  shows  how  the  plans  worked  out. 

Mr.  Brown.  It  shows  how  much  a  year  a  man  has  to  pay  under 
the  plan. 

Mr.  Bulkley.  The  tables  will  be  inserted  in  the  record  at  this 
point. 


RURAL    CREDITS. 

(The  tables  referred  to  are  as  follows:) 

COMPOUND    INTEREST    TABLE. 


145 


The  following  table  shows  the  amount  of  money  that  must  be  invested  annu- 
ally, at  compound  interest,  to  amount  to  $1,000  in  a  definite  number  of  years : 


Length  of  time  invested. 


10  years 
15  years 
20  years 
25  years. 
30  years. 
35  years. 


At  4 

At4§ 

At  5 

At  6 

At  7 

At  8 

per  cent. 

per  cent. 

per  cent. 

per  cent. 

per  cent. 

per  cent. 

$80.  09 

$77. 88 

$75. 72 

$71.57 

$67.64 

$63. 92 

48.02 

46.04 

44.14 

40.53 

37.19 

34.10 

32.29 

30.50 

28.80 

2.5. 65 

22.80 

20.23 

23.09 

21.47 

19.96 

17.20 

14.78 

12.67 

17.14 

15.69 

14.34 

11.93 

9.89 

9.17 

12.06 

11.74 

10.55 

8.47 

6.47 

6.76 

Amount 
to— 


$1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 


A  $1,000  loan  costs  you,  on  the  10-year  plan,  $162  per  annum,  or  $13.50  per 
month ;  on  the  15-year  plan,  $132  per  annum,  or  $11  per  month ;  on  the  20-year 
plan,  $120  per  annum,  or  $10  per  month ;  on  the  25-year  plan,  $108  per  annum, 
or  $9  per  month ;  on  the  30-year  plan,  $102  per  annum,  or  $8.50  per  month. 

Loans  made  on  farms,  payment  is  made  annually. 

Loans  made  on  city  property,  payment  is  made  monthly. 

Privilege  is  given  to  pay  any  indebtedness  at  any  time  after  the  tenth  year, 
subject  to  six  months'  notice. 

No  commissions  charged  on  loans  of  $1,000  and  over. 

Mr.  Fischer.  I  would  like  to  say,  Mr.  Chairman,  that  the  farm 
papers  and  the  cooperative  magazines  have  done  a  great  deal  to  edu- 
cate people  along  those  lines.  We  have  also  now  the  farm  experts; 
they  are  doing  a  lot  of  good;  each  county  has  its  own  expert.  But 
the  great  bulk  of  the  people  are  so  deeply  in  debt,  and  at  such  high 
interest  rates,  that  their  minds  are  not  in  a  condition  to  receive  the 
teachings  of  these  people.  Consequently,  intensive  farming  is  not 
being  done  and  can  not  be  done  until  you  pass  a  measure  of  this  kind 
to  relieve  the  situation. 

Senator  Hollis.  What  do  you  mean,  that  the  farmers  have  not  the 
means  to  do  it  with,  or  that  they  are  so  loaded  down  with  debt  that 
they  are  discouraged? 

Mr.  Fischex.  Their  minds  are  burdened  with  this  debt  so  that  they 
can  not  give  the  attention  to  it,  and  instead  of  imbibing  the  teachings 
of  these  men  their  minds  are  absorbed  in  what  they  have  got  to  pay. 

Mr.  Bulkley.  Is  that  because  of  a  fear  that  they  will  be  fore- 
closed and  put  out  of  their  farms? 

Mr.  Fischer.  Yes,  sir.  Now,  that  is  the  condition  that  confronts 
us,  with  a  large  percentage  of  the  people.  I  do  net  want  the  com- 
mittee to  understand,  of  course,  that  we  are  all  poor  out  there. 
There  are  some  men  that  have  made  a  grand  success  of  it,  and  as  was 
said  here  yesterday,  the  homesteader  who  went  out  on  those  lands 
and  went  into  that  country  about  the  time  that  I  did,  while  he  did 
not  know  anything  about  farming,  is  the  successful  man  there  to-day, 
the  man  who  held  out.  If  there  are  any  questions  the  committee  de- 
sire to  ask,  I  will  be  glad  to  answer  them. 

Senator  Hollis.  As  I  understand  it,  Mr.  Fischer,  you  make  these 
attractive  loans  to  the  farmers  who  have  this  security,  and  whom 
you  consider  honest  and  enterprising,  and  then  you  sell  the  loans  to 
the  insurance  companies? 

Mr.  Fischer.  Yes,  sir ;  that  is  the  way  we  do. 


37031—14- 


-10 


146  RURAL    CREDITS. 

Senator  Hollis.  So  that  your  system  corresponds  very  closely 
with  what  we  want  to  do? 

Mr.  Fischer.  Yes. 

Senator  Hollis.  That  is,  we  want  to  establish  a  bank  that  will 
make  attractive  loans  to  farmers  on  favorable  terms,  and  then  will 
make  those  loans  the  basis  of  bonds  to  be  sold  to  investors — and  the 
investors  are  the  insurance  companies  in  your  case.  And  you  have 
actually  tried  it  and  found  that  it  works  well  on  a  small  scale  with 
you;  so  that  you  think  if  you  could  incorporate  a  bank  under  the 
terms  of  a  bill  like  the  one  now  under  consideration,  you  could  do  a 
larger  business  and  have  a  better  standing,  because  you  would  have 
the  national  banking  laws  behind  you;  is  that  j^our  position? 

Mr.  Fischer.  That  is  my  position  exactly.  It  brings  the  relief 
under  this  bill  that  our  people  need. 

Mr.  Bulkley.  Do  you  feel  satisfied  with  this  Fletcher-Moss  bill? 

Mr.  Fischer.  I  certainly  do,  so  far  as  I  am  personally  concerned; 
and  the  gentlemen  who  are  connected  with  me  do  also.  You  can  not 
effect  everything.  Of  course,  as  I  said  yesterday,  we  would  like  to 
see  the  homesteader  taken  in.  but  I  can  not  conceive  of  anyway  by 
which  you  can  do  it. 

Mr.  Bulkley.  I  wish  you  would  tell  us  about  the  operation  of 
that  school  fund  which  is  loaned  directly  to  the  farmers  in  your 
State. 

Mr.  Fischer.  We  have  the  best  opportunity  there  in  that  State 
to  do  what  you  are  trying  to  do  in  a  national  way ;  they  could  have 
done  it  in  a  State  way,  but  they  did  not  do  it.  Just  as  I  said  yester- 
day, the  moment  the  matter  of  interest  rate  comes  up,  or  a  reduction 
of  interest  rates,  the  banking  committee  sees  that  that  thing  is 
pigeonholed  and  does  not  come  out  of  the  committee. 

Mr.  Bulkley.  They  lend  State  funds  at  6  or  6^  per  cent,  and 
that  is  lower  than  the  market  rate,  is  it  not? 

Mr.  Fischer.  Well,  that  helps  to  keep  the  interest  rate  down. 
But  land  is  going  up ;  it  is  higher  priced ;  the  mortgage  indebtedness 
grows  larger,  and  consequently  there  is  not  enough  to  go  around; 
and  these  fellows  that  had  it — as  I  said,  in  my  county  60  per  cent 
of  those  that  started  to  borrow  and  have  borrowed  since  1892 — have 
to  renew.  Fifty  miles  west  of  us,  in  Sully  County,  it  is  up  to  85 
per  cent. 

Senator  Hollis.  And  what  percentage  of  the  mortgages  are  fore- 
closed ? 

Mr.  Fischer.  As  far  as  the  percentage  of  foreclosures  is  concerned, 
I  have  not  the  figures  with  me,  but  I  can  tell  you  in  this  way :  Last 
fall  the  Rapid  City  Guide,  which  is  one  of  our  Black  Hill  papers — 
that  is  right  on  the  edge  of  the  big  reservation — I  picked  that  up 
in  a  hotel,  and  there  were  26  foreclosures  in  that  issue  of  that  paper. 

Senator  Hollis.  You  mean  there  were  that  number  of  foreclosures 
advertised,  do  you  not? 

Mr.  Fischer.  Yes,  sir:  advertised;  and  none  of  them  were  for 
over  $250,  and  the  majority  of  them  were  for  about  $100. 

Mr.  Bulkley.  Are  those  school-fund  loans? 

Mr.  Fischer.  No:  that  was  where  the  banks  were  following  up 
these  homesteads.  They  get  these  lands  for  practically  nothing  in 
that  way. 


RURAL    CREDITS.  147 

Senator  Hollis.  That  is,  they  loan  a  small  amount  of  money  on 
the  farm  and  foreclose  the  mortgage,  and  the  man's  equity  is  wiped 
out  and  the  redemption  lapses,  and  then  they  own  the  land? 

Mr.  Fischer.  Yes;  and  then  they  own  the  land. 

Senator  Hollis.  And  they  get  it  very  cheaply.  And  that  is  part 
of  their  policy,  as  you  understand,  to  give  these  small  loans  and 
make  a  foreclosure,  and  in  that  way  steal  the  lands;  is  that  correct? 

Mr.  Fischer.  Conditions  show  that  that  is  true.  They  practically 
do  steal  the  land.  If  there  is  a  way  to  help  that  homesteader  as  this 
Government  helps  the  Indian  on  that  same  reservation  it  should  be 
done. 

Mr.  Bulkley.  Is  there  any  favoritism  in  passing  on  applications 
for  loans  from  the  school  fund? 

Mr.  Fischer.  Oh,  well,  you  can  not  say  that.  It  is  done  by  the 
various  counties,  the  various  county  commissioners.  I  would  not 
accuse  anyone,  so  far  as  favoritism  is  concerned ;  I  would  not  think 
of  that. 

Mr.  Bulkley.  Have  there  been  any  complaints  along  that  line? 

Mr.  Fischer.  The  complaints  are  along  the  line  that  there  is  not 
enough  money. 

Mr.  Platt.  That  is  a  pretty  universal  complaint,  is  it  not  ? 

Mr.  Fischer.  Yes.  You  see,  the  rate  east  of  the  Missouri  River  is 
6  per  cent ;  the  length  of  time  is  5  years.  If  you  do  not  pay  it — and 
you  pay  this  interest  in  advance — but  if  you  can  not  pay  that  loan, 
one-half  of  1  per  cent  penalty  is  added  by  the  State  itself,  on  its  own 
taxpayers,  who,  not  through  any  fault  of  their  own,  have  lost  out  and 
could  not  pay  on  account  of  climatic  conditions  or  sickness 

Mr.  Brown.  Or  failure  of  crops  ? 

Mr.  Fischer.  Yes;  failure  of  crops.  West  of  the  Missouri  River 
they  charge  6|  per  cent,  and  the  farmer  is  in  a  still  worse  condition 
than  the  one  east  of  the  river;  and  if  he  is  prevented  by  climatic  con- 
ditions or  by  sickness  from  paying  when  due,  he  is  screwed  up  another 
one-half  of  1  per  cent  penalty. 

Mr.  Platt.  Does  the  State  ever  foreclose  those  mortgages? 

Mr.  Fischer.  They  have  not  yet ;  but  the  time  is  coming  when  they 
will.  They  do  not  dare  to  do  so  now,  as  that  would  raise  an  awful 
howl. 

Mr.  Platt.  Are  the  mortgagors  behind  on  their  interest  ? 

Mr.  Fischer.  They  are. 

Mr.  Platt.  That  is  an  example  of  Government  loans  direct. 

Senator  Hollis.  I  suppose  your  crop  failures  result  from  drought, 
do  they  not? 

Mr.  Fischer.  Yes;  generally. 

Senator  Hollis.  And  you  have  had  two  or  three  bad  years  ? 

Mr.  Fischer.  Yes;  they  just  happened  to  have  two  or  three  bad 
years. 

Senator  Hollis.  Yes. 

Mr.  Fischer.  But  instead  of  adding  a  penalty,  they  might  havs 
done  it  in  some  other  way. 

Mr.  Platt.  By  foreclosure,  for  instance  ? 

Mr.  Fischer.  No  ;  what  I  mean  to  say  by  that  is,  not  by  foreclosure, 
but  they  ought  to  give  these  people  a  better  layout  and  not  add  thaJ. 
penalty.  It  is  hard  enough  not  to  be  able  to  pay  the  interest ;  but 
when  you  add  on  top  of  that  the  penalty,  that  makes  it  worse. 


148  RURAL    CREDITS. 

Mr.  Platt.  Are  not  some  of  the  people  who  borrow  this  State 
money  men  who  have  had  no  experience  in  farming? 

Mr.  Fischer.  No.  I  will  tell  you  there  are  very  few  of  them  who 
get  the  State  money  who  have  had  no  experience  in  farming;  the 
State  looks  out  for  that.  They  have  some  very  strong  applications, 
just  the  same  as  we  have.  Now,  for  instance,  a  man  makes  an  appli- 
cation with  us ;  he  has  to  tell  the  State  what  that  money  is  going  to  be 
used  for,  and  he  has  got  to  swear  to  it  before  a  notary  public. 

Senator  Hollis.  Now,  what  do  you  think  of  that  feature?  Do  you 
think  that  is  a  useful  or  a  harmful  feature? 

Mr.  Fischer.  Do  you  mean  where  they  must  state  the  purpose  in 
the  application? 

Senator  Hollis.  Yes;  making  the  applicant  state  what  he  wants 
the  money  for  ? 

Mr.  Fischer.  I  think  that  is  the  very  thing  that  ought  to  be  done. 

Mr.  Platt.  Do  they  always  use  the  money  for  the  purposes  stated? 

Mr.  Fischer.  They  certainly  come  pretty  near  doing  so.  Ninety- 
nine  per  cent  of  them  do,  because  they  could  not  come  back  and  get 
any  more  money  if  they  did  not. 

Mr.  Bulkley.  Mr.  Fischer,  in  the  light  of  your  experience  in 
South  Dakota  of  loans  of  school  funds  by  the  State  direct  to  the 
farmer,  what  are  your  objections  to  direct  Government  loans? 

Mr.  Fischer.  Well,  I  certainly  object.  I  can  not  express  it  any 
better.     I  know  that  it  is  a  failure. 

Mr.  Bulkley.  "Well,  in  what  respect  is  it  a  failure  ? 

Mr.  Fischer.  For  instance,  there  are  many  people  who  can  not 
be  supplied;  there  is  not  enough  of  the  money  to  supply  them  all; 
of  course,  it  is   growing  all  the  time,  getting  larger. 

Mr.  Bulkley.  That  is  not  a  very  fundamental  objection;  if  the 
United  States  Government  went  into  the  business,  you  would  not 
doubt  that  it  would  have  enough  money  for  them  all,  would  you? 

Mr.  Fischer.  I  do  not  doubt  that;  but  I  would  much  prefer  to  do 
it  through  private  means  with  Government  supervision.  Our  State, 
of  course,  could  not  do  that.  As  you  have  this  bill  drawn,  in  my 
estimation,  and  as  far  as  our  State  is  concerned,  it  will  fill  the  re- 
quirements. 

Mr.  Bulkley.  I  understand;  but  we  have  a  number  of  Members  of 
Congress  who  are  urging  direct  Government  loans,  and  I  would  like 
to  hear  what  specific  objections  there  are  to  that. 

Mr.  Fischer.  I  had  not  any  specific  objections,  only  I  know  that 
this  is  a  better  proposition  to  do  it  this  way  than  in  that  wa}r. 

Mr.  Bulkley.  Well,  is  there  not  something  in  your  South  Dakota 
experience  that  would  throw  more  light  on  that,  and  show  us  just 
why  the  direct-loan  plan  is  a  failure '. 

Mr.  Fischer.  Well,  we  have  not  had  experience  enough  in  that, 
so  far  as  I  am  concerned,  for  me  to  give  any  idea  upon  it.  Now, 
I  do  not  want  to  say  that  it  is  a  failure ;  I  do  not  want  to  be  misunder- 
stood; I  say  it  has  been  a  vast  help,  the  same  as  it  has  been  a  help 
for  the  life  insurance  companies'  money  to  come  in  there  in  the 
past  six  or  seven  years.     It  has  helped  the  people. 

Mr.  Platt.  Does  the  State,  in  lending  its  money,  always  give  as 
much  attention  to  the  matter  of  security  as  the  life  insurance  com- 
panies do,  for  instance? 


RURAL   CREDITS.  149 

Mr.  Fischer.  They  certainly  do. 

Mr.  Platt.  The  State  loans  are  all  good,  are  they  ? 

Mr.  Fischer.  I  should  certainly  call  95  per  cent  of  them  as  good 
as  any  life  incurance  company's.  There  are  restrictions  placed  around 
the  loan  to  such  an  extent  that  there  is  no  loss  there,  or  if  there  was 
any,  it  would  be  a  minimum. 

Mr.  Platt.  The  State  is  losing  interest  on  a  lot  of  them,  is  it  not? 

Mr.  Fischer.  I  would  not  say  it  was  losing  interest  on  them ;  they 
have  simply  got  to  carry  these  men. 

Mr.  Platt.  But  they  are  losing  the  interest  now  ? 

Mr.  Fischer.  They  are  losing  the  interest  now,  but  eventually  the 
man  will  have  to  pay  it  or  deed  his  land  over  to  the  State. 

Senator  Hollis.  Mr.  Fischer,  there  are  a  great  many  applications 
for  the  State  loans,  are  there  not? 

Mr.  Fischer.  Yes,  sir. 

Senator  Hollis.  Therefore  the  State  is  enabled  to  select  only  the 
very  best  ones,  and  therefore  there  would  be  no  excuse  for  it  not  to 
have  good  security,  would  there? 

Mr.  Fischer.  There  is  no  excuse  whatever  for  that. 

Senator  Hollis.  But  if  it  were  thrown  open,  so  that  if  they  had 
to  go  down  through  the  list  and  consider  what  loans  were  really 
sound,  the  class  might  not  be  as  high  as  it  is  with  a  limited  amount  to 
loan ;  is  that  not  true  ? 

Mr.  Fischer.  Why,  you  might  look  at  it  in  that  way,  too,  and  it 
would  be  the  right  way  to  look  at  it. 

Senator  Hollis.  Yes. 

Mr.  Fischer.  But  you  take  the  life  insurance  companies,  and  they 
find  no  trouble. 

Mr.  Platt.  There  is  no  favoritism  in  making  the  State  loans,  is 
there? 

Mr.  Fischer.  No,  sir ;  I  have  never  seen  any. 

Mr.  Platt.  And  no  politics  ? 

Mr.  Fischer.  Well,  politics  might  cut  some  figure  once  in  a  while. 

Mr.  Woods.  Does  the  State  loan  on  lands  west  of  the  Missouri 
River? 

Mr.  Fischer.  Yes ;  it  loans  on  lands  west  of  the  river  in  this  way, 
that  if  you  buy  those  State  school  lands,  they  allow  you  to  buy  them 
in  a  way  that  leaves  a  certain  amount  due  on  them,  under  a  mortgage 
or  deed  of  trust.  They  charge  you  6^  per  cent  interest,  and  in  case 
of  failure  to  pay  that  interest  they  add  an  additional  penalty  of  one- 
half  of  1  per  cent. 

Mr.  Platt.  Is  not  that  6|  per  cent  lower  than  anybody  else  would 
loan  at  on  the  same  land 

Mr.  Fischer.  I  will  admit  that.  But  in  order  to  build  up  the 
country,  they  ought  to  have  a  better  rate  of  interest.  The  insurance 
companies  do  not  go  west  of  the  river  up  to  the  present  time,  at 
least  not  to  my  knowledge.  They  all  stay  east  of  the  Missouri 
River. 

Mr.  Woods.  Would  you  consider  that  the  State  loans  assist  in 
keeping  down  the  rates  of  interest? 

Mr.  Fischer.  They  have  assisted  in  doing  that.  T  certainly  must 
admit  that. 

Mr.  Woods.  Yes. 


150  EURAL    CREDITS. 

Mr.  Platt.  Has  the  value  of  the  lands  west  of  the  Missouri  River 
increased,  generally  speaking? 

Mr.  Fischer.  No.  You  see  the  failure  of  crops  the  three  last  years 
there  was  very  unfortunate,  and  there  is  no  increase  of  value.  In 
fact,  where  four  years  ago  we  paid  as  high  as  $4,000  for  a  quarter 
section  of  land,  after  it  was  proved  up  you  could  buy  that  same  land 
for  $500  to  $800. 

Mr.  Platt.  Then  you  would  not  say  that  it  was  always  a  safe 
proposition  to  lend  50  per  cent  of  the  value  of  the  land,  would  you? 

Mr.  Fischer.  Well,  it  is  not  in  the  beginning,  but  when  these 
mortgage  companies  get  hold  of  this  land  and  go  to  the  little  news- 
papers in  the  countiy  and  boost  it  up,  there  is  no  danger  of  that  land 
ever  coining  down  unless  there  is  a  continuous  failure  of  crops  for 
more  years  than  three. 

Mr.  Platt.  Lands  have  sold  in  South  Dakota  for  less  than  the 
value  of  the  mortgages,  have  they  not? 

Mr.  Fischer.  They  have  sold  for  less  than  it  cost  to  prove  them 
up  under  the  land  laws.     [Laughter.] 

Mr.  Bulkley.  Mr.  Fischer,  have  you  concluded  all  that  you  want 
to  say? 

Mr.  Fischer.  Yes;  I  did  not  want  to  occupy  any  more  of  the 
time  of  the  committee. 

Mr.  Bulkley.  Well,  we  thank  you  very  much  for  your  state- 
ment; it  has  been  very  interesting  indeed. 

Mr.  Fischer.  Well,  I  want  to  thank  you  gentlemen  for  giving  one 
of  the  humblest  citizens  of  the  United  States  a  chance  to  tell  what 
he  does  know. 

Senator  Hollis.  We  feel  very  much  obliged  to  you,  Mr.  Fischer. 


THURSDAY,  FEBRUARY  19,  1914. 

House  of  Representatives, 

Washington,  D.  C. 
The  committees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Robert  J.  Bulkier,  presiding. 

Present:  Senator  Hollis  and  Representatives  Brown,  Stone,  Sel- 
domridge,  Weaver,  Ragsdale,  Hayes,  Woods,  and  Piatt. 

Mr.  Bulkley.  Mr.  Fischer,  you  may  continue  your  statement. 
(The  continuation  of  the  statement  of  Mr.  Fischer  may  be  found 
at  page  144,  proceedings  of  February  18.) 

STATEMENT  OF  JOHN  LEE  COULTER,  SECRETARY  OF  THE 
UNITED  STATES  COMMISSION  TO  INVESTIGATE  AND 
STUDY  RURAL  CREDITS. 

Senator  Hollis.  Give  your  full  name  and  position  and  so  on, 
please,  so  that  it  may  go  into  the  record. 

Mr.  Coulter.  My  name  is  John  Lee  Coulter.  My  present  posi- 
tion is  in  the  Department  of  Commerce,  although  my  principal  in- 
terest is  that  of  farming  in  Minnesota. 

Senator  Hollis.  How  long  have  you  been  in  the  Department  of 
Commerce  ? 

Mr.  Coulter.  I  have  been  employed  there  off  and  on  since  1909, 
but  not  continuously  employed. 

Senator  Hollis.  In  what  line  of  work  ? 

Mr.  Coulter.  For  about  three  years  I  have  had  charge  of  the 
agricultural  statistics  in  the  Census  Bureau,  the  compiling  of  the 
1910  census  of  agriculture. 

Senator  Hollis.  In  how  much  land  are  you  interested  in  Min- 
nesota ? 

Mr.  Coulter.  Well,  I  am  directly  and  indirectly  interested  in 
considerably  over  1,000  acres  there,  and  through  my  wife,  in  some 
land  in  Texas,  also  some  in  Oklahoma,  and  personally,  to  a  small 
extent,  in  some  land  in  Florida. 

Senator  Hollis.  Do  you  personally  direct  the  farming  operations  ? 

Mr.  Coulter.  No;  I  do  it  by  correspondence  largely.  Although 
I  visit  the  farm 

Senator  Hollis  (interposing) .  You  have  done  it  personally,  how- 
ever, have  you  not  ? 

Mr.  Coulter.  Oh,  yes;  until  1910  I  scarcely  ever  spent  a  summer 
away  from  the  farm;  and  I  have  directed  the  farm  labor  with  from 
50  to  75  hired  laborers  on  it.  I  have  also  done  the  work  from  5 
o'clock  in  the  morning  until  8  or  10  o'clock  at  night  as  a  regular 
thing. 

Senator  Hollis.  Dr.  Coulter,  you  were  a  member  of  the  United 
States  commission  that  went  to  Europe  last  year,  were  you  not? 

151 


152  RURAL    CREDITS. 

Mr.  Coulter.  Yes,  sir. 

Senator  Hollis.  And  you  actually  went  to  Europe,  did  you  not? 

Mr.  Coulter.  Yes,  sir. 

Senator  Hollis.  And  were  with  the  commission  throughout  the 
trip? 

Mr.  Coulter.  Yes;  that  is  to  say,  we  divided  up,  more  or  less.  I 
was  not  personally  with  the  large  body  of  the  American  commission 
very  much,  and  I  do  not  think  I  was  with  other  members  of  the 
United  States  commission  more  than  half  the  time  at  most,  because 
I  had  previously  made  a  study  for  several  years  of  conditions  in 
Italy,  Germany,  and  France,  particularly,  and  I  wanted  to  study  at 
first  hand,  after  merely  seeing  the  illustrations  in  those  countries, 
the  Russian  policy,  and  that  of  some  of  the  other  countries;  and  I  did 
that  principally  because  of  the  talk  in  this  country  of  Government 
loans.  I  knew  that  Russia  was  the  leading  country  of  the  world  in 
that  respect,  and  I  wanted  to  find  out  why  and  something  about 
how  it  worked,  and  some  of  the  conditions  existing  there. 

I  also  knew  that  Holland,  for  instance,  was  one  of  the  countries 
where  the  Landschaften  system,  the  purely  mutual  societies,  seemed 
not  to  have  gotten  a  stronghold.  I  knew  that  there  were  in  that 
little  country  50  or  75  joint-stock  mortgage  companies  that  did  busi- 
ness with  farmers,  and  I  wanted  to  see  how  it  was  working  out;  and 
so  in  Belgium  and  Denmark,  and  some  of  the  other  countries. 

But  I  did  spend  some  time  with  Mr.  Moss  and  the  others  in  Italy 
and  France,  Germany,  Austria,  and  Hungary. 

Senator  Hollis.  You  may  now  proceed  with  your  statement,  Dr. 
Coulter,  in  your  own  way. 

Mr.  Coulter.  Before  taking  up  that  matter,  I  might  say  a  word, 
if  the  members  of  the  committee  would  like  to  get  details,  with  refer- 
ence to  State  loans  on  farm  lands.  I  think  I  could  very  easily  get 
together  some  material  on  that  subject. 

About  six  years  ago  I  made  a  careful  study  of  that  problem  in 
several  States,  and  have  the  manuscript  which  I  wrote  up  for  people 
interested  at  that  time,  giving  the  detailed  experiences  of  some  of  the 
States — the  States  that  do  the  most  of  it. 

Minnesota  does  an  immense  amount  of  that  sort  of  thing,  with  its 
school  funds.  North  Dakota,  since  statehood,  has  loaned  millions 
and  millions  of  dollars  to  the  farmers  on  farm  land,  and  some  other 
States  have  done  the  same  thing.  I  see  Mr.  Norton  here  from  North 
Dakota;  he  knows  all  about  the  details  in  that  State;  and  he  is  a 
Member  of  the  House  of  Representatives.  But  I  have  all  of  those 
details,  if  the  members  of  the  committee  wish  to  have  them  at  any 
time. 

Senator  Hollis.  Will  you  not  give  us  your  conclusions  on  the 
subject? 

Air.  Coulter.  Well,  I  think  that  so  far  as  States  have  trust  funds, 
such  as  school  funds,  or  university  funds,  or  capitol  funds,  or  other 
such  moneys,  it  is  a  very  good  use  to  make  of  such  funds  to  invest 
them  in  mortgages.  I  think  it  is  very  much  better  than  for  the 
States  to  continue  holding  the  land  and  trying  to  rent  it  out.  I  per- 
sonally inspected  a  good  many  pieces  of  land  in  connection  with  this 
point.  For  instance,  in  North  Dakota  a  few  years  back  a  great  many 
lands  were  leased  out  by  the  State;  the  State  wanted  to  hold  the  land 
until  it  could  get  a  higher  price  for  it ;  and  they  were  getting  a  fairly 


EUEAL    CREDITS.  153 

good  income  in  the  meantime  by  renting  the  land.  I  remember  inter- 
viewing farmers  all  around  these  patches  of  land,  and  the  farmers 
were  disgusted  with  the  system,  because  it  was  entirely  a  renting 
proposition.  The  people  operating  those  rented  lands  did  not  try  to 
keep  down  the  foul  weeds,  like  the  mustard  and  wild  oats.  And 
farmers  around  there  occupying  their  own  lands  had  to  do  everything 
in  the  way  of  keeping  the  roadside  clear,  and  in  spite  of  what  they 
did,  the  weeds  went  across  the  road.  A  quarter  section  of  this  rented 
land  had  to  be  thrashed,  and  the  machine,  after  it  left  there,  carried 
in  the  separator  all  sorts  of  foul  weeds;  and  the  wagons  driving 
across  picked  up  the  weeds  and  scattered  them;  and  farmers  gen- 
erally were  disgusted  with  the  whole  idea  of  the  renting  system. 

Senator  Hollis.  That  is,  unless  a  man  actually  owns  the  land,  or 
expects  to  do  so 

Mr.  Coulter  (interposing).  He  is  not  interested. 

Senator  Hollis.  He  will  skin  the  land  and  will  not  keep  it  in  shape  ? 

Mr.  Coulter.  He  will  not  keep  it  in  shape,  and  he  will  not  do  nis 
road  work  around  it  or  he  will  do  it  in  a  slovenly  manner.  He  will 
not  take  care  of  the  fences  and  the  buildings  unless  he  knows  that  he 
is  personally  interested — or  unless  as  they  do  in  some  European  coun- 
tries, the  tenant  is  compensated  when  he  leaves  for  all  additions  and 
improvements  or  benefits  which  he  left  on  the  farm;  but  that  is  a 
very  difficult  thing  for  the  State  to  go  into. 

On  the  other  hand,  I  think  the  States  does  well  to  lend  the  funds; 
and  I  personally  heartily  approve  of  the  idea  of  lending  them  to  some 
extent  to  farmers.  I  think:  they  should  be  offered  to  any  applicant 
with  as  good  security  as  these  municipal  bonds,  or  county  bonds,  or 
where  there  is  absolutely  good  security — that  is,  for  the  benefit  of  the 
schools. 

Mr.  Bulkley.  In  connection  with  what  you  are  just  saying  about 
the  care  which  a  tenant  gives  to  his  land,  Mr.  Coulter,  have  you 
observed  any  difference  in  the  care  taken  by  mortgagors  and  persons 
who  hold  their  land  free  ? 

Mr.  Coulter.  Yes;  I  have.  I  have  personally  been  so  interested 
in  it  that  I  have  spent  a  great  many  hundred  dollars  in  looking  into 
it.  My  father  is  now  getting  to  be  so  old  that  he  has  to  quit  the  farm, 
and  somebody  has  to  run  it,  and  it  is  very  difficult  to  get  a  manager. 
In  the  family  we  have  several  hundred  acres  that  have  either  got  to 
be  patched  out  to  tenants  or  sold,  or  else  I  have  got  to  go  back  and 
live  on  the  land,  and  there  is  one  of  the  "back  to  the  farm"  problems. 

And  I  have  tramped  up  and  down  the  United  States  trying  to 
figure  out  what  is  the  best  way  to  operate  the  land  if  you  do  not 
want  to  live  on  it  yourself,  and  I  must  confess  that  unless  you  adopt 
a  system  of  long-time  leases  and  have  a  contract  arrangement  whereby 
the  tenant  is  going  to  get  and  knows  that  he  is  going  to  get  the  benefit 
of  any  good  that  he  does  to  the  farm  itself  at  the  termination  of  his 
lease  I  think  the  leasing  proposition  is  a  mighty  poor  business. 

Mr.  Bulkley.  What  I  want  to  know  is  tlij^:  Does  a  man  who 
owns  his  farm,  free  of  encumbrance,  take  better  care  of  it  than  the 
man  who  has  a  big  mortgage  on  his  farm  ? 

Mr.  Coulter.  I  do  not  know  that  there  is  much  difference  between 
the  owner  who  is  free  and  the  owner  who  is  mortgaged;  but  I  think 
there  is  a  very  decided  difference  between  the  owner  and  the  tenant. 


154  RURAL    CREDITS. 

Now,  on  the  other  question,  since  you  ask,  the  State  of  Wisconsin, 
about  two  years  ago,  through  some  State  officers,  asked  me  to  inves- 
tigate that  question  to  some  extent. 

"The  census  report  showed  that  Wisconsin  had  more  mortgaged 
farms,  a  larger  proportion  of  mortgaged  farms  to  owned  farms,  free 
from  encumbrance,  than  any  other  State  in  the  Union;  and  they 
wanted  to  find  out  whether  the  State  was  going  to  the  dogs  or  whether 
investigation  would  show  that  the  farms  operated  by  owners  with 
mortgages  were  as  well  managed  and  opeiated  and  kept  up  as  the 
others. 

I  will  give  you  just  one  simple  result  that  I  found  for  the  United 
States.  I  took  the  matter  up  not  as  a  local  question  but  as  a  na- 
tional, question.  The  results  of  the  census  showed  that  there  were 
about  2,250,000  farms  operated  by  owners,  free  from  debt,  and  some- 
thing over  1,000,000  faims  operated  by  owners  who  had  mortgages 

Senator  Hollis.  Do  you  mean  in  the  entire  United  States  ? 

Mr.  Coulter.  Yes;  in  the  entire  United  States.  Now,  I  compared 
those  two  groups  so  that  you  could  not  say  that  it  was  any  special 
condition  that  would  offset  general  conclusions;  and  I  found  that 
the  "owners  mortgaged"  had  larger  farms  than  the  "owners  free  from 
debt."  In  other  words,  they  had  purchased  lands  with  their  bor- 
rowed money.  They  had  an  average  of  10  acres  more  per  farm  for 
the  whole  country. 

But  what  was  more  significant,  the  "owners  mortgaged,"  had  more 
improved  land  per  farm.  The  owners  who  were  free  from  mortgage 
had  64  acres  per  farm  for  the  whole  country,  while  the  owners  with 
mortgages  had  nearly  82  acres  per  farm.  There  were  18  acres  more 
per  farm  being  cultivated  by  those  farm  families  who  had  mortgages. 

It  seemed  that  they  were  using  that  money  to  improve  and  develop 
the  farms.  I  found  that  the  average  value  of  land  per  farm  free  from 
debt  as  $3,5S8,  and  for  those  which  were  mortgaged  it  was  $4,913. 
In  other  words,  it  was  $1,400  more  per  farm;  the  farmers  •with  mortg- 
ages have  more  valuable  farms. 

I  wanted  to  find  out  why  that  was;  and  so  I  took  the  question  of 
buildings  per  farm. 

For  the  whole  United  States  the  "owners  free"  have  buildings  on 
their  farms  with  an  average  value  of  $1,093.  The  "owners  mort- 
gaged" have  buildings  with  an  average  valuation  of  $1,284;  that  is 
to  say,  there  is  nearly  $200  per  farm  more  invested  in  buildings  by 
the  mortgaged  farmers  that  the  free  farmers;  but  I  raised  the  ques- 
tion do  they  cultivate  better;  do  they  farm  better : 

Mr.  Bulkley  (interposing).  May  I  interrupt  you  a  moment,  Dr. 
Coulter?  Does  that  make  the  value  of  the  land  the  same  in  the  two 
cases  ? 

Mr.  Coulter.  No:  it  is  higher  for  the  mortgaged  farmer. 

Mr.  Bulkley.  It  is  higher  for  the  mortgaged  farmer  per  acre? 

Mr.  Coulter.  Yes;  higher  per  acre.  The  average  value  per  acre 
for  all  land  in  "owned  farms  tree  from  mortgage"  is  $26.46,  and  for 
mortgaged  farms  it  is  $33.87.  And,  as  I  say,  I  raised  the  question, 
Does  the  farmer  who  has  a  mortgage  farm  better  than  the  farmer  who 
is  free?  Are  they  likely,  after  all,  to  turn  out  to  be,  generally  speak- 
ing, more  progressive  and  to  be  the  farmers  who  have  more  business 
Knowledge  ?     And  I  found  this  fact:  That  the  average  value  of  imple- 


RURAL   CREDITS.  155 

ments  and  machinery  per  farm,  the  equipment  of  the  farm  for  farms 
owned  free  from  debt,  was  SI 94,  and  for  farms  mortgaged  $271. 
There  was  over  $75  per  farm  more  of  equipment  for  the  mortgaged 
farmer. 

On  the  question  of  value  per  acre,  the  average  value  of  implements 
and  machinery  per  acre  of  improved  land — assuming  that  all  of  the 
implements  and  machinery  are  used  on  the  improved  land,  and 
bearing  in  mind  that  this  is  an  average  for  two  and  one-quarter 
million  owned  farms  free  and  over  1,000,000  owned  farms  mort- 
gaged— the  value  of  implements  and  machinery  per  acre  of  improved 
land  for  owners  free  was  $3.01 — of  course,  that  is  getting  down  to 
details  merely  by  division — and  for  owned  farms,  mortgaged,  the 
value  was  $3.33.  In  other  words,  the  farmer  with  a  mortgage  had 
32  cents  per  acre  more  invested  in  implements  and  machinery  than 
did  the  farmer  free  from  mortgage,  thus  showing  the  more  intensive 
cultivation. 

I  merely  cite  that  fact  because  I  know  that  that  question  is  likely 
to  come  up  in  such  investigations;  and  hence  I  offer  that  as  an 
illustration. 

I  made  the  same  study  for  Wisconsin,  as  an  individual  State 

Mr.  Bulkley  (interposing).  Excuse  me  for  interrupting,  but  have 
you  any  facts  showing  as  to  whether  the  mortgaged  farmers  use  up 
their  soil  more  than  the  free  farmers  do  ? 

Mr.  Coulter.  The  only  thing  I  could  say  on  that  would  be  to 
show  the  extent  to  which  they  seem  to  actually  cultivate  their  land. 
The  mortgaged  farmers  seem  to  be  better  equipped.  I  could  not, 
for  instance,  get  information  showing  whether  they  used  more  fer- 
tilizer. I  have  not  the  details  of  that,  nor  of  many  other  similar 
facts;  but  they  seemed  to  be  better  equipped  with  live  stock,  with 
implements  and  machinery  and  with  buildings,  and  there  were  more 
improvements.  Out  of  each  100  acres  they  had  more  improved  land 
and  in  every  way  the^y  seemed  to  be  the  most  successful  farmers. 

I  have  just  finished  another  study;  there  is  no  printed  report  on  it 
so  far,  but  I  asked  the  Census  Office  to  authorize  me  to  do  the  work. 
The  actual  age  of  each  farmer  was  ascertained  in  connection  with  the 
census,  and  I  made  a  little  study  to  see  whether  farmers  with  mort- 
gages were  younger  men,  or  older  men;  whether  they  were  the  new 
farmers  just  coming  on  and  who  were  better  acquainted  with  business 
methods,  etc.,  or  the  older  homesteaders,  the  early  farmers. 

And  it  seems  that  the  owners  mortgaged,  generally  speaking,  are 
the  younger  farmers. 

Senator  Hollis.  Well,  possibly  by  the  time  they  get  older  they 
have  been  able  to  pay  off  the  debt. 

Mr.  Coulter.  Yes;  they  have  been  able  to  pay  off  the  debt;  that  is 
an  offsetting  item  I  was  going  to  mention. 

Senator  Mollis.  Yes. 

Mr.  Coulter.  It  seemed  absolutely  impossible  to  prove  anything 
further  by  gathering  these  facts;  but  from  observation  I  feel  that, 
generally  speaking,  the  farmer  who  understands  the  business  well 
enough  to  take  chances  on  a  mortgage,  a  man  who  takes  out  a  mort- 
gage because  he  sees  an  advantage  in  it,  will  be  able  to  pay  it  oft. 

For  instance,  my  first  experience  with  a  mortgage  was  a  determi- 
nation to  straighten  up  the  current  outstanding  obligations  and  pay 
cash  for  absolutely  everything  the  day  it  was  bought.     If  it  were  a 


156  RURAL   CREDITS. 

thrashing  machine,  we  paid  down  $3,000  in  cash  and  got  all  the  dis- 
counts going,  and  found  it  was  a  distinctly  profitable  method  of  con- 
ducting farming. 

Mr.  Hayes.  As  it  is  of  conducting  every  other  business. 

Mr.  Coulter.  I  think  it  must  be,  although  I  do  not  know  as  much 
about  other  kinds  of  business. 

Mr.  Hayes.  I  have  been  in  a  good  many  businesses,  and  I  think  so. 

Senator  Hollis.  Well,  there  is  an  interesting  statement  in  the 
newspaper  this  morning  which  comes  from  Mr.  James  B.  Forgan,  the 
banker,  of  Chicago,  in  which  he  says  that  the  up-to-date  merchant 
now,  instead  of  paying  for  his  goods  by  notes,  borrows  money  at  the 
bank  and  gets  the  advantage  of  the  cash  discounts,  and  that  he  finds 
it  profitable.     That  is  just  an  illustration. 

Mr.  Hayes.  Cash  within  10  days;  that  is  the  general  rule  now. 

Mr.  Platt.  On  the  whole,  it  appears  from  j^our  statement  that 
oppressive  rates  of  interest  have  not  oppressed  the  farmers  very 
much.  The  younger  men  have  mortgages  and  they  are  able  to  pay 
them  off  as  they  go  along. 

Mr.  Coulter.  I  think  that  is  an  interesting  illustration  of  the 
extent  to  which  age  enters  into  this  problem.  When  I  was  an 
infant  in  arms  the  subject  was  widely  discussed  by  Henry  George 
and  others,  and  I  used  to  have  the  idea  that  the  young  man  now 
had  no  chance  at  all.  Evidently  that  was  so  from  the  writings 
of  such  men,  and  that  the  young  man  could  not  get  along  at 
all  and  the  country  was  rapidly  filling  up  with  tenants,  and  it  was 
necessary  for  the  Government  to  jump  in  and  do  something  to  pre- 
vent that. 

I  have  before  me  now  the  first  concrete  evidence  that  I  have 
obtained,  outside  of  general  observation  and  study,  that  the  condi- 
tion is  not  so  very  bad.  But,  as  to  ages  of  farmers,  I  wanted  to  see 
how  the  farmers  were  distributed  between  owners  and  tenants,  and 
I  find  that  of  all  the  famers  under  24  years  of  age 

Mr.  Bulkley  (interposing).  Is  this  throughout  the  United  States? 

Mr.  Coulter.  This  is  for  the  whole  United  States.  Of  all  farmers 
under  25  years  of  age,  only  23  out  of  each  100  own  their  farms,  either 
free  or  mortgaged,  while  76  per  cent  are  tenants.  In  other  words, 
the  young  fellow  evidently  does  start  in  as  a  tenant;  even  if  he  is 
the  son  of  a  prosperous  farmer,  his  father  does  not  give  him  the  farm 
to  start  with,  but  he  has  to  operate  it  for  a  while  as  a  tenant  and 
demonstrate  that  he  can  do  this. 

With  each  age  group  a  higlmr  percentage  become  owners  and  a 
lower  percentage  tenants. 

For  instance,  of  farmers  from  25  to  34  years  of  age,  for  the  whole 
United  States,  44  per  cent  are  owners  and  56  per  cent  are  tenants  or 
managers.  Of  the  younger  class,  76  per  cent,  as  I  said,  are  tenants 
or  managers. 

Out  of  every  100  farmers  between  35  and  45  years  of  age,  62  are 
owners  of  the  farms  and  only  38  are  tenants  or  managers. 

From  45  to  55  years  old,  73  out  of  every  100  are  owners  and  only 
27  are  tenants. 

From  55  to  65  j^ears,  78  out  of  every  100  are  owners  and  only  22 
are  tenants. 

Of  all  farmers  65  years  old  and  over,  85  out  of  each  100  are  owners 
and  only  15  are  tenants. 


RURAL    CREDITS.  157 

Now,  the  question  arises  at  once,  what  are  you  going  to  do  about 
those  15  farmers  who  remain  tenants  until  they  are  65  years  of  age 
and  over?  The  National  Government  might  make  them  owners  in 
some  way.  I  suggested  this  recently  at  a  meeting  of  the  State 
Farmers'  Institute  at  Richmond,  Va.,  to  an  Englishman  who  makes 
annual  trips,  I  believe,  back  to  England  and  Ireland,  and  he  says, 
"For  God's  sake,  don't  suggest  that."  He  said,  "We  are  trying  now 
to  make  an  owner  out  of  every  Irishman,"  and  he  added,  "I  am  sur- 
prised that  there  are  not  more  than  15  per  cent  that  you  could  not 
make  an  owner  out  of  permanently,  no  matter  how  long  you  tried." 
And  then  he  went  on  to  say  that  we  ought  to  recognize  that,  just  as 
some  men  are  tall  and  some  men  are  short,  and  just  as  some  men  are 
fat  and  some  are  thin,  and  some  have  long  hair  and  some  have  not 
any,  and  some  blue  eyes  and  some  dark  eyes,  etc. — so  there  would 
always  be  men  who  would  not  be  capable  of  becoming  permanent 
farm  owners;  and  it  would  be  surprising  that  there  were  not  more 
than  15  or  20  per  cent  who  never  did  become  farm  owners. 

Mr.  Hayes.  And  never  could. 

Mr.  Coulter.  And  probably  never  could,  even  if  the  Government 
annually  gave  them  some  assistance. 

Mr.  Bulkley.  Dr.  Coulter,  how  old  are  these  figures  ? 

Mr.  Coulter.  This  is  from  the  census  of  1910,  and  it  is  the  first 
time  that  any  such  figures  have  been  compiled  by  the  Government; 
they  have  not  been  printed  yet;  it  is  just  a  little  subsidiary  inquiry 
which  I  thought  could  be  compiled  from  the  figures  in  the  office.  An 
official  report  on  this  subject  will  soon  be  published. 

Mr.  Bulkley.  It  has  been  stated  a  great  many  times,  Dr.  Coulter, 
that  tenancy  is  increasing  in  this  country.  What  do  your  figures 
show  in  that  respect? 

Mr.  Coulter.  Tenancy  is  increasing  in  this  country.  And  in  case 
that  question  should  be  asked,  I  thought  I  would  bring  with  me  to-day 
figures  showing  the  actual  increase  for  the  whole  country. 

In  the  last  10  years,  all  the  farms  in  the  United  States  increased 
only  11  per  cent. 

Mr.  Bulkley.  From  what  year? 

Mr.  Coulter.  From  1900  to  1910,  the  farms  increased  11  per  cent. 
During  that  time  the  farms  operated  by  owners  increased  only  8  per 
cent  and  evidently,  therefore,  the  tenant  farmers  increased  faster 
than  the  owners. 

Mr.  Hayes.  Three  per  cent? 

Mr.  Coulter.  Or  taking  the  total  for  the  group  of  tenants,  16  per 
cent 

Mr.  Bulkley.  You  can  not  go  back  to  1900  and  make  a  compari- 
son of  these  figures  according  to  the  age  of  the  farmers,  can  you  ? 

Mr.  Coulter.  No;  I  do  not  believe  I  could,  for  each  age  group. 

It  has  seemed  to  be  a  practical  question,  right  off,  to  see  whether 
tenants  continued  as  tenants  until  they  became  very  old  men. 

I  should  state  here  that  there  is  a  further  point  that  I  have  not  had 
time  to  look  into  in  connection  with  this  inquiry.  I  expect  that 
some  one  will  at  once  say  that  these  tenants,  whenever  they  find  that 
they  can  not  succeed  and  can  not  buy  the  farms  drift  to  the  cities. 
That  is  to  say,  that  the  increase  in  the  city  laboring  class  comes  from 
failed  tenants  who  never  would  become  owners.     I  do  not  know  that 


158  KURAL    CREDITS. 

there  is  any  way  to  prove  or  disprove  that  statement,  if  it  should  be 
made.     My  observation  is  that  that  is  not  true. 

Mr.  Hayes.  No. 

Mr.  Coulter.  It  seems  to  me  that  the  men  that  leave  the  farms 
are  not  always  the  ones  that  would  not  become  owners.  It  is,  I 
think,  unfortunately  true  that  it  is  too  often  the  other  way. 

Mr.  Hayes.  Yes. 

Mr.  Coulter.  The  men  demonstrate  that  they  can  move  much 
faster  and  do  not  stick  to  that  particular  community.  However,  we 
have,  so  far  as  I  know,  no  facts  on  that  question. 

Senator  Hollis.  Dr.  Coulter,  your  figures  as  to  the  increase  in 
farms  do  not  necessarily  indicate  that  more  land  has  been  taken  into 
cultivation  in  that  ratio,  but  that  the  larger  farms  may  be  split  upr 
do  they  not  ? 

Mr.  Coulter.  That  is  actually  what  has  happened.  The  actual 
land  in  farms  increased  only  5  per  cent,  while  the  number  increased 
1 1  per  cent,  showing  that  there  has  been  a  cutting  up  of  a  great  many 
farms. 

Senator  Hollis.  Do  you  not  think  that  is  a  very  encouraging 
condition  ? 

Mr.  Coulter.  Yes;  I  think  it  is  very  encouraging  and  a  movement 
in  the  right  direction. 

Mr.  Platt.  And  that  in  itself  would  give  rise  to  an  increase  in 
tenancy,  would  it  not  ? 

Mr.  Coulter.  It  is  very  likely  to  do  so.  And  the  parts  of  the 
country  where  tenancy  has  increased  more  rapidly  are  the  sections 
where  the  size  of  the  owned  farms  has  decreased. 

Mr.  Seldomridge.  Can  you  tell  us  where  the  tenancy  has  increased  ? 

Mr.  Coulter.  Yes;  I  have  the  figures  for  each  State.  Possibly  it 
would  be  better  to  give  it  by  general  divisions  of  the  country. 

Mr.  Seldomridge.  Yes;  that  is  what  I  had  in  mind.  You  need 
not  take  up  the  time  of  the  committee  by  looking  it  up  now,  but  you 
might  make  up  a  little  statement  which  we  can  put  in  the  record. 

Mr.  Coulter.  I  would  rather  do  it  that  way. 

(The  statement  referred  to  is  as  follows:) 

Increase   op    Farm    Ownership  and    Farm    Tenancy  in   the  United    States 

Between  1900  and  1910. 

For  the  United  States  as  a  whole  there  was  an  increase  of  about  11  per  cent  in  the 
number  of  farms  between  1900  and  1910.  Tenants  increased  somewhat  more  rapidly 
than  owners;  thus  there  was  an  increase  of  only  about  8  per  cent  in  the  number  of 
farms  operated  by  owners,  and  about  16  per  cent  in  farms  operated  by  tenants.  This 
is  a  very  much  better  showing  than  during  preceding  decades.  Thus,  between  1890 
and  1900  the  increase  in  the  number  of  farms  operated  by  owners  was  less  than  14  per 
cent,  while  the  farms  operated  by  tenants  increased  over  56  per  cent.  The  same 
statement  applies  with  reference  to  the  movement  between  1880  and  1890.  During 
that  decade  the  farms  operated  by  owners  increased  less  than  10  per  cent,  and  farms 
operated  by  tenants  increased  over  26  per  cent.  It  would  seem  that  the  country  had 
commenced  to  establish  itself  on  a  basis  of  normal  progress,  under  which  young  men 
generally  start  in  as  laborers  and  tenants  and  gradually  become  owners,  through  a 
series  of  steps  of  progress. 

Turning  now  to  the  various  divisions  of  the  country,  it  might  be  noted  that  there  was 
a  decrease  in  the  number  of  farms  in  the  New  England  States,  and  this  decrease  was 
almost  entirely  in  the  tenant  class.  Owners  decreased  in  number  only  143,  while 
tenants  decreased  in  number  nearly  3,000.  In  the  Middle  Atlantic  States,  including 
New  York,  New  Jersey,  and  Pennsylvania,  even  a  better  showing  is  made  for  owners, 
since  there  was  an  increase  of  over  1,300  owners  and  a  decrease  of  nearly  19,000  in  the 
number  of  tenants.     In  the  group  of  States  from  Ohio  to  Illinois,  inclusive,  and  includ- 


RURAL   CREDITS.  159 

ing  Wisconsin  and  Michigan,  the  reverse  movement  is  shown.  There  was  a  decrrase 
of  2  per  cent  in  the  number  of  farms  operated  by  owners,  and  an  increase  of  nearly  2 
per  cent  in  the  number  of  farms  operated  by  tenants.  In  the  group  of  States  west  of 
Wisconsin  and  Illinois  there  was  an  increase  in  the  number  of  owners  of  about  21,000, 
and  an  increase  in  the  number  of  tenants  of  about  28,000.  In  the  Southern  States 
extending  south  from  Delaware  and  west  as  far  as  Texas  there  was  an  increase  of 
over  170,000  in  the  number  of  farms  operated  by  owners  during  the  last  10  years,  and 
at  the  same  time  an  increase  of  about  300,000  in  the  number  of  farms  operated  by 
tenants.  This  represents  very  largely  a  breaking  up  of  the  large  plantations  and  the 
addition  of  improved  land  in  the  same. 

In  the  mountain  States  there  was  an  increase  of  75,000  farms  operated  by  owners, 
and  only  7,000  operated  by  tenants;  while  on  the  Pacific  slope,  including  California, 
Washington,  and  Oregon,  the  number  of  farms  operated  by  owners  increased  over 
43,000,  and  the  farms  operated  by  tenants  increased  only  4,800. 

Mr.  Coulter  (continuing).  I  might  say  that  it  is  literally  the  fact 
that  tenancy  has  decreased  in  a  dozen  or  15  States;  the  percentage 
of  the  total  number  of  farms  operated  by  tenants  has  actually  decreased 
in  a  considerable  number  of  States.  It  has  increased  rapidly  in  the 
Southern  States,  where  the  colored  farmers  and  the  poorer  white 
farmers  have  been  taking  part  of  what  were  formerly  the  big  planta- 
tions. In  other  words,  the  tendency  seems  to  be  that  farms  through 
the  North  are  operated  by  hired  labor  and  are  smaller  than  in  the 
southern  districts  where  the  big  plantations  are  divided  up  and 
operated  by  croppers,  standing  renters,  and  other  classes  of  tenants 
rather  than  by  the  hired  labor.  For  instance,  in  Mississippi  less  than 
20  farmers  out  of  100  hire  any  labor  at  all.  In  Massachusetts  85 
farmers  out  of  every  100  line  some  laborers  during  the  year. 

Mr.  Seldomridge.  Can  you  make  any  comparison,  Dr.  Coulter,  as 
between  interest  rates  in  the  sections  where  the  tenancy  is  lowest  and 
in  those  sections  where  it  is  highest  ? 

Mr.  Coulter.  It  is  the  fact  that  the  interest  rates  are  the  highest 
in  some  parts  of  the  country  where  tenancy  is  also  highest,  and  where 
tenancy  is  increasing;  but  I  do  not  know  that  there  is  the  relation  of 
cause  and  effect  there. 

Mr.  Platt.  You  would  not  say,  would  you,  that  the  movement 
toward  dividing  up  the  farms  rather  than  hiring  laborers  is  a  step 
backward;  it  is  rather  a  step  in  advance,  is  it  not? 

Mr.  Coulter.  I  think  it  is  a  step  in  advance. 

Mr.  Platt.  I  think  so. 

Mr.  Coulter.  But  that,  of  course,  is  a  matter  of  opinion  and  might 
not  hold  in  all  sections  of  the  country  at  all  times. 

Mr.  Platt.  They  are  more  likely  to  become  owners  .ultimately 
where  they  are  tenants  than  where  they  are  hired  laborers  ? 

Mr.  Coulter.  I  think  so. 

Mr.  Platt.  Certainly  that  is  true. 

Mr.  Hayes.  How  about  the  Far  West;  tenancy  must  be  decreasing 
there  ? 

Mr.  Coulter.  It  has  not  changed  materially  there.  There  is  no 
big  upward  movement  of  tenancy.  There  seems  to  be  approximately 
the  normal  number  of  farms  operated  by  tenants  as  the  young  men 
come  in  and  as  the  old  men  become  retired  owners.  I  must  say  this, 
although  I  think  you  could  pick  up  some  articles  which  I  wrote  when 
I  had  no  business  writing  anything,  where  I  said  that  this  terrible 
tenancy  evil  was  coming  over  the  country.  I  thought  everybody 
should  be  an  owner  from  the  day  he  started  operating.  That  was  the 
natural  inclination,  if  you  read  what  was  being  written  at  that  time 


160  RURAL    CREDITS. 

But  it  seems  to  me  now  that  that  is  a  sensible  movement.  Every 
man  has  to  start  in,  unless  he  is  unfortunate  enough  to  inherit  some- 
thing, and  work  his  way  through;  and  I  think  it  is  best  that  it  should 
be  that  way;  and  I  think  it  is  not  at  all  a  bad  thing,  I  repeat,  that 
there  is  a  fair  proportion  of  tenants  in  the  country,  especially  if  they 
are  people  who  wijl  go  right  on  through  the  various  stages,  become 
owners,  and  pay  for  their  places. 

Senator  Hollis.  That  is,  the  result  of  your  researches  did  not  agree 
with  the  theories  which  you  originally  held? 

Mr.  Coulter.  No  ;  and  it  seems  to  me  that  we  are  not  getting  into 
any  terribly  bad  condition  as  yet. 

Mr.  Platt.  If  it  were  possible  to  make  such  a  study  as  the  chair- 
man suggested,  of  age  groups,  with  one  of  the  previous  censuses  so  as 
to  show  whether  or  not  the  chances  of  a  man  going  on  a  farm  are  better 
now  than  they  were  10  or  20  years  ago,  it  seems  to  me  that  that 
would  be  a  very  valuable  thing. 

Mr.  Coulter.  I  think  it  would  be,  if  we  could  do  it.  I  shall  look 
into  that  and  see  if  it  is  practicable. 

Mr.  Woods.  You  have  no  figures,  have  you,  showing  the  death  rate 
among  the  tenants  as  compared  with  the  death  rate  among  the 
owners  of  farms  ? 

Mr.  Coulter.  I  have  not. 

Mr.  Platt.  Generally  speaking,  there  is  no  great  increase  of 
tenancy  in  the  Eastern  States,  is  there  ? 

Mi*.  Coulter.  In  what  States  ? 

Mr.  Platt.  In  the  Northeastern  States  ? 

Mr.  Coulter.  No.  As  a  matter  of  fact,  there  is  an  actual  decrease 
in  most  of  the  northeastern  part  of  the  country. 

Mr.  Platt.  Yes. 

Mr.  Coulter.  And  there  is  a  very  slight  increase  in  some  of  the 
States;  in  Wisconsin,  for  instance,  there  is  a  very  slight  increase  in 
tenancy;  it  is  almost  insignificant. 

Mr.  Platt.  Yes. 

Mr.  Hayes.  Well,  there  is  not  much  tenancy  there,  anyhow,  is 
there  ? 

Mr.  Coulter.  No  ;  the  tenancy  is  very  low  there.  I  might  say  that 
I  took  that  question  up  further  in  this  way:  I  have  not  quite  com- 
pleted the  study  yet.  but  it  seems  to  me  that  you  can  say  for  prac- 
tically every  State  in  the  union  that  the  States  where  the  highest 
percentage  of  farms  operated  by  tenants  will  be  found,  are  the  States 
where  you  have  the  lowest  percentages  of  mortgages. 

For  instance,  Wisconsin,  and  two  or  three  other  States,  where  50 
out  of  100  owners  have  mortgages,  in  those  States,  you  find  the  lowest 
percentage  of  tenancy.  Take  the  Southern  States,  where  there  are 
very  few  mortgages  comparatively — not  20  farmers  out  of  100,  on 
the  average,  throughout  15  or  20  Southern  States  have  mortgages — in 
those  States  from  50  to  70  per  cent  of  the  farms  are  operated  by 
tenants.  In  other  words,  if  a  system  is  provided  so  that  young 
farmers  could  start  in  as  tenants,  could  buy  the  farm,  and  take  a 
mortgage  on  them,  you  would  reduce  tenancy  even  now. 

Those  are  matters  of  exact  statistics,  and  not  matters  of  guess. 

Mr.  Platt.  Might  it  not  be  a  good  plan  to  require,  where  a  man 
wanted  to  buy  a  farm  and  borrow  money  on  it  through  some  such 


RURAL    CREDITS.  161 

system  as  we  might  provide,  that  he  should  rent  a  farm  and  prove  his 
capacity  to  run  it  first  ? 

Mr.  Coulter.  I  am  not  sure  that  it  would  not  be  worth  while; 
that  is  to  say,  he  would  have  to  actually  operate  a  farm  independently. 

Mr.  Platt.  Yes. 

Mr.  Coulter.  I  really  think  that  there  is  more  or  less  risk  in  a  man 
jumping  in  and  starting  to  run  a  farm  and  going  into  debt  heavily  to 
do  it,  unless  the  man  has  had  some  experience.  I  know  I  made  a 
great  many  mistakes  in  the  beginning  as  a  farm  boy. 

Mr.  Hayes.  Would  not  most  men  who  had  to  put  up  50  per  cent 
of  the  value  of  their  farm  be  men  who  had  had  some  experience  ? 

Mr.  Coulter.  Probably  so. 

Mr.  Hayes.  They  would  probably  be  men  who  had  had  experience 
before  they  applied  for  a  loan  under  the  system. 

Mr.  Coulter.  But  it  is  easy  to  see  how  some  one  from  the  city — a 
bank  clerk,  for  instance  —  might  get  a  few  thousand  dollars  and  go 
out  and  buy  a  farm  and  pay  half  the  value  of  the  farm  and  give  a 
mortgage  for  the  remainder  and  be  a  complete  failure.  He  might  be 
a  magnificent  bank  clerk,  but  until  he  tried  it  out  for  two  or  three 
years  as  a  tenant  and  really  learned  the  fundamental  principles  he 
might  make  a  complete  failure  as  a  farmer,  and  we  would  have 
another  wreck  on  our  hands. 

Mr.  Hayes.  Of  course,  there  would  be  comparatively  few  cases  of 
that  kind,  would  there  not  ? 

Mr.  Coulter.  Yes;  I  think  there  would  be  few  of  them. 

I  think  that  those  questions  are  all  related  to  this  general  subject 
and  naturally  are  preliminary  to  it.  But  my  interest  in  this  par- 
ticular question  of  agricultural  credit  arose  in  a  special  way  about 
two  years  ago,  when  I  was  asked  the  question,  whether  I  thought 
any  new  system  of  agricultural  credit  was  necessary;  and  I  had 
merely  my  own  views  at  that  time,  from  studying  the  question  from 
a  personal  and  purely  selfish  standpoint.  I  had  never  thought  of 
it  as  a  national  question  or  from  anybody  else's  standpoint.  And  I 
started  in  to  see  whether  certain  State  legislation  would  not  be 
desirable  in  my  home  State  and  one  or  two  others  hi  that  section. 

I  found  out  very  soon  that  the  subject  seemed  to  divide  itself 
absolutely,  from  the  start,  into  two  questions. 

One  was  a  matter  of  personal  credit  for  current  business  purposes 
and  the  other  was  a  matter  of  mortgage  credit  on  lands. 

And  I  personally  gave  most  thought  to  the  question  of  personal 
credit  for  a  year.  At  that  time  it  seemed  to  me  that  on  the  personal 
credit  question,  if  the  farmers  were  taught  by  the  agricultural  colleges 
and  the  agricultural  papers  and  others  interested  how  to  use  the 
banks  which  could  be  found  in  every  neighborhood;  and  if,  in  turn, 
the  banks  would  use  their  efforts  to  show  the  farmers  the  needs  and 
to  serve  the  farmers  as  they  deserved  to  be  served,  we  did  not  really 
need  any  new  set  of  banks  for  personal  credit  purposes  throughout 
the  country,  as  a  general  thing.  Many  individual  communities,  I 
thought,  did  need  banks.  I  came  across  some  that  certainly  needed 
a  small  bank. 

There  was  only  one  particular  defect  that  appealed  to  me,  and  that 
was  due  to  the  fact  that  the  farmers  lived  out  around  through  the 
country  away  from  the  bank,  and  the  banker  could  not  intelligently 
place  a  good  rating  on  the  farmer  and  did  not  really  know  how  far 

37031—14 11 


162  RURAL    CREDITS. 

he  could  trust  the  fanner;  to  what  extent,  in  other  words,  the  farmer 
was  a  good  risk.  Xow,  the  banker,  not  knowing — through  no  fault 
of  his  own,  it  seemed  to  me,  because  lie  could  not  afford  to  hire  a 
livery  rig  and  go  around  the  country  all  the  time — the  banker  not 
knowing  the  character  of  the  risk,  and  the  farmer  not  having  any  way 
to  bring  his  position  to  the  individual  hanker,  there  was  a  missing 
link,  except,  of  course1,  for  the  successful  farmers,  the  bigger  farmers, 
the  farmers  who  were  accustomed  to  drop  in  and  do  their  business 
in  a  business-like  way — it  seemed  to  me  that  the  most  important 
thing  was  for  farmers  to  organize  in  every  little  community  a  local 
credit  union,  or  something  of  that  sort,  to  take  the  place  of  Dun's 
and  Bradstreet's  for  that  little  community;  let  100  farmers  get 
together  and  organize  a  rating  society  with  an  officer,  and  just  list 
the  farmers  and  their  backing  and  what  credit  they  ought  to  have 
according  to  the  judgment  of  the  group,  and  then,  whenever  any 
farmer  wanted  to  get  a  standing  with  a  bank,  it  seemed  to  me  that 
the  officer  of  this  society  might  act  as  the  second  signature  "in  the 
name  of  all  the  group,"  to  certify  that  he  was  good  up  to  that  point 
and  that  they  would  back  him  up  to  that  point. 

And  I  thought  if  they  did  that  it  would  be  the  connecting  link 
between  the  individual  small  farmer,  of  whom  we  have  5,000,000  in 
the  country,  and  the  bank;  that  is,  the  small  farmers,  not  the 
1 ,000,000  big  ones,  big  enough  to  do  business  directly  with  the  bank 
all  the  time. 

I  studied  the  situation  in  the  different  European  countries,  and  I 
found  that  was  the  general  condition  over  there.  For  instance, 
Germany  had  not  any  of  these  little  credit  associations  and  the 
farmers  had  not  any  connecting  link  with  the  big  bank,  or  banks 
generally,  until  they  started  what  is  known  as  the  Raiffeisen  Bank, 
after  Mr.  Raiffeisen,  who  started  the  first  one. 

For  many  years  there  were  ver}T  few  of  those  institutions  started. 
It  took  a  great  many  years  to  establish  the  first  1,000.  But  when 
they  got  up  to  1,700,  I  remember  in  looking  up  the  report,  I  marveled 
at  the  fact  that  within  10  years  they  had  17,000.  In  other  words,  all 
that  was  necessary  was  to  get  the  idea  started,  and  then  the  farmers 
organized  all  of  these  little  credit  unions  which  do  the  little  local 
banking  business  for  the  members. 

The  idea  spread  to  Italy. 

Mr.  Platt.  Will  you  permit  an  interruption,  Dr.  Coulter?  Did 
those  German  Raiffeisen  societies  guarantee  each  other's  credit,  as 
you  originally 

Mr.  Coulter  (interposing).  Some  of  them  now  are  limited  Uabihty. 
Some  of  them  have  an  unlimited  Uabihty;  that  is,  what  we  would 
call  liability. 

Mr.  Platt.  Do  they  rate  each  other? 

Mr.  Coulter.  They  rate  each  other,  and  they  know  how  far  they 
will  let  any  farmer  borrow. 

Mr.  Platt.  That  is,  in  their  own  association  ? 

Mr.  Coulter.  Yes;  in  their  own  Raiffeisen  society. 

Mr.  Platt.  They  do  not  rate  the  farmers  for  the  purpose  of  showing 
what  credit  they  might  obtain  from  a  bank  outside  the  association, 
do  they? 

Mr.  Coulter.  No;  but  the  banks  do  not  now  do  any  business  with 
the  small  farmers  at  all;  those  farmers  do  their  business  through 


RURAL    CREDITS.  163 

the  Raiffeisen  societies;  that  is  to  say,  only  the  big  farmers  now  deal 
directly  with  the  outside  big  banks.  The  great  mass  of  smaller 
farmers  deal  through  their  own  society,  and  they  practically  all  do 
that.  In  other  words,  in  Germany,  which  is  not  as  big  as  Texas,  they 
have  17,000  of  these  little  credit  societies,  or  Raiffeisen  societies. 

Mr.  Woods.  What  rate  of  interest  do  these  farmers  have  to  pay 
when  dealing  with  these  societies  ? 

Mr.  Coulter.  I  think  we  found  that  generally  throughout  Ger- 
many it  was  between  3^  and  4£  per  cent;  what  would  you  say  to 
that,  Mr.  Moss  ? 

Mr.  Moss.  I  think  it  would  be  safer  to  put  in  Germany  at  4^  per 
cent. 

Mr.  Coulter.  Four  and  one-half  per  cent.  There  are  many  indi- 
vidual cases,  however,  where  they  would  say,  "We  pay  3^  per  cent 
interest." 

Mr.  Hayes.  That  is,  on  the  short-time  loan,  of  course  ? 

Mr.  Coulter.  Yes;  on  the  short-time  loan. 

Mr.  Platt.  Very  small  ones  ? 

Mr.  Coulter.  Very  small  ones;  yes,  generally  speaking. 

But  that  idea  of  the  little  local  farmers  having  a  connecting  link, 
to  make  use  of  their  local  funds  and  then  get  outside  connections, 
appealed  to  me. 

I  found  that  that  had  spread  practically  all  through  Italy,  under 
another  name,  because  it  was  another  man  who  started  the  thing  in 
Italy — a  Mr.  Wollemborg,  whom  we  had  the  pleasure  of  meeting  and 
discussing  the  subject  with.  He  was  the  one  who  first  started  and 
successfully  operated  such  an  association,  and  he  is  now  in  one  of  the 
highest  positions  in  Italy,  a  close  adviser  to  the  Bong  of  Italy. 

The  same  thing  is  true  of  Austria.  The  societies  there  spread  by 
the  thousand. 

And  they  are  now  introducing  the  same  thing  in  Ireland.  They 
call  them  there  " credit  unions."  And  so  they  are  all  over  Europe, 
all  over  Russia,  under  different  names,  and  with  slightly  different 
connections.  In  Belgium,  you  find  the  same  thing.  In  France,  they 
draw  funds  directly  from  the  Government.  I  found  them  operating 
in  every  community  I  went  to,  all  over  Europe. 

Mr.  Brown.  Dr.  Coulter,  while  we  have  the  information  in  the 
published  volumes,  and  can  read  it  there,  for  the  purpose  of  getting 
it  concisely  stated  in  the  record  of  these  hearings,  will  you  tell  us  how 
those  credit  unions,  or  societies,  are  formed  ? 

Mr.  Coulter.  Yes,  indeed.  Now,  as  to  how  they  are  formed.  We 
have  seen  the  number  of  them  and  the  way  they  exist  all  over  Europe; 
they  are  very  small,  and  they  are  of  many  kinds,  and  with  many 
variations.  Little  groups  of  10  or  15,  and  sometimes  not  more  than 
7  or  8  farmers,  will  get  together  and  form  what  they  will  call  a  credit 
union,  or  credit  association,  or  whatever  name  they  wish  to  give  it. 

In  some  countries  they  are  now  required  to  have  a  small  foundation 
capital.  Generally  speaking,  it  is  insignificant,  although  in  some 
countries  it  amounts  to  $2,000  or  $3,000,  on  the  average. 

In  some  countries  they  actually  assume  unlimited  liability  for  all 
transactions  approved  by  the  society.  That  is  to  say,  a  member  can 
not  do  anything  he  Avants  to  and  have  them  back  of  him,  but  every 
transaction  which  is  approved  by  their  society  they  get  back  of  with 
their  entire  resources. 


164  RURAL    CREDITS. 

Iii  other  districts  they  have  limited  liability.  Double  liability  is 
-our  rule  in  this  country  in  the  case  of  banks,  but  I  saw  every  kind  of 
liability  in  Europe — five  times  the  amount  of  paid-in  capital  in  some 
•of  these  little  societies,  in  some  10  times  the  capital,  and  in  some  25 
times.  I  remember  one  was  100  times  the  capital.  Doubtless  there 
they  did  not  want  to  make  it  absolutely  unlimited,  but  to  put  it  to  a 
point  where  there  was  no  question  at  all  that  they  were  back  of  it. 

Senatoi  Mollis.  Dr.  Coulter,  any  limitation  of  the  liability  of  the 
members  of  a  voluntary  association  in  this  country  must  be  statutory, 
must  it  not  ? 

Mr.  Coulter.  Yes;  in  this  country. 

Senator  Hollis.   How  is  that  abroad  '. 

Mr.  Coulter.  Many  of  them  have  no  statutory  limitations  at  all. 
They  may  not  have  any. 

Now,  Austria  has  a  new  idea  up,  in  which  they  are  suggesting  that 
a  law  be  passed  which  will  be  uniform  for  all  of  them,  requiring  a  small 
liability  and  then  what  is  called  a  proportional  liability  for  future 
payments.  In  other  words,  no  individual  member  could  be  attacked 
and  made  to  bear  the  responsibility  for  the  whole  credit  union,  but 
any  outside  creditor  could  come  upon  the  union  for  the  entire  amount 
due,  and  this  would  have  to  be  distributed  over  all  the  members,  in 
proportion  to  some  rule  which  they  might  adopt.  That  would  encour- 
age, as  they  said,  the  big  man  in  the  community  to  join  the  union  with 
the  little  men,  knowing  that,  at  best,  he  would  never  have  to  bear 
any  other  than  his  proportional  liability. 

But,  generally  speaking,  the  liability  is  just  unlimited.  Any  mem- 
ber can  be  called  upon  for  the  full  amount. 

Now,  as  to  the  number  of  members,  they  are  down  as  low  as  seven. 
As  to  capital,  it  may  be  almost  nothing,  or  it  may  be  $1,000,  or  $2,000, 
or  $3,000,  eventually.  As  to  liability,  it  may  be  strictly  limited  or 
absolutely  unlimited,  or  any  degree  between  these  two. 

Almost  universally  the  rule  is  that  no  loan  is  made  to  anyone  who 
is  not  a  member.  In  other  words,  they  must  know  what  becomes  of 
the  money  that  they  lend  out  that  they  are  liable  for. 

For  instance,  in  Italy  and  other  countries,  clear  up  to  Belgium, 
where  the  Catholic  Church  is  strong  in  the  country  districts,  I  noticed 
tthis  situation — the  problem  seemed  a  rather  peculiar  one — that  the 
local  priest  would  be  a  member  and  he  would  probably  be  the  local 
•officer.  They  did  not  have  a  separate  bank  building  and  there  was 
practically  no  expense.  He  might  be  the  local  officer.  He  was  good 
at  figures  and  he  could  keep  their  records  for  them  in  good  shape.  I 
asked  a  number  of  them  the  question  whether  they  could  borrow, 
and  they  would  probably  say,  "Yes;  so  far  as  being  a  member  is  con- 
cerned, I  can  borrow.  Of  course  I  am  a  member  and  I  can  borrow. 
But  there  is  another  rule  of  the  society,  so  that  even  if  I  am  a  member 
I  can  not  borrow  unless  I  am  actually  a  farmer  and  want  to  borrow 
the  money  and  use  it  on  the  farm." 

They  adopt  rules  that  they  will  not  lend  to  anybody  but  a  member, 
and  if  they  happen  to  have  a  school  teacher  or  a  priest,  or  somebody 
else  who  is  a  member  but  not  a  farmer,  they  will  not  lend  to  him,  and 
even  where  the  member  is  a  farmer  they  will  not  lend  to  him  unless 
he  is  going  to  use  the  money  on  his  farm. 

Senator  Hollis.  What  is  there  in  the  membership  for  the  school- 
teacher, then? 


RURAL    CREDITS.  165 

Mr.  Coulter.  Oh,  he  might  get  $25  a  year  as  an  honorarium; 
possibly  $10. 

Senator  IIollis.  Would  he  get  an}^  dividends  ? 

Mr.  Coulter.  There  would  probably  not  be  anything  of  that  sort. 
He  is  likely  to  have  a  few  acres  of  lana,  as  a  matter  of  fact. 

Senator  Hollis.  Yes. 

Mr.  Coulter.  The  priest  becomes  a  member  in  order  to  keep  in 
touch  with  his  flock. 

Mr.  Platt.  Is  that  the  case  in  Ireland;  do  the  Catholic  priests 
become  the  local  officers  there  ? 

Mr.  Coulter.  On  this  question,  in  Ireland,  they  are  all  working- 
together;  there  is  no  dissension  at  all.  I  sat  around  the  table 
at  a  meeting  with  priests  and  Protestant  leaders;  also  with  mern 
like  Sir  Horace  Plunkett  and  some  others  who  have  not  any  politics 
at  all;  and  they  all  worked  together  on  this  matter  of  rural  credit 
and  cooperation. 

Senator  Hollis.  Yes;  I  see. 

Mr.  Coulter.  And  once  in  a  while  I  asked  a  question  that  bor- 
dered pretty  close  to  a  political  question  in  Ireland;  and  one  of 
those  present  said  to  me,  jokingly,  "We  had  better  leave  that  until 
we  get  on  the  public  platform,  where  we  can  say  things  to  each 
other." 

But  on  the  question  of  rural  credit  and  cooperation,  there  is  no 
question  of  party,  or  church,  or  anything  else  in  Ireland.  That  is 
why  the  movement  is  spreading  so  rapidly.  I  might  say  that  in  Italy 
you  find  a  much  more  noticeable  question  of  politics  or  religion. 
There  the  Catholic  Church  is  actively  engaged  in  organizing  credit 
associations  among  the  farmers,  and  the  socialists  are  doing  the  same 
thing,  claiming  that  the  church  has  not  any  business  to  do  that.  The 
socialists  may  be  Catholics  on  Sunday,  but  they  say  that  the  church 
should  not  go  into  this  business  at  all,  and  so  the  socialist  party  is 
organizing  farmers  into  these  same  societies.  And  so  are  the  neutrals; 
there  are  many  who  sit  on  the  barb-wire  fence  and  say  "W^e  will  not 
join  either  group  in  their  contentions,"  except  that  they  do  agree  that 
it  is  a  good  thing  to  have  these  societies. 

Mr.  Platt.  Are  the  societies  established  by  funds;  is  any  outside 
capital  used  to  establish  them  ? 

Mr.  Coulter.  No;    they  are  purely  local,  mutual  organizations. 

Mr.  Platt.  Are  not  some  of  the  societies  started  by  a  gift  or  loan 
of  funds  from  individuals  or  charitable  organizations,  or  something  of 
that  kind  ? 

Mr.  Coulter.  Practically  never. 

Mr.  Platt.  I  understand  that  the  Hearst  fund,  or  something  of 
that  kind  is  being  used  in  the  State,  of  New  York  to  form  credit 
unions  ? 

Mr.  Coulter.  Well,  in  this  country  there  are  a  few  cases  where 
they  are  trying  to  make  a  start  in  that  way,  by  small  loans  or  gifts  of 
funds.  But  in  Europe  there  must  be  50,000  of  these  credit  unions  all 
over  Europe,  and  I  do  not  believe  I  ever  heard  of  outside  money  com- 
ing in  to  start  these  little  community  societies.  In  this  country,  I 
know  of  those  cases  to  which  you  refer,  and  have  all  of  the  details 
concerning  them. 

Mr.  Platt.  You  would  not  think  that  anything  of  that  sort  was 
necessary  in  order  to  get  them  going,  would  you  ? 


16G  RURAL    CREDITS. 

Mr.  Coulter.  I  would  not  think  anything  of  the  sort  was  neces- 
sary; it  may  be  a  good  idea  here  in  a  few  instances.  The  one  that  you 
refer  to  is  the  Jewish  Agricultural  Organization  Society.  They  have 
17  unions  started  in  this  country,  purely  mutual  societies;  there  are  no 
State  or  National  laws  under  which  they  are  incorporated.  They  are 
just  societies,  like  they  are  in  Europe.  They  get  a  loan  from  the 
central  organization.  Those  institutions  are,  I  think,  a  good  idea; 
but  I  think  that  farmers  generally  could  go  ahead  and  start  these 
societies  without  any  gift  or  loan.  In  fact,  I  think  they  could  go 
ahead  and  start  them  without  any  law;  it  is  not  necessary  to  have  any 
special  law  on  the  subject,  except  that  they  do  not  know  how  to  go 
at  it. 

Mr.  Brown.  Do  these  societies  just  lend  their  credit  to  each  other, 
or  is  it  secured  by  mortgage  in  any  way,  by  a  joint  security  of  any 
kind  ? 

Mr.  Coulter.  In  lending,  they  lend  only  to  members  and  it  must 
be  for  a  specific  purpose;  the  application  must  be  made  for  a  loan, 
and  that  application,  you  see,  is  in  the  nature  of  a  note. 

Mr.  Brown.  Yes;  I  see. 

Mr.  Coulter.  And  that  application  must,  almost  universally,  be 
seconded  by  some  other  person,  and  not  necessarily  by  a  member,  in 
some  sections;  the  local  butcher,  who  may  not  be  a  member,  may 
second  that  application,  merely  to  concentrate  it  and  make  it  specific. 

Probably,  generally  speaking,  no  other  security  is  given  than  that 
application,  which  is  in  the  nature  of  a  note,  but  in  some  countries, 
in  many  communities,  I  found  that  the  farmer  will  also  give  a  short 
statement  that  he  has  a  certain  amount  of  land  unencumbered,  which 
statement  is  supplementary  to  the  application;  and  there  are  all 
sorts  of  variations  of  that  kind  in  the  application. 

Mr.  Woods.  You  spoke  awhile  ago,  Dr.  Coulter,  about  the  fact 
that  in  order  for  a  member  to  borrow  money  it  was  necessary  for  him 
to  have  a  farm.  You  did  not  mean  that  it  was  necessary  for  him  to 
own  a  farm,  did  you  ? 

Mr.  Coulter.  No;  to  be  operating  a  farm.  That  was  the  rule. 
In  fact,  I  found  cases  where  every  member  was  a  tenant,  even  in 
Italy.  And,  by  the  way,  there  is  a  large  stretch  of  Italy  where  the 
farms  are  operated  almost  identically  the  same  as  the  big  plantation 
systems  in  the  South,  where  all  are  tenants,  and  where  groups  of  these 
tenants,  30  or  40  on  a  big  estate,  will  have  their  own  credit  union, 
and  their  own  store,  etc.  Those  tenants  may  independently  organize 
their  unions,  or  they  may  join  with  the  owners.  And  I  struck  many 
special  little  rules  there.  Sometimes  where  the  members  of  these 
credit  unions  come  from  the  whole  countryside  the  unions  are  pretty 
big.  I  struck  one  with  1,500  members  and  another  with  only  7. 
|  Mr.  Seldomridge.  These  wore  entirely  for  loans  on  personal 
property  ? 

Mr.  Coulter.  Yes;  for  loans  on  personal  property,  one  society 
had  about  1,500  members.  But  in  that  case  if  a  tenant  applied  for 
a  loan  he  had  to  have  as  his  second  signature  the  owner  oi  property. 
That  just  happened  to  be  a  special  rule,  and  I  mention  it  to  show  the 
variation's. 

Mr.  Seldomridge.  What  happens  in  the  event  that  the  loan  is 
defaulted  '. 


EURAL    CREDITS.  167 

Mr.  Coulter.  I  asked  them  that,  and  they  said  they  did  not  know 
what  would  happen. 

Mi-.     Seldomridge.  They  have  never  had  a  default  ? 

Mr.  Coulter.  Probably  the  man  would  renew,  and  finally  make 
it  up. 

Mr.  Seldomridge.  Is  there  any  tangible  security  given  for  the 
loan,  such  as  we  have  in  the  way  of  mortgages- 

Mr.  Coulter  (interposing) .  Chattels  ? 

Mr.  Seldomridge.  Yes;  chattel  mortgages. 

Mr.  Coulter.  I  could  not  find  anything  exactly  like  chattel  mort- 
gages in  Europe,  but  it  was  generally  understood  that  the  man  gave 
everything  he  had,  as  you  might  say,  as  his  backing. 

Mr.  Seldomridge.  Is  there  any  chattel-mortgage  business  being 
done  in  Europe  ? 

Mr.  Coulter.  Well,  I  should  say,  in  the  case  of  these  institutions 
that  it  is  understood  that  these  chattels  are  recognized  as  part  of 
the  security.  I  could  not  find  a  special  chattel-mortgage  business 
like  we  have  in  this  country.  Did  you  look  into  that  particularly, 
Mr.  Moss  ? 

Mr.  Moss.  I  think  there  are  no  exemptions  whatever  in  Europe 
from  executions  for  debt,  and  that  they  can  take  everything  a  person 
has;  and  when  a  man  goes  in  debt  there  he  practically  gives  a  mort- 
gage for  everything  he  has. 

Mr.  Brown.  I  was  just  going  to  ask  whether  there  are  any  home- 
stead or  exemption  laws  in  Europe  ? 

Mr.  Coulter.  Practically  not,  in  any  country.  You  may  know  of 
the  present  Egyptian  controversy.  The  Government  is  trying  to 
work  out  an  exemption  system  there.  First  there  was  an  executive 
order  issued,  providing  for  an  exemption  for  the  poor  tenants  there, 

I  have  not  all  the  details  of  that,  but  that  is  a  very  recent  problem 
that  has  arisen. 

Mr.  Seldomridge.  Do  they  exercise  supervision  over  their  mem- 
bers in  the  matter  of  the  proper  use  of  the  loans  ? 

Mr.  Coulter.  Throughout  Europe  ? 

Mr.  Seldomridge.  Yes;  in  these  societies. 

Mr.  Coulter.  Yes;  they  do.  In  the  application  for  a  loan  they 
have  to  specify  just  what  they  want  the  money  for;  for  instance,  $7 
to  buy  a  pig;  $7  to  buy  a  goat,  etc.  They  have  the  goat  already  in 
mind  and  have  already  made  the  bargain;  and  then,  of  course,  the 
application  goes  on  up  to  some  bigger  items,  but  they  often  get  down 
to  very  small  items.  I  saw  one  application  for  a  loan  in  which  the 
man  wanted  only  about  $15  to  $18,  and  he  had  nine  items  set  forth 
as  to  what  he  was  going  to  do  with  the  money. 

And  they  do  that  with  their  money.  Now,  of  course,  that  will  be 
the  type  that  might  apply  to  a  mass  of  very  poor  tenants,  such  as 
colored  tenants,  or  others  of  that  kind. 

On  the  other  hand,  they  have  in  Europe  some  of  these  credit 
unions  which  are  very  large  and  prosperous,  where  the  loans  are  fairly 
large,  which  would  be  more  the  type  that  you  would  expect  to  grow 
among  a  prosperous  group  of  farm  owners.  You  have  there  as  here 
every  type  of  farmer. 

Mr.  Platt.  Are  the  loans  always  exclusively  agricultural;  do  they 
not  sometimes  make  loans  in  the  villages  ? 


168  RURAL   CREDITS. 

Mr.  Coulter.  These  societies,  I  think  I  am  safe  in  saying,  are  prac- 
tically  exclusively  agricultural.  The  cities  have  sister  societies, 
known  throughoul  Europe  under  the  general  name  of  "people's  bank." 
In  Germany  they  are  under  the  name  of  the  Schulze-Delitzsch  Coop- 
erative Societies. 

Mr.  Platt.  They  are  all  in  the  lending  business,  are  they? 

Mr.  Coulter.   Yes;  and  they  do  some  business  with  the  farmers. 

Mi*.  Seldomridge.  And  they  issue  a  note  to  the  party.  Are  these 
credit  society  banks  mutually  or  severally  responsible  for  those  funds  ? 

Mr.  Coulter.  No;  I  might  say  there  that  these  little  societies  have 
regular  systems  of  deposits,  generally  speaking.  Now,  I  think  you 
will  find  more  variation  there  than  you  will  in  many  other  points.  In 
France,  for  instance,  I  think  I  am  right  in  saying  they  do  not  have 
any  deposits,  although  in  France  there  is  a  second  exception;  there 
arc  many  credit  unions  there  which  are  known  as  the  Durand  Bank, 
or  the  Durand  type  of  credit  union.  These  are  independent  of  the 
general  system  of  credit  unions;  there  are  a  few  hundreds  of  them. 
In  France,  then,  these  little  societies  do  not  have  deposits. 

Mr.  Moss.  I  think  they  are  willing  to  take  deposits,  but  they  get 
very  few  of  them. 

Mr.  Coulter.  I  think  that  is  right.  They  are  willing  to  take 
deposits,  but  the  French  peasants  put  their  money  in  Government 
securities  and  get  interest  on  every  penny.  Besides  that,  they  know 
that  they  do  not  have  to  deposit  if  they  do  not  want  to.  They  know 
they  can  get  money  by  the  discounting  process  up  through  the 
regional  bank  and  up  through  the  Bank  of  France,  through  the 
commercial  banking  system. 

Mr.  Seldomridge.  Do  you  think  the  community  life  of  the 
peasantry  in  Europe  has  contributed  in  any  way  to  the  success  of 
these  societies — the  fact  that  these  people  live  together  in  close 
association  in  the  villages? 

Mr.  Coulter.  I  found  that  they  had  these  credit  unions  where 
they  did  not  live  together  in  villages.  The  village  community  is  not 
universal  in  Europe,  you  know.  In  fact,  in  some  sections  of  Europe 
they  live  entirely  scattered  throughout  the  country,  and  in  those 
districts  they  have  these  same  little  credit  unions.  Russia  now  is 
taking  the  necessary  steps  to  get  rid  of  the  community  life  within 
the  next  decade  or  two.  It  is  so  insanitary  and  it  is  so  uneconomic. 
They  are  helping  the  peasants  to  move  out  and  build  their  independ- 
ent homes  in  the  country.  As  it  is  now,  it  takes  the  poor  farmer 
nearly  half  of  his  time  coming  from  and  going  to  his  little  patches  of 
land,  which  are  scattered  around;  and  the  Russian  Government  is 
now  helping  to  make  them  into  little  solid  farms,  and  helping  them 
to  build  their  homes  oul  there  on  those  farms.  And  about  1,000,000 
farmers,  I  understand,  up  to  date,  have  gone  out  from  the  com- 
munities which  are  so  insanitary  and  so  uneconomic;  and  I  think 
there  are  many  indications  that  the  little  community  will  not  survive 
with  the  farmers  with  their  better  roads  and  more  economic  living 
outside,  and  more  sanitary  conditions  and  with  the  development  of 
rural  mail  delivery     which  they  have  in  Europe,  too. 

Mr.  Hayes.  There  is  also  the  safety  from  brigandage,  and  all  sorts 
of  things  of  that  kind. 

Mr.  Coulter.  Yes ;  and  with  the  safety  from  brigandage,  which  they 
now  have,  and  with  better  ways  of  communication.     I  do  not  know 


RURAL    CREDITS.  169 

that  community  life  in  those  villages  will  altogether  disappear,  but  I 
do  not  think  it  is  an  essential  feature. 

Senator  Hollis.  How  is  that  system  working  in  Utah  ?  I  was  in 
Utah  some  25  years  ago,  and  where  the  people  gathered  in  villages 
and  did  the  farming  outside;  are  they  continuing  that  process? 

Mr.  Coulter.  There  is  more  or  less  of  that,  I  think,  in  the  irri- 
gated sections,  where  the  farmer  has  a  small  number  of  acres. 

Mr.  Hollis.  That  is  true. 

Mr.  Coulter.  And  for  the  country  as  a  whole  that  might  be  a  good 
thing  in  irrigated  areas. 

Mr.  Hayes.  As  a  general  rule,  that  is  not  now  true  of  Utah,  is  it? 

Mr.  Coulter.  No.  That  is  not  a  normal  thing;  it  is  exceptional. 
Of  course  we  know  that  the  village  communitv  in  Europe  does  not 
exist  for  any  present-day  reason.  It  is  a  survival  of  the  old  necessity 
for  protection,  when  they  had  to  live  in  communities,  centuries  ago, 
and  they  built  very  strong  walls  around  them,  and  they  had  to  stay 
there  in  the  villages  in  order  to  be  safe.  As  you  drive  through  the 
country  districts  of  Europe  you  strike  these  communities  every  few 
miles,  and  they  are  all  walled  in  with  great  stone  walls;  and  it  would 
be  expensive  for  the  inhabitants  to  move  out  to  the  independent  farms 
which  they  operate. 

Mr.  Hayes.  You  have  not  told  us  where  these  credit  unions  get 
the  funds  which  they  loan  to  their  members. 

Mr.  Coulter.  I  started  to  say  that  in  France  there  is  very  little 
deposited.  In  some  other  countries,  however,  there  are  very  large 
amounts  of  money  deposited. 

Senator  Hollis.  In  the  shape  of  savings  deposits  ? 

Mi\  Coulter.  Little  savings  deposits,  left  both  b}T  members  and, 
in  some  districts,  by  nonmembers.  In  other  words,  although  they 
limit  the  loans  to  members,  many  of  them  will  take  deposits  from 
nonmembers,  and  the  nonmembers  deposit  because  they  know  it  is 
absolutely  secure.  And  generally  that  is  one  of  the  very  best  reasons 
why  they  have  the  unlimited  liability,  in  order  to  attract  the  loans 
from  the  outside. 

I  have  before  me  what  seemed  to  me  to  be  two  or  three  statistical 
facts  that  would  show  about  the  extent  of  that  particular  feature 
of  deposits. 

If  you  take  Germany — I  have  the  facts  for  17,000,  approximately, 
of  these  little  credit  unions;  and  I  asked  the  question  and  tried  to 
get  up  the  facts  to  show  where  they  got  their  working  capital.  I 
found  that  their  working  capital  at  the  date  I  got  this,  a  few  months 
ago,  was  a  little  over  2,000,000,000  marks. 

Now,  to  ascertain  where  they  got  that  seemed  to  me  to  be  im- 

?ortant.  I  found  that  only  1.2  per  cent  of  it  came  from  share  capital, 
ou  will  see  that  1.2  per  cent  is  almost  insignificant ;  that  is  the 
share-capital  feature.  They  had  also  accumulated  what  we  would 
call  surplus  here.  They  call  it  "reserve, "  and  2.6  per  cent  of  the  total 
working  capital  was  reserve.  The  reserve,  in  other  words,  was  more 
than  twice  the  amount  of  the  share  capital.  Thus  the  bank's  own 
funds  amounted  to  only  3.8  per  cent  of  the  total  working  capital. 
Of  the  rest,  "deposits  on  current  account"  amounted  to  only  9.7  per 
cent.    In  other  words,  that  is  not  much  of  a  current  account 


170  RURAL    CREDITS. 

Evidently,  however,  these  societies  are  the  local  savings  societies  for 
the  community,  because  78  per  cent  of  these  2,000,000,000  marks 
represented  savings  deposits. 

Mr.  Bulkley.  You  do  not  mean  78  per  cent;  it  is  7.8  per  cent,  is 
it  not? 

Mr.  Coulter.   NO;  78  per  cent  of  the  total  working  capital. 

Mr.  Bulkley.  Oh,  yes;  I  see. 

Mr.  Coulter.  Only  9.7  per  cent  represented  deposits  on  current 
account. 

Mr.  Pi. att.  Those  savings  deposits,  of  course,  draw  interest,  do 
they  not? 

Mr.  Coulter.  Those  savings  deposits  draw  interest.  The  margin 
they  do  business  on  is  something  wonderful  to  behold.  Of  course, 
they  have  practically  no  expenses. 

Mr.  Platt.  Yes.  They  must  pay  as  much  interest  as  the  savings 
banks,  I  suppose — or  do  they  not  ? 

Mr.  Coulter.  Well,  I  think  you  will  have  to  study  the  individual 
country.  It  would  be  pretty  hard  to  tell.  The  rate  of  interest, 
however,  I  should  say  is  very  nearly  the  same.  You  find  little 
variations  of  all  kinds,  but  they  are  in  very  small  fractions. 

Senator  Hollis.  But  do  they  not,  in  addition  to  that,  as  a  society, 
borrow  some  money  from  the  banks  for  their  members  ? 

Mr.  Coulter.  Now,  there  is  a  very  small  percentage  left,  8  or  9 
per  cent,  that  they  must  get  from  outside.  In  Germany  these  credit 
unions  have  their  own  regional  institutions  and  central  institutions 
of  many  kinds,  and  they  do  a  great  deal  of  exchange  in  that  way; 
a  sort  of  a  clearing  for  them.  In  other  countries  they  have  other 
ways;  for  instance,  some  of  them  in  Italy  deposit  any  surplus  with 
the  savings  banks  or  the  people's  banks  and  borrow  any  additional 
money  they  need  from  those  banks,  and  in  different  countries  they 
have  different  ways.  France,  for  instance,  gets  all  of  theirs  from 
the  regional  bank,  and  then,  by  rediscounting  process,  from  the  Bank 
of  France. 

There  are  all  sorts  of  ways  of  getting  outside  funds,  when  needed. 
In  some  countries,  for  example,  in  Austria  and  Hungary,  deposits  are 
less  important;  they  get  much  more  from  outside  sources. 

Senator  Hollis.  And  they  pledge  their  community  capital  and  get 
funds  at  a  low  rate  of  interest  for  disposal  among  their  members,  do 
they  not  '. 

Mr.  Coulter.  Yes;  and  for  that  reason,  generally  speaking,  bankers 
generally  do  not  have  any  objection  to  them.  I  have  talked  to 
bankers  on  the  subject.  Many  of  them  said,  "They  are  fine  things; 
we  could  not  go  out  and  fool  around  to  make  a  loan  of  17  cents,  or 
something  like  that,  for  a  farmer  who  wants  to  buy  a  chicken;  but,  all 
told,  we  get  a  very  large  amount  of  business  with  these  local  societies." 

Mr.  Platt.  Right  there,  did  you  come  to  the  conclusion  that  your 
original  idea  that  the  little  societies  might  take  the  place  of  Dun's  and 
Bradstreets'  among  the  farmers  would  be  impracticable  '. 

Mr.  Coulter.  No;  I  think  we  need  them  in  this  country;  I  think  the 
farmers  ought  to  form  these  little  credit  unions.  That  is  the  way 
to  carry  the  bank  closer  to  the  comparatively  poor  American  farmers. 

Mr.  Platt.  I  understood  you  to  say  that  your  original  idea  was 
that  they  could  form  societies  to  give  each  other  ratings  and  then  do 
business  with  the  present  banks  ? 


RURAL    CREDITS.  171 

Mr.  Coulter.  Either  that,  or  actually  do  a  part  of  the  business 
themselves.  I  think  it  depends  on  how  prosperous  the  community 
is,  and  how  much  they  do.  There  are  so  many  different  conditions 
in  this  country — from  the  negro  croppers  in  the  Southern  States  to  the 
big  successful  farmers  in  some  other  parts  of  the  country — that  it  is 
impossible  to  work  out  a  uniform  system  for  them  all. 

Mr.  Seldomridge.  Does  a  man  have  to  establish  a  reputation  for 
honesty  and  integrity  before  he  can  be  admitted  to  one  of  these 
societies  ? 

Mr.  Coulter.  Yes;  he  has  to  be  known  by  the  members  and  they 
have  to  pass  on  him. 

Mr.  Hayes.  They  do  not  take  everybody  that  lives  in  the  neighbor- 
hood in,  do  they? 

Mr.  Coulter.  No  ;  they  pass  on  each  applicant  for  membership  ? 

Mr.  Platt.  The  supervision  they  give  of  the  farms,  of  course,  is 
valuable  in  itself,  and  an  additional  security  ? 

Mr.  Coulter.  Yes;  but  this  is  purely  mutual.  There  is  no  person 
hired  to  supervise  it;  but  it  works  out  this  way:  Suppose  I  am  passing 
John  Doe's  farm  out  in  the  country  and  I  know  he  borrowed  some 
money  to  buy  a  pig  with,  and  I  stop  in  to  see  the  pig.  If  he  has  not 
the  pig,  I  am  surprised. 

Mr.  Seldomridge.  Do  they  perform  any  other  service  for  the  farmer 
than  the  mere  financial  relief  ?  Do  they  give  him  any  assistance  in 
these  cooperative  societies  in  the  way  of  marketing  his  produce  and 
selling  what  he  has  to  sell;  helping  him  to  dispose  of  it,  and  buying 
supplies  for  him  ? 

Mr.  Coulter.  Yes;  and  there,  again,  we  have  every  kind  of 
experience  in  the  different  countries.  My  first  example  was  in  Italy. 
I  stopped  in  a  little  village  and  I  asked  them  if  they  did  any  other 
business;  and  they  would  answer,  "No"  at  once.  They  would  say, 
"No,  our  credit  union  is  strictly  a  credit  union."  And  when  I  asked 
them  how  they  did  in  these  other  matters,  they  said  that  there  was 
another  society  that  had  the  same  members  which  had  this  store  or 
supply  house.  The  other  society  would  buy  their  fertilizer,  their 
machines  and  seed,  and  so  on;  and  the  little  credit  union  would  do 
all  the  financial  business  for  the  little  supply  house.  Then  I  asked 
them,  "What  do  you  do  about  selling  your  produce?"  In  that  com- 
munity they  dealt  in  silk  worms  and  cocoons;  they  had  a  little 
cocoon  drying  establishment,  which  was  entirely  financed  by  the  credit 
union.  In  the  same  community  I  had  seen  a  great  many  grapes 
grown  between  the  mulberry  trees.  I  asked  them  who  sold  their 
product  for  them.  They  said,  ' '  Yes,  we  haA^e  a  plant  for  making  wine, 
a  little  factory,  which  is  purely  cooperative;  it  has  the  same  members 
as  the  credit  union,  but  it  is  an  independent  unit  " 

I  asked  them  why  it  was  not  all  one  unit.  They  said  that  was  for 
two  reasons:  In  the  first  place,  some  of  the  farmers  who  raised  grapes 
did  not  raise  silkworms,  and  they  were  not  interested  in  the  silk 
business,  cocoons,  etc.  That  is  to  say,  that  aM  the  farmers  were  not 
interested  in  all  phases  of  the  local  industry.  Second,  they  thought 
it  more  practicable  to  have  the  bank  do  only  a  banking  business. 

In  the  same  general  part  of  the  country,  however,  you  go  into  the 
bank  and  stumble  over  bags  of  fertilizer  and  supplies.  That  is  to 
say,  the  same  institution  will  actually  handle  and  do  the  business  in 


172  RURAL    CREDITS. 

a  regular  businesslike  way,  selling  the  small  things  for  sale  and  buying 
the  supplies. 

Mr.  Brown.  Do  you  think  the  European  systems  that  you  have 
mentioned  are  practicable  in  this  country,  and  would  meet  the  larger 
demands  of  our  people  ? 

Mr.  Coulter.  1  think  that  for  the  great  mass  of  our  farmers  some- 
thing along  this  same  line  would  be  a  very  valuable  thing,  and  very 
necessary  for  the  farmers.  We  have  two  and  one-third  million  tenant 
farmers  working  toward  ownership,  and  we  have  a  couple  of  million 
very  small  farmers  who  own  I  heir  farms.  It  would  take  a  great  many 
different  kinds  of  organizations  to  carry  the  system  into  effect,  accord- 
ing to  the  community.  In  my  home  district  we  sell  carloads  of  wheat. 
In  other  districts  they  may  sell  one  or  two  animals  at  a  time.  It 
depends  on  the  type  and  extent  and  character  of  business  being  done. 
But  absolutely  the  same  conditions  were  found  in  every  part  of 
Europe.  Farmers  who  had  large  farms  and  fine  driving  horses  and 
beautiful  lace  curtains  on  their  windows  and  fine  pianos,  etc.,  were 
frequently  members  of  credit  societies.  In  other  districts,  away  off 
in  the  heart  of  Russia,  these  same  societies  were  formed  under  either 
national  or  local  direction  or  suggestion — these  same  credit  insti- 
tutions. 

Mr.  Seldomridge.  Have  these  societies  raised  the  standard  of  liv- 
ing over  there  ? 

Mr.  Coulter.  Of  course,  I  have  not  inspected  the  country  "before 
and  after,"  but  the  question  was  asked,  time  after  time,  and  they  all 
contended  that  it  had;  that  they  could  do  many  things  which  they 
could  not  do  before;  they  had  many  tilings  which  they  did  not  have 
before;  they  were  more  satisfied  than  they  were  before;  they  would 
not  leave  the  society  for  anything;  they  were  afraid  to  do  anything 
that  was  out  of  the  way  for  fear  they  might  offend  and  get  in  bad  with 
the  society.  They  did  not  take  any  chance  of  being  expelled  once 
they  became  members.  Then  there  were  social  advantages;  they 
could  all  get  together  at  their  meetings  once  in  a  while. 

The  economic  advantages  were  considerable. 

Mr.  Woods.  Do  you  think  the  establishment  of  such  societies  in 
the  United  States  would  encourage  thrift  and  savings,  or  not  ? 

Mr.  Coulter.  I  think  they  would.  I  think  it  would  make  it  possi- 
ble for  those  men,  gradually,  through  their  savings,  to  become  better 
citizens,  and  better  farmers,  and  to  improve  their  condition  in  every 
way.     I  think  it  clearly  tends  in  that  direction. 

Mr.  Platt.  Well,  the  establishment  of  such  societies  in  this  country 
does  not  depend  upon  law,  and  clearly  is  not  a  subject  for  national 
legislation,  is  that  not  true  ( 

Mr.  Coulter.  Well,  that  is  the  next  question  that  I  think  comes 
up.  You  do  not  have  to  have  a  law  to  provide  for  them,  that  is  clear. 
But  if  a  law  were  passed  outlining  how  they  could  be  organized,  giving 
the  whole  scheme  and  an  officer  provided  for,  or  some  inspection  office 
of  some  sort  which  would  have  typical  forms,  constitutions,  by-laws, 
rules  and  regulations,  and  all  necessary  information  to  furnish  to  the 
farmers,  I  believe  the  plan  would  spread  very  rapidly  and  take  hold. 

Mr.  Platt.  Why  would  not  an  agricultural  bulletin  do  just  as  well 
as  a  law  ( 

Mr.  Coulter.  Well,  I  think  there  is  a  great  tendency  in  this  coun- 
try to  have  legal  recognition  for  any  organization.     For  instance,  in 


RURAL    CREDITS.  173 

Minnesota  we  did  not  have  practical,  well-founded  mutual  insurance 
companies  among  the  farmers  for  our  mutual  protection  until  the 
farmers  obtained  the  enactment  of  a  law  providing  for  township 
mutual  companies.  Now,  I  suppose,  practically  every  farmer  in  the 
State  belongs  to  a  mutual  insurance  company.  We  do  our  own 
insuring  entirely.  We  report  to  the  State  insurance  commissioner 
once  a  year  on  a  little  form  which  is  furnished,  and  it  looks  very 
businesslike,  and  it  is  a  very  pleasant  thing  for  a  farmer  to  belong  to 
those  mutual  companies.  Under  the  law  we  have  to  report  every 
year,  and  we  do  a  great  business  in  the  State. 

Mr.  Platt.  Well,  the  States  are  passing  such  laws,  and  several  of 
them  have  already  passed  such  laws. 

Mr.  Coulter.  On  credit  unions  ? 

Mr.  Platt.  Yes:  on  credit  unions. 

Mr.  Coulter.  There  are  four  States  which  have  passed  laws  on 
credit  unions.  Massachusetts  has  had  one  for  several  years;  it  was 
a  very  general  law.  There  have  been  about  30  or  40  credit  unions 
started  under  that  law.  They  have  all  been  town  unions,  I  believe — 
little  town  societies.     New  York  passed  a  law  just  a  short  while  ago. 

Mr.  Platt.  Yes;  last  spring. 

Mr.  Coulter.  And  they  have  found  a  few  defects  in  that  law,  and 
they  are  now  planning  to  amend  it  at  the  next  session  of  the  legisla- 
ture, in  a  month  or  two. 

Wisconsin  passed  a  law  a  few  months  ago,  and  I  had  a  letter  from 
there  recently  saying  that  nothing  has  been  done  under  it. 

And  Texas  passed  a  law  a  few  months  ago,  and  I  received  a  letter 
recently  saying  they  had  had  no  applicants  and  no  organizations 
started  yet. 

Those  are  the  four  States  which  have  laws  on  the  subject,  but  the 
movement  has  started  in  different  States.  Now,  there  is  the  question, 
of  course,  whether  it  would  result  in  a  great  many  different  kinds  of 
State  laws,  and  whether  a  great  many  of  the  States  will  not  pass  laws 
on  the  subject. 

Mr.  Platt.  Would  it  not  be  better,  in  view  of  the  diversity  of  con- 
ditions, to  have  the  laws  passed  by  the  several  States  to  correspond 
with  their  own  needs,  rather  than  to  try  to  do  anything  through  the 
National  Government  ? 

Mr.  Coulter.  My  personal  judgment  has  been,  and  I  have  recom- 
mended it  in  the  past,  that  the  States  should  pass  these  laws;  that 
there  is  no  place  for  Federal  legislation  in  the  matter. 

There  is  one  question,  however,  that  I  have  not  finally  decided  in 
my  own  mind;  and  I  do  not  know  what  others  may  think  of  it. 

I  think  that  probably  it  will  be  necessary  for  some  arrangement  to 
be  made  whereby  these  credit  unions  can  be  connected  up  in  some 
way  with  the  Federal  reserve  system,  which  has  just  been  established 
by  the  Federal  Reserve  Act,  and  which  I  think  is  an  admirable 
system. 

Mr.  Ragsdale.  Pardon  me,  Dr.  Coulter,  but  why  do  you  say  there 
should  be  no  Federal  legislation  on  the  subject? 

Mr.  Coulter.  Well,  first,  I  think  that  my  experience  in  the  differ- 
ent parts  of  Europe  has  led  me  to  believe  that.  And  that  experience 
has  taken  me  over  a  greater  variety  of  country  than  anything  we 
have  in  the  United  States — from  near  the  North  Pole  in  Russia  to  the 
southern  part  of  Italy. 


174  RURAL    CREDITS. 

Conditions  arc  very  different  in  different  parts  of  this  country.  I 
have  spent  days  and  weeks  on  plantations  in  the  Southern  States 
with  friends,  and  the  system  of  farming  there,  with  those  croppers, 
who  are  as  dependent  or  more  dependent  in  some  parts  of  the 
country  than  the  average  farm  laborer  in  other  parts  of  the  country. 
On  the  other  hand,  I  nave  been  in  other  sections  of  the  country, 
where  almost  every  farmer  who  calls  himself  a  farmer  is  worth  from 
$10,000  to  $200,000.  I  doubt  if  there  is  a  farm  owner  in  my  home 
township  who  is  worth  less  than  $10,000.  Many  farmers  do  not 
talk  in  terms  of  a  few  acres;  they  say,  "I  think  I  will  put  in  400  or 
500  acres  next  year  in  this  crop,  or  that  crop."  The  different  types 
of  agriculture  are  so  distinct  and  different  that  I  have  doubted 
whether  it  would  be  possible  to  form  a  national  law  which  would  fit 
all  the  needs  of  the  different  States.  In  other  words,  it  has  seemed 
to  me,  aside  from  this  one  question  that  I  will  raise,  that  the  needs, 
and  problems  and  characteristics  of  agriculture  are  so  different.  I 
found  so  many  variations  in  Europe  in  the  needs  of  the  different  sec- 
tions that  my  inclination  has  been  very  strongly  that  it  should  be  a 
matter  of  State  law,  and  I  would  not  even  advise  the  farmers  to  wait 
for  a  State  law.  I  would  advise  them  to  go  ahead  and  form  these 
unions,  without  laws;  but  if  they  wait  for  laws,  let  us  have  State  laws. 

But  let  us  connect  up  with  the  Federal  reserve  system,  so  as  to 
have  an  outlet  during  harvesting  and  thrashing  seasons. 

Mr.  Hayes.  I  would  like  to  ask  you  just  how  far  your  idea  goes? 
Do  you  refer  to  those  little  credit  unions  or  do  you  refer  to  organiza- 
tions among  farmers  for  the  sake  of  getting  credit  generally — short- 
time  credits  ? 

Mr.  Coulter.  I  think  the  next  step  is  to  secure  personal  credit 
generally.  Many  farmers  now  own  their  own  small  banks.  I  think 
they  should  do  that  too,  the  bigger  and  more  prosperous  farmers,  at 
least. 

Mr.  Ragsdale.  But  in  the  system  we  have  under  consideration  at 
this  time,  it  is  presumed  that  the  land  itself  will  stand  as  a  guarantee 
of  payment,  will  it  not  ? 

Mr.  Coulter.  I  am  speaking  now  entirely  of  personal  credit. 

Mr.  Hayes.  And  not  land-mortgage  banks  ? 

Mr.  Coulter.  No;  not  land-mortgage  banks. 

Mr.  Ragsdale.  I  know.  But  do  you  think  the  States  ought  legiti- 
mately to  govern  that  system  also  ? 

Mr.  Coulter.  No;  on  the  matter  of  mortgage  credit,  I  am  very 
much  in  favor  of  national  legislation. 

Mr.  Ragsdale.  That  is  what  I  wanted  to  draw  out. 

Mr.  Coulter.  Yes. 

Mr.  Ragsdale.  Whereas,  in  the  case  of  personal  credits  you  think 
the  States,  on  account  of  differing  conditions,  ought  to  control,  you 
believe  that  in  the  case  of  land-mortgage  loans  the  Federal  Govern- 
ment should  contro1  and  legulate  them? 

Mr.  Coulter.  Yes;  I  feel  that  very  strongly. 

Mr.  Ragsdale.  Under  the  conditions  you  have  learned  in  this 
country  and  abroad,  do  you  not  think  that  in  order  for  them  to  be  a 
perfect  success,  the  Government  must  extend  some  aid  itself  ? 

Mr.  Coulter.  No;  I  feel  very  strongly  that  it  is  absolutely  unneces- 
sary, in  the  first  place,  and  it  would  be  a  very  bad  thing  if  it  was 


RURAL   CREDITS.  175 

necessary;  I  am  glad  it  is  not  necessary.  I  would  feel  sorry  if  our 
country  was  at  the  point  where  that  was  necessary. 

Mr.  Ragsdale.  If  those  communities  in  which  there  is  a  heavy 
demand  for  money,  greater  than  the  local  supply  can  furnish,  how 
would  you  get  this  money  in  those  communities  ? 

Mr.  Coulter.  I  would  let  the  bank  organized  in  those  communities 
for  that  purpose  issue  bonds,  properly  secured  by  mortgage,  and  let 
those  bonds  go  to  markets  where  the  money  is  available. 

Mr.  Ragsdale.  Do  you  mean  banks  that  would  receive  deposits  ? 

Mr.  Coulter.  I  think  it  would  be  very  doubtful  whether  they 
should  be  regular  deposit  banks. 

Mr.  Ragsdale.  Then  they  would  not  be  banks,  in  the  ordinary 
acceptation  of  the  word  in  this  country,  would  they? 

Mr.  Coulter.  I  think  they  might  be  called  banks,  and  given  a 
special  definition. 

Mr.  Hayes.  Let  me  say  that  this  bill  provides  for  such  banks  that 
are  not  banks  of  deposit. 

Mr.  Ragsdale.  Yes;  I  know. 

Mr.  Hayes.  And  that  is  what  the  bill  calls  them. 

Mr.  Ragsdale.  I  do  not  think  they  ought  to  be  called  banks. 
They  might  be  called  trust  companies  or  something  of  that  kind. 
My  idea  is  that  in  the  national  system  there  ought  to  be  a  clear  dis- 
crimination in  the  use  of  terms  that  apply  to  those  institutions  which 
receive  deposits  and  those  which  do  not  receive  deposits. 

Mr.  Platt.  Do  you  not  think  the  word  " trust"  is  in  rather  more 
disrepute  than  the  word  "bank"  nowadays? 

Mr.  Ragsdale.  It  is  not  a  question  of  that,  but  it  is  a  question  of 
devising  a  system  that  would  be  as  easily  understood  as  possible. 

Mr.  Coulter.  Of  course,  you  could  call  them  "companies." 

Mr.  Woods.  Dr.  Coulter,  you  spoke  about  connecting  these  per- 
sonal credit  societies  with  the  national  banking  system.  Would  not 
that  require  national  laws  to  do  that  ? 

Mr.  Coulter.  I  think  so;  and  that  is  the  one  point  that  I  am  not 
clear  on  myself — as  to  what  should  be  done.  In  fact,  I  have  been 
studying  the  matter  for  some  time;  with  Mr.  Moss,  Senator  Fletcher, 
and  others  I  have  been  studying  that,  and  have  been  trying  to  frame 
some  kind  of  a  scheme  whereby  these  little  local  banks  might  organize 
a  national  bank  which  could  come  in  as  a  member  bank  in  the  Federal 
reserve  system,  but  I  have  nothing  to  recommend  on  that  at  the 
present  time,  except  that  were  it  not  for  the  desirability  of  having 
these  local  credit  unions,  or  whatever  they  are  called,  attached  in 
some  way  to  that  system  of  Federal  reserve  banks,  I  would  prefer 
them  to  be  developed  by  the  various  States,  under  the  State  laws,  or 
without  any  laws.  But  in  order  for  them  to  have  the  advantage  of 
the  Federal  reserve  system  which  has  just  been  established  I  think 
it  may  be  necessary  or  wise  for  some  national  legislation  to  make  it 
possible  for  them  to  organize  a  national  bank  which  would  become  a 
member  bank. 

But  that  is  a  matter  I  had  not  intended  to  be  drawn  into.  I  have 
discussed  that  with  Mr.  Moss  and  we  have  been  trying  to  work 
out  something.     I  have  not  any  final  judgment  on  it. 

Mr.  Moss.  Dr.  Coulter,  if  you  will  excuse  me  a  moment,  I  wish  to 
say  for  the  record  that  the  subcommittee  of  the  commission  feels 
that  it  is  necessary  to  have  some  such  legislation. 


176  RURAL   CREDITS. 

Mr.  Coulter.  Yes.  I  think  that  all  feel  that  it  is  necessary  to  get 
some  connection,  but  how  to  bring  it  about  and  whether  it  is  neces- 
sary to  organize  these  little  credit  unions  under  Federal  act,  or 
whether — I  made  this  suggestion  for  what  it  is  worth  some  days 
ago — the  national-banking  act  might  not  be  merely  amended  so  as  to 
provide  that  instead  of  from  7  to  10  natural  persons  joining  to  form  a 
national  bank,  that  the  same  number  of  credit  unions,  or  farmers' 
credit  societies,  or  any  other  similar  organizations,  might  also  or- 
ganize to  form  such  a  national  bank,  is  the  question.  But  if  you 
did  that,  you  would  have  to  regulate  these  credit  unions. 

Mr.  RxVGSDale.  I  was  going  to  say  that  would  open  the  door  so 
wide  that  it  would  not  be  advisable. 

Mr.  Coulter.  It  goes  back  to  the  question  of  providing  some- 
thing; but  I  have  studied  that  subject,  and  have  not  reached  any 
final  judgment  on  it.  I  think  there  must  be  some  method  to  connect 
them  up,  but  how  I  do  not  know. 

Mr.  Platt.  The  States  have  got  to  do  something  to  take  care  of 
the  small  banks  they  have  now,  with  $5,000  or  $10,000,  that  are  shut 
out  of  the  Federal  reserve  act. 

Mr.  Coulter.  That  is  another  thing  I  wished  to  discuss.  There 
are  at  the  present  time  between  7,000  and  9,000  State  and  other 
small  banks  with  a  capital  of  less  than  $25,000.  My  own  feeling  is 
very  strong — and  I  have  expressed  it  to  the  commission  that  has 
been  studying  this  subject — that  there  should  be  provision  made  for 
national  incorporation  of  banks  down  as  low  as  $10,000  capital.  I 
think  that  they  ought  to  have  the  advantage  of  connection  with  the 
Federal  reserve  system.  We  have  written  hundreds  and  hundreds 
of  letters  to  those  small  banks,  and  it  is  perfectly  clear  that  they  can 
not  afford  to  increase  their  capital  to  $25,000.  The  communities 
are  such  that  they  can  not  afford  to  do  that,  and  therefore  they  can 
not  go  into  the  system. 

Mr.  Platt.  Some  of  them  are  very  similar  to  those  people's  banks 
in  Europe  ? 

Mr.  Coulter.  Yes. 

Mr.  Platt.  And  some  of  them  are  almost  purely  farmers'  banks  ? 

Mr.  Coulter.  Yes;  some  of  them  are  almost  purely  farmers' 
banks,  and  I  know  some  where  the  stock  is  all  owned  by  farmers. 

Mr.  Hayes.  There  is  nothing  to  prevent  the  States  from  organ- 
izing and  taking  care  of  those  banks,  the  same  as  the  Nation  has 
provided  for  the  Federal  reserve  banks. 

Mr.  Coulter.  Well,  but  there  you  fall  into  48  kinds  of  laws. 

Mr.  Hayes.  That  is  true,  but  the  conditions  are  different  in  the 
various  States. 

Mr.  Coulter.  And  yet  if  you  take  the  digest  of  the  State  banking 
laws,  some  of  the  good  digests  and  examine  them,  you  will  find  that,  as 
an  illustration,  State  banks  were  allowed  to  lend  money  on  real  estate; 
and  yet  you  study  the  laws  in  all  the  States  and  the  practices  in  all 
the  States,  and  they  have  imitated  the  precedents  of  the  national 
banks.  Even  if  you  authorize  them  by  law  to  do  a  certain  thing, 
they  know  in  practice  they  must  follow  the  general  system  of  national 
banks,  because  they  must  deal  through  national  banks  and  have 
finally  to  turn  to  them:  they  know  that  their  paper  on  land  is  not 
good;  they  are  modeled  after  the  national  banks  in  their  business 
forms  and  business  methods  and  you  can  not  get  away  from  that. 


RURAL    CREDITS.  177 

Mr.  Hayes.  That  is  sound  and  proper. 

Mr.  Coulter.  I  think  it  is,  and  therefore  I  think  they  ought  to  be 
allowed  to  incorporate  with  a  Federal  charter  down  to  $10,000. 

Mr.  Woods.  Referring  to  those  associations  in  foreign  countries, 
you  spoke  about  the  fact  that  the  local  credit  associations  were  obliged 
to  get  money  from  outside  sources  ? 

Mr.  Coulter.  Yes;  sometimes. 

Mr.  Woods.  Do  they  rediscount  their  paper  or  borrow  on  their 
own  note  directly,  or  issue  bonds? 

Mr.  Coulter.  Generally  they  borrow  directly,  or  rediscount  their 
own  paper. 

Mr.  Woods.  Yes. 

Mr.  Coulter.  But  it  is  interesting  to  know  that  in  Italy  the  idea 
of  issuing  bonds  arose  20  years  ago,  but  instead  of  the  little  locals 
issuing  the  bonds  they  went  to  the  savings  bank  or  people's  bank  and 
gave  their  paper  as  security,  and  these  savings  banks  or  people's  banks 
issued  bonds. 

In  Hungary  a  the  present  time  I  believe  that  the  reason  that  the 
Hungarian  Government  is  so  active  is  because  they  have  to  get  much 
of  the  money  necessary  from  other  countries  and  provide  for  central 
institutions  to  issue  the  bonds.  The  locals,  I  think,  have  never  issued 
bonds,  but  rediscount  their  paper,  or  borrow  directly. 

To  summarize,  on  the  personal  credit  side  then,  if  it  were  possible 
to  get  the  small  State  and  county  banks  under  Federal  charter,  it 
would  be,  it  seems  to  me,  a  long  step  in  the  right  direction,  and  then 
if  the  little  locals  were  established  all  over  the  country,  I  think  that 
would  be  the  second  big  step. 

Now,  I  do  not  think  that  it  is  necessary  to  try  to  connect  them  up 
with  the  Federal  reserve  system  until  you  have  some  of  them. 

It  occurred  to  me  that  after  we  found  a  way  to  adapt  them  to  our 
needs  in  this  country  then  they  might  be  federated,  in  some  such 
way  as  we  have  provided  now  for  the  national  banks,  and  in  that  way 
the  connecting  link  be  provided. 

Mr.  Hayes.  But  if  the  national  bank  was  allowed  to  organize 
down  to  $10,000  capital,  those  little  banks  in  the  country  would 
take  care  of  your  unions,  would  they  not  ? 

Mr.  Coulter.  Probably  they  would,  and  they  could  get  all  their 
connections  there. 

Mr.  Hayes.  Surely. 

Mr.  Coulter.  But,  as  I  say,  I  do  not  know  what  is  the  best  way. 
I  do  not  like  a  national  law  to  create  these  little  credit  institutions 
of  so  many  different  kinds,  because,  as  I  say,  in  many  districts 
they  should  do  the  buying  and  the  selling  for  the  farmers,  etc.  But 
that  is  a  point  I  have  not  any  final  judgment  on. 

I  wish  to  add  that  throughout  Europe,  probably  in  every  country — 
and  this  is  a  thing  that  Mr.  Moss  suggested  along  this  line — just  the 
same  as  you  have  now  through  your  Federal  reserve  act  organized 
a  definite  system,  so  that  all  of  these  national  banks  all  over  the 
country  may  work  together  with  big  centrals,  so.  all  over  Europe, 
the  little  credit  unions  have  organized  into  federations.  They  are 
organized  into  federations,  so  that  they  have  clearing  houses  and 
centrals,  and  then  bigger  centrals.  So  that  they  have  independently 
done  the  very  thing  in  Europe  which  you  have  done  here  in  the 
United  States  by  your  legislation. 

37031—14 12 


178  RURAL    CREDITS. 

Mr.  Platt.  Arc  these  credit  unions  organized  in  such  countries 
as  the  Balkan  States,  or  Turkey  \ 

Mr.  Coulter.  Yes;  they  are  organized  there,  as  I  understand. 
I  did  not  get  down  to  the  Balkan  States,  although  I  got  close  to  the 
border,  in  Hungary.  But  off  among  the  Magyars,  and  among  the 
Croatians,  I  was  up  among  the  various  Russian  groups — among  the 
Polish  people,  both  the  Austrian  Poles  and  the  Russian  Poles.  I 
found  these  unions  everywhere;  and  I  found  them  among  the  little 
Russians,  who  are  considered  the  most  illiterate  Russians;  and 
some  of  those  unions  were  15  or  20  years  old.  So  they  are  not 
barely  starting;  they  are  old  enough  to  do  business.  And  they 
have  worked  out 

Mr.  Seldomridge  (interposing).  Dr.  Coulter,  do  you  think  it 
would  be  practicable  for  the  Government  to  give  the  country  an 
object  lesson  in  the  matter  of  organizing  a  few  of  these  unions  in 
different  parts  of  the  country  and  see  how  they  could  be  worked  out 
with  actual  supervision  ? 

Mr.  Coulter.  I  think  it  might  not  be  out  of  place  for  the  Depart- 
ment of  Agriculture  to  do  that  very  thing. 

Mr.  Hates.  You  mean,  assist  them  to  organize  ? 

Mr.  Seldomridge.  I  do,  yes. 

Mr.  Coulter.  In  other  words,  show  them  how,  send  out  demon- 
strators. 

Mr.  Seldomridge.  Yes;  send  demonstrators  abroad  to  European 
countries  and  get  the  facts  winch  Dr.  Coulter  has  gathered  together 
here  and  put  the  Government  officials  in  charge  of  one  of  these  organi- 
zations for  a  few  months  and  demonstrate  practically  just  what 
could  bo  done. 

Mr.  Hayes.  That  is  a  splendid  idea. 

Mr.  Coulter.  I  think  such  demonstration  should  be  made  I 
think  it  is  just  as  legitimate  for  the  Department  of  Agriculture  to 
teach  the  farmers  how  to  get  money  at  6  per  cent,  instead  of  12  per 
cent,  as  it  is  to  show  them  how  to  make  two  blades  of  grass  grow 
where  one  grew  before  or  to  get  two  drops  of  milk  where  they  got 
one  before. 

Mr.  Platt.  Could  that  be  done  under  the  Smith-Lever  bill  which 
has  just  passed  ? 

Mr.  Coulter.  Not  unless  the  Department  of  Agriculture  takes  up 
this  phase  of  work.  They  have  not  done  so  in  the  past,  but  I  think 
it  would  be  admirable  if  they  could  and  would  do  so. 

Mr.  Bulkley.  To  what  extent  are  these  European  unions  organ- 
ized under  national  law  and  to  what  extent  under  provincial  or  local 
law? 

Mr.  Coulter.  Practically  not  at  all  under  national  law  ^except  in 
some  of  the  newer  countries,  where  they  are  commencing  to  be 
introduced.  They  arose  spontaneously,  either  under  local  or  pro- 
vincial laws,  or  without  any  law.  In  Italy  Mr.  Wollemborg  just  got 
one  started  in  his  own  little  community  because  he  had  studied  what 
they  had  been  doing  with  them  in  Germany,  and  the  system  spread 
over  Italy. 

Mr.  Bulkley.  The  land-mortgage  banks  are  also  under  local  laws, 
are  they  not  ? 

Mr.  Coulter.  Yes;  the  land-mortgage  banks  are  generally  under 
local  law,  I  think  you  may  say,  although  in  some  countries 


RURAL    CREDITS.  179 

Mr.  Ragsdale  (interposing).  Pardon  me,  Dr.  Coulter;  but  under 
the  term  ' '  local  law ' '  what  do  you  mean  ? 

Mr.  Coulter.  Provincial  law. 

Mr.  Hayes.  The  law  of  the  Province? 

Mr.  Coulter.  The  Province,  yes.  For  instance,  in  Germany,  it 
would  be  the  different  States 

Mr.  Ragsdale.  Now,  to  what  extent  does  either  the  provincial  or 
the  local  law  in  those  countries  control  the  financial  situation  or  the 
issuing  of  money  in  that  particular  Province  ? 

Mr.  Coulter.  Do  you  mean  the  personal-credit  instruments? 

Mr.  Ragsdale.  I  mean  in  the  issuing  of  money. 

Mr.  Coulter.  Every  big  country  has  its  own  personal  credit  sys- 
tem. So  the  Provinces  or  States  have  nothing  to  do  with  the  personal 
credit. 

Mr.  Platt.  Do  you  mean  nothing  to  do  with  the  issuing  of  cur- 
rency ? 

Mr.  Coulter.  Yes;  with  the  issuing  of  currency. 

Mr.  Ragsdale.  That  is  what  I  want  to  develop.  There  is  an 
entirely  different  condition  which  obtains  there  from  that  which 
obtains  in  this  country.  Does  it  not  seem  that  where  all  the  money 
comes  from  a  national  source  they  have  got  to  look  to  that  source 
for  the  issuing  of  money,  and  also  for  the  final  handling  of  the  credit 
system  ?  »'H 

Mr.  Coulter.  I  think  in  this  country  the  issuing  of  mortgage 
bonds,  or  whatever  they  are  called 

Mr.  Ragsdale.  Yes. 

Mr.  Coulter  (continuing).  Should  be  entirely  under  Federal  act. 
That  is  so  that  they  will  all  be  of  a  definite  type;  the  National  Gov- 
ernment should  specify  a  definite  type. 

Mr.  Hayes.  A  standard. 

Mr.  Ragsdale.  Yes;  a  standard.  And  do  you  not  think  there 
ought  to  be  some  legislation  that  would  provide  for  their  acceptance 
in  the  Treasury  upon  some  terms  which  would  be  specified,  just  as 
other  paper  ? 

Mr.  Coulter.  I  think  so. 

Mr.  Hayes.  Do  you  mean  for  security  ? 

Mr.  Ragsdale.  Yes. 

Mr.  Coulter.  But  in  Europe  you  find  a  great  many  provincial 
laws;  you  find  even  with  the  land  banks  all  sorts  of  local  practices. 

Mr.  Ragsdale.  Yes. 

Mr.  Coulter.  On  the  other  hand,  in  Italy,  for  instance,  aside  from 
the  savings  banks,  which  is  a  lot  of  mortgage  business,  the  institu- 
tions are  under  national  law;  but  they  apply  to  specific  provinces; 
for  instance,  it  will  be  a  law  for  the  Province  of  Latium,  or  the  Basili- 
cate,  or  Sardinia.  In  Russia  there  is  just  one  big  national  system  for 
the  mortgage  business.  In  France  there  is  practically  one  big  mort- 
gage institution. 

Mr.  Ragsdale.  Yes. 

Mr.  Coulter.  In  Germany  they  are  scattered.  Belgium  has  both 
the  mutual  and  the  joint-stock  institutions. 

Mr.  Ragsdale.  Yes. 

Mr.  Coulter.  Holland  has  about  70  joint-stock  banks. 

Mr.  Platt.  Dr.  Coulter,  Mr.  Moss  yesterday,  in  speaking  of  insti- 
tutions that  were  allowed  to  loan  both  in  the  cities  and  in  the  country, 


180  RUKAL    CREDITS. 

said  that  they  practically  never  made  loans  in  the  country,  or  very 
rarely  did  so.  Do  you  think  that  is  due  to  the  fact  that  the  growth  of 
the  cities  has  been  a  pronounced  phenomenon  of  recent  times  ?  Do 
you  think  that  movement  is  likely  to  be  permanent?  For  instance, 
if  farming  should  become  relatively  more  profitable,  would  there  not 
be  a  tendency  for  organizations  like  building  and  loan  associations 
to  loan  on  farms  rather  than  on  urban  property? 

Mr.  Coulter.  If  that  time  wrere  likely  to  be  close  at  hand,  it  seems 
to  me 

Mr.  Platt  (continuing) .  Or  do  you  think  the  growth  of  cities  can 
keep  on  at  its  recent  rate  without  any  check;  do  you  not  think  that 
is  a  condition  that  is  going  to  pass  away  ? 

Mr.  Coulter.  Well,  farming  is  constantly  being  done  more  effi- 
ciently, with  the  improvement  of  machinery  and  farm  methods — 
take  for  instance,  if  you  introduce  a  cotton-picking  machine  in  the 
South  you  could  send  1,000,000  negroes  to  the  cities  in  a  few  years. 

Mr.  Platt.  In  other  words,  you  think  the  people  have  been  driven 
to  the  cities,  rather  than  going  there  of  their  own  accord  ? 

Mr.  Coulter.  Well,  frequently  they  do  not  need  to  stay  in  the 
country,  and  there  probably  is  not  work  there  for  them.  And  then 
there  is  another  thing ;  work  which  was  formerly  farm  work  has  now 
become  city  work.  Farmers  used  to  make  all  of  their  cider  and 
whisky  and  beer. 

Mr.  Brown.  And  shoes. 

Mr.  Coulter.  Yes,  and  their  own  shoes  and  their  own  clothing. 
My  grandfather  did,  in  my  own  day;  I  have  seen  him  do  it. 

Mr.  Hayes.  I  have  seen  the  same  thing. 

Mr.  Coulter.  And  I  am  young,  too.  But  now  we  are  getting  to 
where  what  wTas  formerly  farm  work  is  now  done  in  the  cities.  As 
that  continues,  the  country  people  will  go  the  cities  to  do  what  was 
formerly  farm  work.  And  then,  in  addition  to  that,  the  work  wrhich 
is  done  on  the  farm  is  being  done  so  much  more  efficiently,  that  that 
releases  people  from  the  farm.  And  although  I  do  not  like  the  move- 
ment toward  the  cities  at  all — I  do  not  think  it  is  the  best  thing  for 
the  country — still  it  looks  to  me  to  be  a  very  definite  tendency,  and 
it  seems  to  be  going  on.  In  the  last  10  years  the  farm  population 
of  this  country  has  increased  only  10  or  11  per  cent,  and  the  city 
population  has  increased  35  per  cent. 

Mr.  Hayes.  Is  that  not  owing  largely  to  immigration,  which  goes 
almost  entirely  to  the  cities  '. 

Mr.  Coulter.  That  accounts  for  part  of  it. 

Mr.  Platt.  But  the  same  thing  is  true  of  Europe. 

Mr.  Hayes.  But  not  to  the  same  extent. 

Mr.  Coulter.  I  think  nearly  to  the  same  extent.  I  was  dumb- 
founded by  what  I  learned  over  there.  There  was  city  after  city  in 
Russia,  bigger  than  the  city  of  Washington,  and  yet  I  had  never 
heard  of  those  cities.  I  would  tell  the  people  I  wanted  to  take  a 
train  to-night  and  go  inland  to  the  big  center  of  agriculture;  and  I 
would  ask  if  there  were  any  towns  oil"  there  that  I  could  stop  at  in  the 
morning.  They  would  probably  name  three  or  four  and  when  I 
asked  them  the  size  of  these  towns  they  would  say  the}'  had  400,000 
or  500,000  population.  And  I  confessed  my  absolute  ignorance. 
And  there  is  Russia,  which  has  great  cities,  thriving  cities,  beautifully 
lighted  with  electric  lights,  with  street  car  systems,  and  great  fairs 


EUKAL    CREDITS.  181 

being  held  as  big  as  any  of  our  great  State  fairs,  and  all  that  sort  of 
thing.  I  confess  I  was  amazed.  And  it  seems  to  me  that  people  all 
over  the  world  are  going  to  the  cities  to  do  the  work  that  used  to  be 
done  in  the  country. 

Mr.  Ragsdale.  Do  you  know  what  the  rate  of  increase  or  decrease 
of  the  cities  and  country  population  has  been  in  Canada  during  the 
last  10  years  ? 

Mr.  Coulter.  I  do  not  know.     I  could  look  it  up. 

Mr.  Platt.  Would  you  say  that  conditions  in  Russia,  generally 
speaking,  are  more  nearly  like  those  in  the  United  States  than  those 
of  any  other  country  in  Europe  ? 

Mr.  Coulter.  Yes;  in  many  respects.  Germany,  for  instance,  has 
65,000,000  people  and  is  not  as  big  as  Texas;  that  is  to  say,  it  is  very 
thickly  settled;  so  it  is  with  France  and  other  countries;  but  Russia 
is  a  great,  big  country,  like  this,  comparatively  sparsely  settled. 

Mr.  Platt.  And  with  a  great  many  different  nationalities  ? 

Mr.  Coulter.  Yes;  and  with  a  great  many  different  peoples;  and 
you  get  off  in  the  interior  of  Russia  and  you  find  as  bad  roads  as 
anything  we  have  in  this  country — I  do  not  believe  they  are  worse. 

Mr.  Hayes.  They  could  not  be  worse  than  we  have  in  some  places. 

Mr.  Coulter.  It  has  great  stretches  of  country,  people  scattered 
all  over  it;  it  is  an  immense,  thinly  settled  country,  still  in  the  rough 
state,  it  seems.  They  have  not  built  up  industries,  I  think,  as  far  as 
we  have;  so  they  have  probably  had  a  smaller  movement  toward 
the  city.  Still,  they  have  a  great  many  big,  fine  towns  and  business 
centers  doing  an  immense  business.  I  found  big  bank  buildings  there 
as  fine  as  anything  in  the  United  States — off  in  the  center  of  Russia, 
where  we  read  about  peasant  revolts.  There  are  a  few  of  those,  of 
course. 

Mi'.  Platt.  Generally  speaking,  are  the  people  of  Russia  not  as 
active  in  pushing  ahead  and  apparently  not  any  more  hampered  by 
the  Government  than  people  in  other  countries  ? 

Mr.  Coulter.  I  think  the  great  mass  of  peasants  are  less  educated 
than  in  other  countries.  In  that  respect  they  are  far  behind.  I  think 
it  is  67  per  cent  of  the  peasants  of  Russia  that  can  not  read  and  write. 
They  say  that  themselves.  But  they  have  also  started  to  establish  a 
complete  system  of  schools,  and  within  six  or  seven  years  every  coun- 
try community  of  Russia  will  have  a  school  and  every  child  will  be 
in  the  school,  so  there  is  not  much  difference  in  that  way.  The  people 
are  generally  physically  a  great,  big,  fine,  well-built  people  and  a 
good  neighboring  people. 

Mr.  Seldomridge.  Is  the  land  entailed  there? 

Mr.  Coulter.  If  you  are  going  into  the  land  question,  you  will  find 
that  they  are  trying  to  do  the  things  that  we  have  been  trying  to  do 
in  this  country.  That  is  to  say,  we  came  into  this  country  and  killed 
off  the  Indians  and  distributed  the  lands  to  the  people.  Over  there 
the  people  were  already  in  the  country  and  instead  of  killing  off  the 
Indians 

Mr.  Seldomridge.  They  killed  off  some  of  the  nobility,  didn't  they  ? 
[Laughter.] 

Mr.  Coulter.  Instead  of  killing  off  the  nobles  they  decided  to  make 
the  people  pay  for  the  land  through  a  period  of  50  or  60  years  and  pay 
the  nobility,  and  then  let  the  nobility  invest  the  money  in  other  ways, 


182  KURAL    CREDITS. 

or  spend  it,  if  thoy  wanted  to.  Those  that  spent  their  money  have 
gone  to  the  dogs,  and  those  that  did  not  spend  it  have  maintained 
smaller  estates. 

Mr.  Hayes.  Is  this  going  on  in  Russia  now? 

Mr.  Coulter.  Yes.  Russia  has  a  magnificent  set  of  land-mortgage 
banks.  They  have  the  nobility  land-mortgage  bank,  which  takes 
over  the  estate  from  the  no'  les,  and  then  they  have  a  sister  society 
that  divides  the  estate  up  and  sells  it  in  small  lots  to  the  peasants, 
and  gives  them  a  long  period  of  time  in  which  to  pay  for  the  land; 
and  the  land  is  gradually  passing  from  the  nobility  to  the  peasant, 
except  that  each  nobleman  retains  a  considerable  estate. 

But  away  off  in  the  heart  of  Russia,  it  was  not  uncommon  to  see 
a  big  farmer,  one  of  the  noHlity,  and  go  into  Iris  house — and  his  little 
girl  would  greet  me  in  English  and  say  she  wanted  to  see  me  because 
she  wanted  to  know  what  an  American  looked  like;  the  children  have 
English  governesses  and  learn  English  in  that  way.  Many  of  the 
nobility  are  selling  off  their  land,  and  are  using  the  money  in  part  to 
educate  their  children.  The  children  are  generally  able  to  speak 
English,  French,  and  German. 

Mr.  Platt.  In  general  progress,  Russia  is  going  ahead  as  fast  as 
the  United  States,  is  it  not  ? 

Mr.  Coulter.  I  really  think  so. 

Mr.  Platt.  And  perhaps  a  little  faster  ? 

Mr.  Coulter.  I  stopped  in  a  farmers'  club  in  the  town  of  Kieff, 
which  we  have  all  heard  of  on  account  of  an  alleged  ritual  murder. 
I  stepped  into  the  club  there,  and  one  of  the  officers  spoke  to  me  in 
good  English,  and  said,  "By  the  way,  according  to  the  papers,  you 
are  from  Minnesota.  Our  society  maintains  an  expert  in  Minnesota." 
And  he  gave  me  the  name  of  the  expert  and  his  address  in  Minneapolis. 

He  said  that  the  business  of  the  expert  was  to  find  out  everything 
that  our  experiment  station  covered  in  Minnesota,  and  send  word 
to  them  about  it.  Now,  there  is  a  farmer's  club  in  Russia  with  an 
expert  watching  us  so  as  to  report  to  them  what  we  do. 

Mr.  Hayes.  There  are  similar  climatic  conditions  ? 

Mr.  Coulter.  Yes. 

Senator  Hollis.  We  ought  to  have  a  farmer  in  Russia  watching 
fto  see  what  they  were  doing.     [Laughter.] 

Mr.  Coulter.  Our  Government,  of  course,  maintains  experts 
around  the  world,  but  our  farmers'  organizations  do  not.  But  over 
there  the  Government  has  not  in  the  past  been  doing  much  along 
that  line.  They  are  starting  now  to  establish  all  lands  of  experiment 
stations,  extension  work,  etc. 

Mr.  Seldomridge.  Have  they  good  railroad  facilities  ? 

Mr.  Coulter.  Yes;  good  railroad  faciU ties. 

Mr.  Platt.  Yet  we  have  not  any  treaty  with  Russia,  and  do  not 
do  any  business  with  her. 

Mr.  Coulter.  No;  they  poked  a  good  deal  of  fun  at  me  about  my 
ignorance  of  Russia.  The  prime  minister  of  Russia,  who  resigned  a 
few  days  ago  on  account  of  ill  health,  said:  "You  Americans  are  a 
marvelous  lot  of  people;  you  are  so  busy  over  there  with  your  own 
affairs  that  you  have  not  time  really  to  look  into  conditions  in  other 
places,  and  know  how  to  deal  with  them."  He  was  quite  good- 
natured  about  it;  he  laughed  about  it. 


EURAL   CREDITS.  183 

Now,  gentlemen,  we  have  only  touched  the  question  of  personal 
credit.  Probably  I  should  not  have  gotten  started  on  that  subject. 
Most  of  my  studies,  so  far  as  national  legislation  is  concerned,  bear 
upon  land-mortgage  credit;  and  I  would  like  to  speak  on  that  sub- 
ject at  some  length  later. 

Mr.  Bulkley.  The  hour  of  adjournment  having  arrived,  I  should 
like  to  know  the  pleasure  of  the  committee  upon  this  question:  I 
should  like  to  say  that  under  the  plan  which  Senator  Hollis  and  I 
have  mapped  out,  we  wanted  to  get  through  with  what  the  members 
of  the  United  States  commission  had  to  say  this  week,  as  we  had  some 
other  plans  for  next  week;  and  if  it  would  be  agreeable  to  the  com- 
mittee, we  would  like  to  have  the  committee  meet  again  to-morrow 
morning,  although  that  is  an  extra  day. 

(Thereupon,  at  1.10  o'clock  p.  m.,  the  committees  adjourned  until 
Friday,  February  20,  1914,  at  10.30  o'clock  a.  m.) 


FRIDAY,  FEBRUARY  20,   1914. 

House  of  Representatives, 

Washington,  D.  C. 
The  committee  convened  at  10.45  o'clock  a.  m.,  Hon.  Henry  F. 
Hollis  presiding. 

Present,  Senator  Lee  and  Representatives  Bulklcy,  Brown,  Stone, 
Seldomridge,  Weaver,  Ragsdale,  Hayes,  Woods,  and  Piatt. 

STATEMENT  OF  JOHN  LEE  COULTER— Continued. 

Mr.  Coulter.  I  want  to  say  a  few  words,  taking  not  more  than  three 
or  four  minutes,  further,  concerning  personal  credits,  before  leaving 
it.  I  want  to  give  not  so  much  my  own  views  as  to  let  the  committee 
know  what  the  views  of  two  or  three  other  people  may  be  and  why 
certain  movements  are  on  foot. 

Mr.  Moss  turned  over  to  the  committee  a  resolution  introduced  by 
the  farmers  of  Nebraska.  I  know  a  great  deal  about  the  movement 
that  resulted  in  that  resolution.  Sir  Horace  Plunkett,  the  great  in- 
ternational authority  on  this  whole  question,  spoke  to  the  farmers  in 
Nebraska.  The  whole  tenor  of  his  talk  was  that  so  far  as  personal 
credit  was  concerned,  it  would  be  wise  not  to  go  too  rapidly  in  the 
establishment  of  either  a  system  under  Federal  legislation  or  other- 
wise; that  they  had  best  get  together  and  understand  each  other 
and  talk  the  thing  over  and  thrash  it  out  and  get  acquainted  with  the 
problem.  But  Sir  Horace  Plunkett  did  not  advise  against  either  a 
State  or  a  National  system  of  legislation  for  land-mortgage  banks  of 
any  kind.  In  fact,  he  wrote  a  very  short  article  for  one  of  the 
Nebraska  farm  papers,  that  is  very  brief  on  that  point;  and  I  talked 
with  him  here  in  Washington  afterwards,  and  I  know  that  the 
Nebraska  resolution  came  out  of  his  talk  there  and  also  the  talk  of 
Mr.  Jones,  from  Colorado,  who  was  at  that  same  meeting.  I  have 
letters  from  Mr.  Jones  to  the  same  effect. 

The  whole  point  there  is  this,  that  the  Nebraska  resolution  pertains 
to  personal  credit  and  is  based  upon  the  recommendation  that  the 
farmers  go  slow  in  going  into  that.  Sir  Horace  advised  them]- to 
proceed  slowly  on  that  one  point. 

Mr.  Woods.  What  experience  has  Mr.  Plunkett  had  to  give  him 
actual  knowledge  of  the  needs  of  the  people  who  desire  personal  credit  ? 

Mr.  Coulter.  Sir  Horace  has,  I  think,  the  experience  which  would 
make  it  possible  for  him  to  speak  with  some  authority  both  at  home 
and  in  this  country.     He  does  not  know  hardly  which  to  call  home. 

Mr.  Woods.  What  is  his  experience  ? 

Mr.  Coulter.  In  the  first  place  he  lived  in  this  country  with  the 
ranchers  and  among  the  farmers  of  the  West,  on  account  of  his  health. 
He  was  in  very  poor  health  for  10  or  15  years  and  lived&with  the 
184 


RURAL    CREDITS.  185 

frontier  ranchers.  He  was  a  well-to-do  man,  sufficiently  well-to-do 
so  that  he  was  able  to  travel  and  live  around  among  the  farmers 
generally  and  study  the  tenant  situation. 

Mr.  Woods.  But  he  never  hnd  to  make  a  living  for  his  family  off 
of  a  tenant  farm  ? 

Mr.  Coulter.  No;  but  he  has  lived  with  those  people  under  condi- 
tions so  as  to  thoroughly  study  their  needs.  This  resulted,  on  his 
return  to  Ireland,  in  the  establishment  of  a  department  of  agriculture, 
in  his  helping  the  poor  tenant  farmers  establish  little  credit  unions, 
and  in  the  establishment  of  a  service  similar  to  the  service  which  has 
just  been  started  in  the  Department  of  Agriculture  here.  He  did  that 
beginning  back  in  1885,  I  believe. 

Then  he  has  gone  right  out  and  worked  with  his  workers  and  has 
given  his  personal  fortune,  of  a  good  many  thousand  dollars,  to  help 
the  poor  tenant  farmers,  who  had  absolutely  not  a  cent,  establish  these 
little  credit  unions.  He  sat  with  them  at  their  meetings,  he  helped 
them  with  their  books  and  reports,  and  has  gone  through  all  the 
stages  of  trouble  with  them.  They  came  to  him  if  they  wanted  to  buy 
a  chicken  sometimes  and  asked  him  the  best  way  to  proceed,  and 
asked  if  he  thought  they  should  get  the  credit  in  their  little  credit 
unions. 

He  has  also  helped  to  establish  cooperative  creameries  in  Ireland 
and  helped  them  to  build  up  little  egg  marketing  societies,  and  he  has 
dealt  with  the  problem  in  such  a  minute  and  detailed  way  that  he 
understands  even  the  matter  of  classifying  the  eggs  in  the  little  egg 
marketing  societies  and  understands  the  way  of  separating  the  rots 
from  the  cloudy  and  the  musty  eggs  and  in  getting  the  right  colors 
together  and  the  right  sizes  together,  and  when  to  sell  by  the  pound, 
and  when  to  sell  by  the  egg,  and  so  forth.  And  he  has  studied  the 
whole  thing  thoroughly  from  the  ground  up. 

I  really  believe  he  understands  the  position  of  the  poor  struggling 
tenants  as  well  as  any  man  either  in  official  or  unofficial  circles  in  this 
or  any  other  country  possibly  could.  There  is  always  a  question 
whether  any  man  who  has  a  high  position  can  understand  the  struggles 
of  the  poor  fellow  in  the  ditch.  I  think  it  is  a  very  great  question 
whether  any  of  you  gentlemen  here  can  fairly  and  really  understand 
the  questions  of  the  poor  fellow  who  has  struggled  for  years;  but  if 
that  is  possible,  I  believe  Sir  Horace  Plunkett  will  equal  in  that  respect 
any  man  in  any  of  the  States  in  an  understanding  of  the  problem. 

It  is  because  of  his  knowledge  of  the  subject  that  he  advises  the 
way  he  does  with  reference  to  these  little  credit  unions,  and  that  is 
the  reason  he  talked  to  the  Nebraska  farmers  the  way  he  did.  He 
knows  if  they  jump  into  it  head  over  fist,  as  he  expresses  it,  because 
it  looks  like  a  grand  scheme,  that  unless  it  is  pretty  carefully  super- 
vised by  proper  inspectors,  and  so  forth,  the  thing  may  fail  and  result 
in  another  quarter  of  a  century  of  setback.  He  was  in  this  country 
during  the  Granger  and  Alliance  days,  and  knows  how  a  too  enthu- 
siastic visionary  plan  may  result  in  a  flat  jailure  and  a  quarter  of  a 
century's  delay  in  getting  things  going  gradually.  For  that  reason 
Sir  Horace  Plunkett  advised  the  Nebraska  farmers,  on  this  matter  of 
personal  credits,  to  go  slow;  to  get  together  and  talk  about  it  and 
study  it  and  get  the  idea  and  to  be  prepared  to  act;  at  the  same  time 
to  organize  other  kinds  of  marketing  societies. 


186  RURAL   CREDITS. 

Now,  that  judgment  was  based  upon  a  further  point  which  ought 
to  bo  mentioned.  The  point  is  this :  With  these  little  credit  unions — 
each  very  small  but  large  in  numbers  if  the  farmers  generally  start  to 
organize  them — will  the  expense  of  supervising  and  inspection,  of 
seeing  that  they  aro  run  right  and  do  not  fail — will  that  expense  not 
be  so  great  as  to  make  the  thing  nonproductive  and  result  in  such  a 
curtailment  of  inspection  as  would  leave  the  credit  institution  in  the 
hands  of  untrained  farmers,  not  accustomed  to  do  this  sort  of  business? 

I  would  suggest  in  this  connection  that  there  is  a  lot  of  weight  to 
his  argument,  although  I  am  heartily  in  favor  of  these  farmers 
starting  these  credit  societies.  I  know,  for  instance,  that  a  recent 
study  was  made  in  one  of  the  most  progressive  States  of  the  Union 
with  reference  to  the  country  school  system.  The  school  commission 
felt  that  there  was  such  a  poor  financial  arrangement  for  managing 
the  country  schools  that  some  reform  was  necessary.  An  examina- 
tion of  the  records  of  200  or  300  school  treasurers  or  the  clerks  of 
the  school  boards  was  made,  and  I  think  that  they  lound  that  70 
or  80  out  of  each  100  such  records  were  full  of  errors.  Frequently 
the  school  clerk  or  treasurer  had  paid  out  $10  to  $100  or  $150  from 
his  own  pocket,  unknowingly,  for  the  support  of  the  school  in  addi- 
tion to  the  local  taxation  contribution.  In  other  instances  the  clerk 
or  treasurer  had,  equally  unknowingly,  taken  from  $10  to  $300  of 
the  school  money  by  errors  in  addition  and  errors  of  all  sorts.  There 
is  no  inspection  and  no  supervision  and  they  just  do  the  best  they 
can. 

Now,  because  of  that  lack  of  training  in  arithmetic  and  in  business 
methods  on  the  part  of  farmers,  my  belief  is  that  the  really  big  start 
must  be  through  the  rural  schools,  through  education,  through 
training  the  boys  and  girls  in  the  arithmetical  part  of  the  question  of 
partial  payments  and  the  value  of  farm  products,  and  so  forth,  and 
then  when  they  become  young  men  and  young  women  you  will  have 
a  thoroughly  trained  set  of  men  and  women  to  manage  these  insti- 
tutions. In  the  meantime,  of  course,  I  think  many  farmers  could 
go  on  and  organize  and  familiarize  themselves  with  the  business. 

Now,  the  explanation  of  the  Nebraska  resolution  applies  equally  to 
the  Colorado  resolution,  because  Mr.  Jones  was  at  the  Nebraska  meet- 
ing— Mr.  Jones,  of  Colorado.  He  was  there  and  heard  Sir  Horace 
Plunkett.  He  understands  the  subject  very  thoroughly,  because  he 
is  a  Colorado  banker  and  a  thoroughly  successful  one;  also  because 
he  was  a  member  of  the  American  commission  which  studied  in 
Europe.  He  is  able  to  use  his  own  position  as  a  banker  to  discourage 
the  idea  of  farmers  going  into  something  that  might  result  in  failure; 
and  that  is  also  the  position  taken  by  the  very  best  possible  friends 
of  the  farmer — men  like  Mr.  Plunkett.  The  Colorado  resolution,  then, 
is  a  direct  side  result  of  the  Nebraska  meeting,  and  neither  of  these 
has  anything  to  do  with  the  land-mortgage-credit  proposition.  In 
fact,  Mr.  Jones,  from  Colorado,  is  enthusiastically  in  favor  of  it,  but  he 
has  certain  recommendations  to  make  concerning  long-time  credit, 
adopting,  as  ho  does,  practically  all  of  the  details  of  the  suggestions 
of  the  United  States  commission,  except  that  he  would  like  to  have  a 
central  bank  for  each  State  tacked  to  it  to  issue  the  bonds,  and  I  think 
he  is  justified  in  that  position  in  his  State.  I  am  sorry  that  the  mem- 
ber of  your  committee  from  Colorado  is  not  here  (Mr.  Seldomridge) . 


RURAL    CREDITS.  187 

I  believe  that  it  is  a  fact  that  the  far  Southern  States  and  the  moun- 
tain States  would  find  it  decidedly  to  their  advantage  to  have  some 
kind  of  a  central  institution  (at  least  a  State  institution)  to  look  after 
the  bonds  which  their  local  institutions  may  issue.  They  are  forced  to 
come  to  the  eastern  and  northern  markets  for  their  money.  In  order 
to  get  funds  they  have  to  go  to  the  North  and  East.  It  is  not  sur- 
prising, therefore,  that  a  man  from  the  mountain  States  or  from  the  far 
Southern  States,  desiring  more  credit  assistance  than  his  own  State 
affords,  should  want  to  have  a  State  bank  or  a  central  bank.  It  might 
not  even  be  bad,  from  their  standpoint,  to  have  the  National  Govern- 
ment guarantee  bonds  from  those  sections,  placing  them  on  the  same 
basis  as  those  from  the  old-settled  parts  of  the  country,  because  it 
would  bring  their  securities  up  to  a  par  with  those  of  the  old-settled, 
stable  districts,  where  values  have  established  themselves — where 
values  have  proven  themselves  and  there  are  fewer  uncertainties. 

The  position,  then,  of  the  Colorado  people  was  that  it  would  be  wise 
to  go  slow  in  the  matter  of  further  personal-credit  legislation;  that 
land-mortgage  legislation  should  provide  for  some  sort  of  a  central 
institution  to  take  care  of  the  bonds  issued  by  banks  in  the  localities 
where  the  local  investors  and  buyers  and  lenders  do  not  suffice. 

Mr.  Woods.  Could  we  get  copies  of  Mr.  Plunkett's  speech  at  that 
time,  Mr.  Coulter? 

Mr.  Coulter.  I  shall  try  to  get  copies  and  send  them  to  the  mem- 
bers of  the  committee. 

Senator  Hollis.  I  have  a  copy  of  the  address  I  think  he  made  to 
your  commission.     Is  that  a  commission  report? 

Mr.  Coulter.  He  delivered  an  address  to  the  commission  with  his 
recommendations  and  he  also  delivered  an  address  directed  to  the 
farmers  of  Nebraska. 

Mr.  Woods.  You  think  this  resolution  was  the  result  of  that  talk? 

Mr.  Coulter.  Yes;  I  know  it  was,  in  fact,  because  I  have  talked 
with  people  who  asked  me  what  I  thought  of  Sir  Horace  Plunkett's 
address. 

Mr.  Woods.  Then  in  order  for  us  to  understand  what  was  meant 
by  this  resolution  it  would  be  well  for  us  to  know  what  was  in  his 
speech  ? 

Mr.  Coulter.  It  would  be  well.  My  knowledge  of  it  came  from 
my  talk  with  him  afterwards,  before  he  left  for  Ireland.  He  is  now 
in  Ireland  trying  to  establish  harmony  between  the  north  and  south 
of  Ireland. 

land-mortgage  credit. 

Taking  up  now  the  question  of  long-term  credit,  I  would  like  to  say, 
first,  a  few  words  with  reference  to  the  need,  if  there  is  a  need.  I 
believe  that  there  is  a  very  great  need,  and  I  believe  that  there  are 
several  reasons  that  might  be  given  to  show  that  there  is  the  need. 

The  first  point  is  that  in  the  United  States  as  a  whole  only  about 
one-half  of  the  land  surface  is  in  farms.  Now,  much  more  would  be 
brought  into  farms  if  there  was  a  system  of  long-term  credit,  which 
would  make  it  possible  for  the  farmer  to  take  the  land  and  bring  it  into 
farm  use.  If  this  land  was  all  Government  land,  you  might  say  that  a 
long-term  credit  scheme  would  have  little  place  so  far  as  bringing 
more  land  into  farms  is  concerned.     But  we  must  remember  that  the 


188  RURAL    CREDITS. 

National  Government,  in  its  early  days,  granted  hundreds  of  millions 
of  acres  to  the  railroad  corporations  and  that  lumbering  corporations 
have  millions  of  acres  of  forests.  Now,  much  of  this  is  cut-over  land. 
Many  investors  have  purchased  large  tracts  of  land  which  now  may 
be  purchased  from  them. 

All  told,  I  know  from  some  study  of  that  point  there  are  literally 
hundreds  of  millions  of  acres  of  land  which  could  be  purchased, 
which  is  on  the  market  for  farmers,  or  young  men  wishing  to  become 
farmers,  had  they  some  way  of  borrowing  and  paying  in  a  long  period 
of  time  for  the  land  purchased.  I  believe  that  some  kind  of  a  system 
of  long-term  mortgage  credit  would  result  in  bringing  much  more 
land  into  farms.  That  would  be  good  for  the  country  from  the 
standpoint  of  the  consumer  who  wants  food  and  clothing  and  bev- 
erage materials.  It  would  be  good  for  the  country  from  the  stand- 
point of  our  young  farmer  because  he  wants  an  opening;  it  would  be 
good  for  the  country  because  it  would  get  out  of  the  hands  of  these 
great  holding  corporations,  as  they  might  well  be  called,  the  lands 
which  they  now  possess;  it  would  be  good  for  the  country  because 
it  would  give  employment  to  this  great  mass  of  unemployed  we  some- 
times hear  about.  From  every  standpoint  it  seems  to  me  it  would 
be  good  for  the  country  to  have  some  scheme  of  long-term  credit 
in  order  to  bring  land  into  farms  which  is  not  now  in  farms. 

Second,  if  we  take  all  of  the  land  now  in  farms,  the  last  Govern- 
ment report  shows  only  about  one-half  of  it  is  improved.  In  other 
words,  the  present  farmers  of  the  country,  six  and  a  third  million  in 
number,  own  and  operate  great  tracts  of  land,  only  one-half  of  which 
is  improved. 

Mr.  Hayes.  You  mean  by  "improved"  actually  tilled? 

Mr.  Coulter.  Actually  tilled  or  in  hay  or  pasture  and  rotation  or 
lying  fallow. 

Mr.  Ragsdale.  Used  for  regular  agricultural  purposes? 

Mr.  Coulter.  For  regular  agricultural  purposes — even  improved 
pastures  and  hay  land. 

Mr.  Hayes.  What  is  the  balance? 

Mr.  Coulter.  The  balance  of  it  is  woodland,  swamp  land,  and 
some  of  it  is  stumpy  land  and  some  of  it  is  stony,  and  there  is  some 
of  it  that  is  wild  grassland  where  the  hay  is  used  as  an  outlying 
pasture. 

Mr.  Ragsdale.  You  do  not  count  that  for  regular  agricultural 
purposes  ? 

Mr.  Coulter.  Not  unless  it  is  regularly  cultivated  or  plowed  in 
rotation,  or  regularly  mowed  as  improved  grassland  would  be. 

Mr.  Platt.  A  great  deal  of  that  land,  however,  is  put  to  a  really 
useful  purpose. 

Mr.  Coulter.  But  poorly  so. 

Mr.  Platt.  What  would  you  say  if  they  have  land  in  forest  ? 

Mr.  Coulter.  I  think  the  woodlands  and  forests  are  very  poorly 
used.  I  think  it  could  be  highly  developed.  For  instance,  I  have 
in  mind  a  few  hundred  acres  in  a  certain  farm  where  the  timberland 
is  used  for  protection  for  the  stock,  and  at  the  same  time  makes  good 
pasture  land  out  of  it.  But  the  farmers  can  not  do  that  without 
money  or  credit.  My  idea  is  that  if  the  farmers  could  borrow  money 
for  a  long  period  of  years,  paying  it  back  gradually,  they  could  clear 


RURAL    CREDITS.  189 

the  stump  land,  the  cut-over  land,  could  remove  the  stones;  drain 
the  swamp  lands;  in  areas  where  irrigation  is  necessary  they  could 
irrigate;  they  could  either  bring  the  water  on  or  take  the  water  off 
and  improve  the  land  which  they  now  have  in  farms. 

I  think  it  would  be  easily  possible  to  bring  several  hundred  millions 
of  acres  into  bearing  in  a  good  active  way  if  the  farmers  could  secure 
this  money. 

Now  at  that  point  I  want  to  bring  out  a  suggestion  I  have  never 
heard  made,  and  it  is  this,  that  the  biggest  defect  in  our  present 
rural-credit  system  forgets  that  the  farmer  must  make  out  of  the 
farm  absolutely  everything  that  he  needs.  He  has  not  any  out- 
side income.  Building  and  loan  associations  expect  laborers  who 
earn  their  money  outside  to  bring  money  into  those  enterprises, 
and  all  other  financial  agencies  and  institutions  generally  depend 
upon  the  people  to  bring  in  more  money.  I  have  belonged  to  a 
variety  of  associations  where  you  might  pay  in  a  small  amount, 
premiums  on  insurance  or  little  amounts  per  year,  and  all  of  it  comes 
from  the  outside.  The  farmers  must  pay  for  the  farm  from  the  farm 
and  a  system  of  credit  must  be  evolved  so  that  he  will  be  given  a 
long  enough  period  of  years  to  get  out  of  the  farm  sufficient  to  pay 
for  the  farm;  and  each  generation  must  pay  for  the  whole  agricul- 
tural property.     It  must  pay  for  itself,  each  generation. 

Now,  that  is  a  revolving  process  and  any  system  of  bringing  more 
lands  into  farms,  or  the  improvement  of  land  now  in  farms,  must 
contemplate  that  the  farmer  is  going  to  pay  back  the  loan  out  of  the 
property  which  is  improved. 

I  think  we  need  this  long  time  credit  for  a  third  reason,  and  that 
is  to  improve  and  make  the  farm  more  productive  by  improved 
equipment  on  the  land  which  is  already  improved.  That  is  to  say, 
we  know  that  half  of  the  land  of  the  country  is  in  farms  and  only 
half  of  that  in  farms  is  improved,  and  that  which  is  improved  is  only 
about  one-half  productive,  considering  what  the  rest  of  the  world  is 
doing.  Now  we  are  going  to  need  to  double  our  yield  from  the 
farm  as  we  go  on  increasing  our  population  and  we  must  provide  a 
system  of  financing  that  improvement;  farmers  must  plow  deeper, 
and  must  equip  better,  must  drain  better  and  must  provide  the  best 
methods  of  doing  the  work. 

Mr.  Hayes.  And  fertilizing  the  land? 

Mr.  Coulter.  And  fertilizing  the  land  either  naturally  or  artifi- 
cially. 

Mr.  Ragsdale.  Have  you  arrived  at  any  definite  period  of  time, 
as  a  result  of  your  researches,  for  which  the  loan  should  be  made  ? 

Mr.  Coulter.  Yes,  sir;  I  have.  I  think  in  this  country,  a  young, 
growing  country  like  this,  it  is  very  doubtful  whether  they  should 
be  for  a  longer  period  than  35  years.  I  have  taken  the  age  of  25 
years  when  a  young  man  starts  in  and  if  you  allow  him  to  take  up 
to  the  maximum  of  35  years  for  the  period  of  the  loan,  it  will  make 
him  60  years  old  when  the  whole  thing  is  paid  out.  I  would  like  to 
consider  that  a  maximum.  And  an  older  man  who  wants  to  borrow, 
say,  would  take  a  loan  for  20  years,  and  he  would  pay  it  out  before 
he  is  ready  to  retire. 

Mr.  Ragsdale.  From  your  researches,  what  would  you  say  would 
be  a  fair  rate  of  interest  to  be  charged  ? 


190  RURAL    CREDITS. 

Mr.  Coulter.  I  think  you  would  have  to  leave  that  to  general 
competition  throughout  the  world  to  determine.  My  first  reason  for 
saying  that  is  a  remark  that  was  dropped  to  me  in  Germany.  I 
asked  a  German  officer  concerning  these  farm-mortgage  institu- 
tions, and  I  said  to  him,  "How  does  the  farm-mortgage  bond 
compete  with  such  bonds  as  Government  bonds,  for  instance"? 
"Well,"  he  said,  "The  Landsehaften  bonds" — that  is,  the  farmers 
mutual  mortgage  bonds — "The  Landschaften  bonds  actually  sold 
better  in  the  open  market  than  the  Prussian  Government  bonds 
during  a  recent  flurry  when  the  German  Government  was  having  a 
little  controversy  with  some  of  her  neighbors."  Actually  the  farmers 
could  borrow  cheaper  than  the  Prussian  Government.  Now,  I  say,  if 
that  is  so,  all  you  have  got  to  do  is  to  create  an  instrument — a  land- 
bank  bond,  for  instance — that  is  absolutely  safe  and  sound  and  put  it 
on  the  market  and  it  will  sell  at  par  for  a  low  rate  of  interest. 

Mr.  Hayes.  Especially  if  you  exempt  it  from  taxation. 

Mr.  Coulter.  Especially  if  you  exempt  it  from  taxation,  which  I 
would  like  to  do. 

Mr.  Weaver.  That  was  the  cooperative  credit  societies'  bonds  ? 

Mr.  Coulter.  Yes,  sir;  but  the  others  were  selling  so  nearly  the 
same  that  the  difference  was  immaterial.  The  reason  they  sold 
better  than  the  others  was  because,  I  believe,  of  the  unlimited  liability 
of  the  members  who  issued  them.  In  other  words,  besides  the  prop- 
erty actually  mortgaged  through  these  societies,  the  members  in  many 
cases  also  gave  all  of  their  property  as  a  final  security  in  order  to  prove 
that  there  was  no  possible  chance  for  loss. 

Mr.  Hayes.  Do  you  not  think,  as  a  matter  of  practical  experience, 
that  25  years  will  be  plenty  of  time  to  allow  for  the  repayment  of 
these  loans  ? 

Mr.  Coulter.  I  think  a  young  man  starting  in  might  well  be 
given  the  full  period.  I  think,  for  instance,  of  a  brother  who  is 
operating  a  pretty  fine  looking  farm  now.  He  has  not  inherited  a 
cent,  because  my  good  folks  are  living  and  still  farming,  and  I  hope 
they  may  long  continue  to  so.  There  is  my  brother,  he  wants  to 
raise  a  family,  and  he  wants  to  do  other  things  as  well  as  pay  for  the 
farm.  He  has  9  or  10  children,  and  he  wants  to  send  them  to  school 
and  he  wants  to  dress  them  properly,  and  once  in  a  while  he  wants  to 
take  a  vacation.  And  I  believe  he  is  right  in  doing  so.  Why  pay  for 
the  farm,  the  whole  thing,  in  the  first  year  or  two  unless  he  wants  to 
accumulate  great  wealth?  He  has  no  such  ambition;  he  wants  to 
live  well  and  he  wants  to  have  a  farm  entirely  paid  for,  so  that  when 
he  is  old  enough  to  want  to  quit,  and  to  have  to  quit,  he  can  quit. 
And  he  also  wants  to  educate  his  children  so  that  when  they  start 
out  they  will  not  be  afraid  to  tackle  the  same  job  and  do  it  for  them- 
selves and  not  depend  on  inheritance.  That  is  a  personal,  concrete 
illustration,  and  I  think  he  ought  to  have  30  or  35  years  to  do  it  in. 

Mr.  Hayes.  Take  a  case  like  tins:  Here  is  a  farmer  who  goes  out 
and  buys  a  100-acre  farm  and  he  gives  a  mortgage  on  it  for  $50  an  acre. 
He  has  a  $5,000  debt.  Five  per  cent  on  that  is  $250  per  annum, 
and  4  per  cent  amortization  would  be  $200  more.  He  would  only 
have  to  pay  $250  interest  and  $200  on  the  principal,  which  would 
make  an  average  payment  of  approximately  $425  to  be  paid  out  in 
25  years.     It  would  not  be  that  much,  but  nearly  that.     Now,  a 


RURAL   CREDITS.  191 

100-acre  farm  on  that  basis  is  not  beyond  the  reach  of  the  young 
farmer  of  intelligence. 

Mr.  Coulter.  No;  I  think  not.  He  probably  could  pay  it  out  in 
15  to  20  years. 

Mr.  Hates.  And  maybe  10. 

Mr.  Coulter.  Yes;  maybe  10.  But  I  think  you  must  allow  for 
the  maximum  period,  because  of  the  very  fact  that  on  many  of  these 
farms  they  may  have  years  of  some  setbacks,  and  they  may  have 
other  sources  of  expense.  They  may  want  to  improve  their  homes 
and  put  in  running  water  and  things  of  that  sort,  and  might  not  want 
to  pay  it  all  back  at  once.  And  I  do  not  believe  they  ought  to  be 
obliged  to. 

Mr.  Hayes.  Of  course  not,  but  the  question  is  how  much  ? 

Mr.  Ragsdale.  Aside  from  that,  if  we  are  going  to  bring  several 
millions  of  acres  into  farming  which  are  not  now  in  cultivation  it 
would  take  some  years  before  any  of  that  land  would  return  anything 
on  the  investment  ? 

Mr.  Coulter.  That  is  true.  But  I  want  to  say  here,  for  the  benefit 
of  the  committee,  that  the  commission  that  studied  it  (and  Mr.  Moss 
is  here,  and  I  would  be  glad  if  he  would  correct  me  if  I  do  not  state 
it  right)  considered  for  weeks  a  proposition  to  incorporate  in  the 
bill  suggested  a  provision  something  like  this:  u Provided,  That  the 
farmer  shall  not  be  required  to  make  any  repayment,  aside  from  his 
interest,  for  a  period  of  five  years  after  negotiating  the  loan" 

Mr.  Ragsdale.  I  think  that  is  very  wise. 

Mr.  Coulter  (continuing).  "Or  provided  that  any  bank  may  sus- 
pend repayment  on  the  loan  for  a  period  not  to  exceed  five  years." 

Mr.  Ragsdale.  I  think  that  ought  to  be  mandatory  when  going 
on  to  new  lands. 

Mr.  Coulter.  The  idea  was  that  the  farmers  in  taking  up  new  lands 
or  just  starting  in  might  find  it  all  they  could  do  to  pay  the  interest 
the  first  few  years,  and  also  that  in  some  districts  a  failure  of  crops 
for  two  or  three  years  might  make  it  desirable  to  allow  the  banks  to 
suspend  payment  for  two  or  three  years.  However,  we  did  not 
include  that  in  the  bill  suggested.  It  was  discussed  more  or  less,  but 
it  was  thought  possibly  that  was  making  it  too  easy  or  that  it  would 
open  a  loophole,  which  might  not  be  desirable.  But  I  think  it  is  a 
wise  thing  to  be  thoroughly  considered  by  your  committee. 

Mr.  Hayes.  The  reason  why  I  am  asking  these  questions  is  that  I 
have  a  little  doubt  in  my  own  mind  whether  it  is  advisable  to  encour- 
age a  system  of  going  into  debt  by  farmers  generally  for  too  long  a 
time.  Talcing  the  concrete  instance  you  suggested  of  your  brother, 
is  it  not  very  desirable  while  he  is  young  and  his  family  is  young — 
supposing  he  is  raising  a  family — is  it  not  desirable  that  he  should 
limit,  or  as  nearly  as  possible  limit,  himself  to  pay  off  that  obligation 
to  as  short  a  period  as  possible,  so  that  when  his  family  arrives  at 
maturity  and  he  wants  to  educate  his  children  he  will  have  the 
money  to  do  it  with  ?  And  is  it  not  also  desirable,  from  his  stand- 
point, to  pay  the  debt  while  he  is  young  and  full  of  ginger  and  likes 
to  do  everything  he  can,  and  then  after  he  gets  along  to  50  years  old 
he  would  like  to  let  up,  and  it  is  desirable  that  he  should  let  up  ? 
Don't  you  think  there  is  a  possibility  of  running  on  the  wrong  side  of 


192  RURAL    CREDITS. 

this  proposition  and  encouraging  the  farmer  to  extend  his  debt  too 
far  into  the  future? 

Mr.  Coulter.  And  yet  you  ought  to  consider  that  during  the  first 
l(t  years  the  farmer  has  no  assistance  from  his  family,  you  might  say, 
and  it  is  all  expense,  and  then  when  his  boys  begin  to  get  from  10  to 
15  years  old  they  will  be  able  to  help. 

Mr.  Ragsdale.  But,  aside  from  that,  why  should  the  farmer  be 
denied  what  all  of  the  cities  and  towns  and  the  railroads  companies 
and  all  industrial  companies  are  entitled  to;  they  have  a  line  of  credit 
and  their  bonds  are  accepted  into  the  Treasury  as  a  basis  for  currency  ? 
Why  should  the  only  producing  class  bo  discriminated  against? 

Mr.  Hayes.  That  is  not  the  same  case;  that  is  a  municipality. 

Mr.  Ragsdale.  He  is  in  the  same  class  as  railroads  and  industrial 
companies,  and  he  ought  not  be  to  discriminated  against. 

Mr.  Hayes.  Few  of  their  bonds  go  beyond  20  years,  and  30  at  the 
outside. 

Mr.  WexWER.  Let  me  make  a  suggestion  that  might  prove  of  some 
value  in  connection  with  the  period  you  suggest  of  five  years  when 
there  ought  to  be  no  payments  on  the  principal.  Now,  in  Oklahoma 
there  was  a  large  tract  of  land  in  southwestern  Oklahoma  belonging 
to  the  Indians  which  the  Government  bought  from  the  Indians  and 
sold  on  partial  payments  to  actual  settlers.  The  farmers  who  came 
in  there  came  with  enough  money  to  make  the  first  payments,  and 
did,  but  Congress  for  three  or  four  different  years  was  compelled  by 
special  act  to  extend  the  times  of  the  maturing  payments  of  these 
farmers  for  the  reason  they  were  not  able  to  make  out  of  the  farms  in 
the  new  State,  starting  off  with  the  raw  land,  enough  to  make  the 
payments,  and  they  did  not  have  other  resources. 

Mr.  Hayes.  You  would  not  advocate  a  uniform  compulsory  pro- 
vision that  no  interest  should  be  paid  for  five  years  or  payments  on 
the  principal? 

Mr.  Weaver.  I  am  simply  referring  to  partial  payments  on  the 
principal. 

Mr.  Hayes.  I  say  you  would  not  advocate  any  ironclad  rule  of  that 
kind,  but  would  merely  make  it  permissible? 

Mr.  Weaver.  Not  an  ironclad  rule,  no;  but  I  think  it  would  be 
very  well  to  provide  for  it  in  the  bill,  because  when  farmers  settle  on 
the  land  is  when  they  need  help  the  most,  as  Mr.  Ragsdale  stated. 

Mr.  Coulter.  My  idea  was  not  that  the  interest  should  not  be  paid, 
but  the  principal. 

Mr.  Ragsdale.  As  a  matter  of  fact,  during  that  period  of  time,  the 
amount  of  improvement  that  is  going  on  the  land  more  than  offsets 
the  payment  in  the  appreciation  of  the  value  of  the  property. 

Mr.  Coulter.  It  is  very  likely,  too. 

Mr.  Moss.  If  the  Doctor  will  permit  me,  I  want  to  give  just  an 
instance  of  my  own  experiences  of  the  hardships  of  that  kind.  I  grew 
up  in  a  pioneer  farm  home  and  I  have  not  had  a  university  education 
because  of  the  fact  when  I  was  at  the  university  taking  the  course,  I 
had  to  leave  to  go  home  to  help  my  father  to  pay  off  the  mortgage  on 
his  farm.  It  was  one  of  the  short-time  loans,  and  it  is  considered  in 
that  country,  of  course,  a  disgrace  if  a  man  can  not  meet  his  engage- 
ments. So  1  went  out  of  the  university  at  the  end  of  two  years 
and  went  home  to  help  my  father  pay  off  the  loan.     It  was  some- 


RURAL    CREDITS.  193 

thing  that  could  have  been  paid  off  very  well  if  he  had  had  personal 
credit  or  a  long-time  loan,  and  I  would  have  had  the  advantage  of  a 
university  education.  And  I  feel  very  strongly  upon  the  proposition 
that  one  of  the  greatest  drawbacks  to  rural  life  is  this  driving  and 
grasping  on  the  part  of  some  people  and,  in  fact,  the  driving  of  the 
whole  family,  to  pay  out  the  purchase  price  of  the  farm  along  just  at 
the  time  the  farmer's  family  is  maturing  and  going  out  into  life. 
And  I  sympathize  with  the  Doctor  very  strongly  on  that  proposition. 

Mr.  Platt.  Right  there,  could  not  the  mortgage  have  been  re- 
newed? 

Mr.  Moss.  Oh,  yes;  but  a  farmer  in  any  community  has  his  reputa- 
tion and  prestige  at  stake,  and  if  it  is  necessary  for  him  to  renew  and 
continue  a  loan  he  loses  his  standing  as  a  business  man  and  his  reputa- 
tion as  a  farmer;  and  I  think,  ordinarily,  when  a  fanner  goes  into 
debt,  he  likes  to  meet  the  terms  of  his  engagement  promptly,  which  is, 
I  think,  the  rule  with  any  good  business  man.  It  is  not  a  question  of 
whether  he  is  going  to  make  that  much  money,  but  can  he  constantly 
meet  his  engagements  ?  And  so  if  a  person  knows  he  has  got  to  pay 
for  the  farm  in  five  years  and  he  feels  that  way,  he,  his  wife,  and 
children— he  drives  his  whole  family  to  try  to  make  it  in  five  years. 

Mr.  Platt.  I  was  wondering  if  it  does  not  work  out  in  many  cases 
just  this  same  way.  Ought  not  the  farmers,  as  other  people  do,  just 
make  partial  payments  on  the  mortgage  rather  than  to  let  it  stand 
for  a  good  many  years  ? 

Mr.  Hayes.  My  objection  is  largely  met  by  a  provision  in  the  bill 
that  the  farmer  can  anticipate  any  payments  if  he  chooses. 

Mr.  Coulter.  It  is  very  desirable  to  let  him  pay  the  debt  off  at  any 
interest  day,  annually  or  semiannually.  And  I  believe  that  farmers 
are  anxious  enough  to  get  out  of  debt  as  a  general  tiling,  so  that  they 
will  pay  it  if  they  possibly  can. 

Mr.  Ragsdale.  Just  a  moment  on  that.  If  you  were  to  write  that 
into  the  bond,  unless  there  was  some  further  provision  for  handling 
them,  would  not  that  destroy  the  very  purpose  for  which  the  bond 
would  be  ordinarily  sold  ? 

Mr.  Coulter.  It  would  have  to  be  provided  that  an  equal  amount 
of  bonds  would  be  withdrawn  at  par  whenever  the  principal  of  mort- 
gages deposited  as  collateral  was  paid  off. 

Mr.  Hayes.  Mr.  Ragsdale  was  not  present  when  that  was  discussed, 
and  for  his  benefit  I  will  state  that  the  bond  is  given  b}^  the  bank,  and  a 
payment  on  the  mortgage  does  not  affect  the  bond  at  all. 

Mr.  Ragsdale.  It  would,  necessarily. 

Mr.  Hayes.  Not  at  all. 

Mr.  Ragsdale.  I  do  not  see  how  a  bond  issued  with  the  mortgage 
as  security  could  be  loft  outstanding  after  the  mortgage  had  been 
paid. 

Mr.  Coulter.  The  bonds  must  be  retired  or  bought  in  at  par  or  at 
the  market  price  in  proportion  as  the  mortgage  is  paid  off. 

Mr.  Hayes.  Mr.  Ragsdale  has  an  impression  that  each  bond  is 
based  on  a  specific  mortgage. 

Mr.  Ragsdale.  No,  I  know  differently  from  that,  but  I  mean  to 
say  it  would  have  to  say  on  the  face  of  that  bond  that  it  could  be 
recalled,  otherwise  they  could  not  get  the  bond  back. 

37031—14 13 


194  RURAL    CREDITS. 

Mr.  Hayes.  Oh,  no;  that  would  not  be  necessary. 

Mr.  Ragsdale.  Unless  you  put  on  the  face  of  the  bond  some  such 
provision,  you  certainly  could  not  retire  the  bond  unless  it  was  at  the 
option  of  the  holder. 

Mr.  Hayes.  You  could  go  out  in  the  open  market  and  purchase 
the  bonds. 

Mr.  Ragsdale.  Then  you  would  have  to  pay  a  premium? 

Mr.  Coulter.  That  would  be  a  very  good  thing. 

Senator  Hollis.  Does  not  the  bill  provide  that  the  bond  may  be 
paid  at  any  time? 

Mr.  Coulter.  Yes,  sir. 

Senator  Hollis.  That  is  a  part  of  the  contract,  that  the  bond 
may  be  paid  at  any  time.  That  is  the  difference  between  the  bond 
and  the  mortgage,  as  I  understand. 

Mr.  Coulter.  I  think  also  the  bonds  should  bear  on  the  face, 
"Subject  to  call  at  par." 

Mr.  Ragsdale.  That  is  what  I  say,  that  it  would  have  to  go  on 
the  face  of  the  bond  and  no  arrangement  in  secret  not  appearing  on 
the  face  of  the  bond  would  be  good. 

Mr.  Hayes.  But  there  would  be  no  provision  in  the  bond  for  a 
partial  payment. 

Mr.  Ragsdale.  The  partial  payments  would  go  to  the  bank,  of 
course. 

Mr.  Coulter.  Another  reason  why  I  think  we  need  a  system  of 
long-time  credits  is  the  whole  argument  in  favor  of  building  and 
loan  associations  in  the  cities.  Farmers  need  better  buildings,  not 
only  for  themselves  but  for  their  live  stock.  Particularly,  that  is 
true  in  the  North.  The  reason  that  the  farmer's  boys  and  girls  very 
frequently  go  to  the  cities  is  because  of  the  fact  that  they  do  not  have 
the  kind  of  buildings  that  the  folks  in  town  have.  It  is  not  a  pleasant 
thing  for  a  farmer  boy  in  the  North  to  have  to  go  out  in  the  winter 
and  bring  in  a  few  cakes  of  ice  and  melt  them  in  an  old  washtub 
and  go  out  in  a  cold  room  and  take  a  bath,  when  his  town  neighbor 
can  merely  go  to  a  spigot  and  turn  it  on  and  get  warm  water. 

Mr.  Hayes.  It  was  still  worse  on  the  farm  where  I  was  whe^  a 
boy.    We  had  to  pull  the  water  out  of  the  well  with  a  bucket. 

Mr.  Coulter.  Yes,  sir;  that  is  still  worse. 

Mr.  Hayes.  I  mean  to  water  the  stock. 

Mr.  Coulter.  To  water  the  stock;  yes. 

Mr.  Weaver.  It  is  not  as  bad  as  to  have  to  haul  it  in  barrels  ? 

Mr.  Hayes.  I  have  done  worse  than  that. 

Mr.  Coulter.  But  we  need  long-term  credits  now  to  make  it 
possible  for  farmers  to  build  up  and  improve  their  farms.  The  farm 
is  a  home  as  well  as  a  place  of  work.  I  think  we  need  it  in  order  to 
make  sure  that  tenancy  does  not  get  too  far  ahead  so  that  we  do  no 
get  too  much  tenancy.  I  do  not  think  we  are  bad  off  at  the  present 
time  in  this  country.  In  fact,  I  think  we  have  an  admirable  con- 
dition for  most  of  the  country.  The  tenancy  is  not  extraordinarily 
high  in  much  of  the  country. 

I  think  it  not  improper  at  all  for  a  young  fellow  to  start  in  as  a 
tenant,  knowing  he  is  going  to  have  opportunities  as  a  tenant  and 
get  the  advantages,  that  all  hope  for.  to  become  an  owner  through 
that  process.  But  we  should  provide  for  a  system  whereby  the 
young  man  need  not  depend  on  inheriting  a  farm  or  getting  the  farm 


RURAL    CREDITS.  195 

by  saving  the  principal,  who,  before  he  can  buy  a  farm,  goes  out  to 
some  new  section  which  the  Government  is  opening  up  and  takes  his 
chances  on  what  is  left. 

It  was  not  so  necessary  to  have  any  system  to  provide  for  him  in 
the  past,  because  the  Government  had  plenty  of  land  and  gave  an 
opportunity  for  the  young  man  to  go  out  and  take  up  a  homestead. 
But  now  we  have  reached  the  point  where,  in  the  filling  in  and  build- 
ing-up process,  we  need  the  system. 

We  also  need  this  system  of  long-term  credit  in  order  to  make  it 
possible  to  refund  the  outstanding  obligations  the  farmers  borrowed 
for  short  periods  for  these  purposes,  so  far  as  the  farmers  desire  to 
refund  them.  I  think  that  would  be  one  of  the  biggest  and  best 
things  that  could  happen,  because  it  would  tend,  I  believe,  to  bring 
the  farmers  more  nearly  on  to  a  cash  basis  of  doing  business.  If 
they  could  borrow  a  sufficient  amount  to  straighten  them  out.  to  be 
paid  off  over  a  period  of  years,  they  could  start  out  on  a  cash  basis 
and  get  the  advantage  of  the  discount  in  buying  for  cash,  and  it 
would  be  an  admirable  thing.  I  know  personally  of  the  advantage 
it  would  be  to  a  number  of  farmers  who  have  written  to  me  or  to 
whom  I  have  talked  in  the  last  few  months,  because  I  have  been  in 
10  States  talking  to  groups  of  farmers  since  I  got  back  from  Europe. 
I  know  they  would  take  advantage  of  it  for  that  purpose. 

Naturally,  there  would  be  raised  the  question,  if  the  farmers  did 
borrow  money,  whether  it  would  be  used  to  advantage  or  not.  I 
think  it  not  improper  to  include  in  the  bill  a  requirement  that  the 
money  should  be  used  for  agricultural  purposes,  for  the  buying  of 
land,  improving  it,  or  refunding  of  outstanding  debts.  At  the  same 
time,  without  any  such  provision,  the  farmers  at  the  present  time 
have  borrowed  and  are  borrowing,  and  I  think  it  is  safe  to  say  that 
the  great  majority  of  the  money  borrowed,  the  great  bulk  of  it,  is 
borrowed  for  proper  and  useful  purposes.  There  is  very,  very  little 
of  it  borrowed  for  foolish  purposes.  An  occasional  farmer  will  bor- 
row to  buy  an  automobile  when  he  should  not  have  an  automobile. 
Many  of  them  may  borrow  to  buy  an  automobile,  and  I  think  it  is 
perfectly  proper,  if  they  find  it  desirable  to  buy  an  automobile,  for 
them  to  do  so.  I  know  of  nothing  that  has  come  onto  the  farm 
where  I  was  brought  up  that  was  more  useful  as  a  farm  tool  than  the 
motor  cycle.  I  think  it  was  as  useful  to  the  farm  as  the  first  manure 
spreader,  and  the  cost  did  not  differ  greatly.  The  motor  cycle  made 
it  possible  if  the  separator  broke  down,  or  the  thrashing  machine 
broke  down,  to  go  to  town,  6  miles  away,  in  six  minutes  or  a  little 
more,  and  get  the  necessary  part  of  the  machine,  the  new  cogwheel 
or  whatnot,  and  to  have  it  back  and  have  the  machine  running  again 
in  a  half  an  hour  or  so.  The  farmer  used  to  put  the  horses  in  the  barn 
and  break  up  for  a  day  or  so  until  he  could  drive  off  to  a  neighboring 
city  to  buy  the  part,  and  he  would  be  losing  time  while  his  crop  was 
getting  too  ripe,  and  a  wind  might  come  up  and  shell  out  half  the 
price  of  the  farm.  I  believe  the  farmers  generally  will  use  the  money 
borrowed  to  good  advantage. 

Now,  I  would  like  to  take  up  the  answer  to  another  question.  I 
have  been  discussing  the  question,  Do  we  need  a  system  of  long-term 
credit?  And  I  think  my  answer  clearly  is,  yes;  we  need  it.  How, 
now,  are  we  going  to  build  up  a  system?  'The  strongest  argument 
that  came  to  me  for  a  number  of  months  was  to  adapt  the  building 


196  RURAL    CREDITS. 

and  loan  association,  because  in  some  States  the  building  and  loan 
association  was  extending  its  activities  out  to  the  country  districts  to 
some  extent.  And  I  first  was  inclined  to  think  that  the  building  and 
loan  association  might  do  the  business  pretty  well;  but  after  studying 
it  and  after  interviewing  the  leading  officers  of  the  national  building 
and  loan  associations  in  this  country,  and  writing  letters  and  study- 
ing it,  I  have  come  to  the  conclusion  that  the  building  and  loan  asso- 
ciation is  not  the  organization  for  this  purpose. 

Mr.  Hayes.  Excuse  me,  but  is  not  this  bill  which  has  been  sug- 
gested by  the  commission  a  modification  of  the  same  principles  that 
underlie  a  building  and  loan  association? 

Mr.  Coulter.  Oh,  it  takes  some  of  the  same  underlying  principles; 
yes.  The  building  and  loan  association  as  we  find  it  to-day  is  an 
organization  where  the  same  fundamental  principles  apply — amortiza- 
tion, small  payments,  so  forth,  and  so  on.  But  I  want  to  point  out 
why  I  believe  it  would  be  a  failure  to  attempt  to  extend  building  and 
loan  associations  as  found  to-day  in  the  cities  out  through  the  country 
districts  and  have  them  do  both  types  of  business. 

First,  the  building  and  loan  association  is  a  local  institution  and 
depends  on  the  savings  of  the  members  for  the  money  which  is  used 
to  negotiate  loans.  Now,  I  want  to  point  out  that  there  have  been 
attempts  in  the  last  quarter  of  a  century  to  establish  national  build- 
ing and  loan  associations — interstate  building  and  loan  associations, 
building  and  loan  associations  to  look  after  that  business  in  several 
cities — and  every  one  has  gone  out  of  business.  But  that  is  an 
unimportant  consideration.  Past  experience  might  not  be  the  proper 
guide  for  future  effort.  The  point  is  that  the  institution  is  a  local 
institution  and  can  do  business  only  so  far  as  local  deposits  are  con- 
cerned. Its  local  loans  and  local  deposits  must  equal  each  other, 
unless  you  provide  for  it  a  system  of  issuing  bonds  to  bring  money 
from  the  outside,  or  of  buying  bonds  from  the  outside  to  use  in  sur- 
plus. But  as  I  have  gotten  along  further  I  have  thought  that  would 
not  be  desirable  and  practicable. 

Second,  these  associations  are  based  almost  entirely  upon  city  needs 
and  city  conditions  rather  than  country  needs  and  conditions.  A  very 
important  characteristic  of  the  building  and  loan  association  is 
monthly,  bimonthly,  or  weekly  payments.  According  to  the  tables 
made,  the  amortization  tables,  the  whole  plan  is  on  a  large  number  of 
small  payments.  That  is  proper  for  the  city.  Almost  everybody  in 
the  city  receives  a  weekly  or  monthly  salary  or  wage;  or  if  he  is  a 
storekeeper  or  in  some  other  similar  business,  or  a  lawyer  or  doctor, 
his  fees  and  income  is  regular  and  norma1  throughout  the  year — prac- 
tical^ so. 

The  fanner  is  in  an  entirely  different  kind  of  business.  Except  for 
the  dairy  farmer  and  the  poultry  farmer,  you  might  say,  practically 
speaking,  the  farmer's  crop  comes  in  once  a  year  that  is,  the  big  bulk 
of  it.  Provision  should  be  made,  generally  speaking,  for  annual  pay- 
ments, although  possibly  in  some  sections  they  could  be  made  semi- 
annual. It  is  barely  possible  that  the  dairy  farmers  and  the  poultry 
farmers  might  even  take  advantage  of  the  monthly-payment  idea. 

Mr.  Platt.  Why  do  you  say  it  is  "barely  possible"?     Is  it  not  a 

fact  that  they  get  their  money  monthly,  as  a  rule  -  the  dairy  farmers  ? 

Mr.  Coulter.  I  say  it  is  barely  possible  that  they  might  make 

monthly  payments,  and  I  think  provision  should  be  made  for  them, 


RURAL    CREDITS.  197 

although  I  think  that  they  could  be  taken  care  of  in  another  way.  T 
think  as  members  of  the  bank  they  could  make  deposits  as  the  money 
came  in,  and  then  when  the  semiannual  or  annual  payment  was  due 
they  could  make  their  payment. 

Mr.  Hayes.  Don't  you  think  it  well  to  leave  that  to  the  individual 
case  ? 

Mr.  Coulter.  I  think  3rou  might  require  annual  or  biannual  or  more 
frequent  payments  if  desired. 

Mr.  Hayes.  Oh,  yes. 

Mr.  Seldomridge.  To  what  extent  is  the  value  of  diversified  farm- 
ing becoming  established  in  the  country  ? 

Mr.  Coulter.  I  think  we  are  having  more  diversified  agriculture. 
But  even  though  it  is  diversified,  the  crops  still  largely  come  in  at 
certain  seasons. 

Mr.  Seldomridge.  Don't  you  think  it  would  be  a  benefit  to  the 
farmer  that  he  should  be  taught  the  value  of  having  something  in 
connection  with  his  farm  that  will  be  a  constant  source  of  income  to 
him  rather  than  to  depend  entirely  on  the  crop  ? 

Mr.  Coulter.  I  think  so.  And  yet  the3^  must  depend  upon  the 
cereal  crops,  the  corn  and  the  wheat,  and  those  two  are  the  principal 
crops,  and  then  cotton  is  next,  tobacco  is  next,  fruit  is  next — prac- 
tically all  mature  in  the  fall,  and  you  can  not  change  it.  The  only 
change  you  can  make  is  a  little  bit  of  poultry  and  meat  animals  and 
have  a  few  subsidiary  crops  that  might  be  raised  in  connection  with 
the  others.  So  that  everything  we  can  do  in  order  to  perfect  any 
such  system  will  not  affect  the  principal.  I  am  heartily  in  favor  of 
every  chance  being  given  to  try  to  encourage  diversified  agriculture, 
so  that  the  farmers  will  have  several  crops  and  sources  of  income. 

Mr.  Platt.  Don't  you  think  the  dairy  farmer  in  the  milk  busi- 
ness, as  a  great  many  of  the  farmers  in  New  York,  New  Jersey,  and 
Pennsylvania  are,  who  sell  their  products  every  day  and  receive 
checks  once  a  month — wouldn't  you  say  the  building  and  loan  asso- 
ciation idea  would  be  just  as  applicable  to  him  as  it  is  to  any  laboring 
man? 

Mr.  Coulter.  No;  I  would  not.  I  think  he  could  adapt  himself 
to  the  monthly  payment  plan  all  right.  That  is  all  right,  but  you 
have  your  other  point.  Your  building  and  loan  association  has  no 
outlet  for  its  surplus  deposits  or  any  source  of  supply  if  outside 
money  is  needed.  That  is,  you  would  have  places  where  you  need 
money  from  the  outside  with  no  way  of  getting  it,  and  you  would 
have  other  districts  which  have  surpluses  and  no  way  of  limiting 
their  deposits. 

Mr.  Platt.  They  borrow  from  the  banks  sometimes? 

Mr.  Coulter.  That  is  a  very  exceptional  and  rare  part  of  their 
business.  But  there  is  a  third  point  I  would  like  to  make.  The  build- 
ing and  loan  association  expects  the  borrower  to  pay  back  the  loan 
from  the  salary  or  wages  received  on  the  outside,  or  from  the  small 
amounts  of  similar  receipts,  small  payments  coming  in  gradually. 
And  another  thing,  the  money  is  used,  intended  to  be  used,  and  the 
home  whole  plan  of  organization  is  to  use  it  in  the  construction  of 
buildings.  In  the  construction  of  these  buildings  I  think  that  the 
longest  term  it  is  reasonable  and  safe,  probably,  to  make  loans  would 
be  a  period  from  10  to  15  years. 


198  RURAL    CREDITS. 

Now,  I  think  it  would  bo  fairly  possible  for  these  building  and  loan 
associations  to  serve  the  farmers  in  a  few  States;  in  fact,  these  farm- 
ers who  wanted  to  build  dairy  farms  and  equip  their  barns  for  similar 
purposes,  because  there  would  be  first  your  local  deposits,  equaling 
your  local  loans;  second,  your  monthly  payment,  possibly;  third, 
your  short  period  and  amortization  because  of  your  building  feature 
in  it;  your  provision  for  insurance  attached  to  your  loan  for  protec- 
tion for  the  company — all  of  the  characteristics  seem  to  fit  in  fairly 
well  for  the  purpose.  But  for  the  buying  of  farms,  the  buying  of 
land  with  a  long  period  of  amortization,  with  annual  or  semiannual 
payments,  for  getting  money  from  the  outside — it  does  not  seem  to 
me  the  building  and  loan  associations  will  serve  for  the  country.  I 
think  they  are  a  very  admirable  institution. 

But  I  wTant  to  point  out  one  or  two  other  features,  and  that  is  this: 
The  building  and  loan  association  is  such  an  admirable  institution  I 
would  like  to  help  it  standardize  itself,  to  get  busy  and  perform  its 
functions.  Let  me  give  you  one  or  two  facts  I  think  the  committee 
might  well  consider  in  this  connection.  You  take  the  whole  United 
States:  There  are  twenty  and  a  quarter  million  homes  in  country 
and  city.  A  little  over  6,000,000  of  those  are  in  the  country  and 
14,000,000  are  in  the  cities,  villages,  towns,  and  boroughs.  Now,  in 
the  country,  out  of  the  6,000,000,  3,840,000  are  owned  and  about 
2,270,000  are  rented.  In  other  words  in  the  country,  63  homes  out 
of  1 00  are  owned  and  37  rented. 

Now,  turn  to  the  citv.  In  the  cities  of  this  country,  out  of  14,- 
000,000  homes,  only  5,250,000,  or  38  out  of  each  100,  are  owned  by 
the  occupants,  and  nearly  8,500,000,  or  62  out  of  each  100,  are  rented. 
The  building  and  loan  associations  of  this  country  have  an  immense 
work  if  they  can  do  it,  for  62  homes  out  of  every  100  in  the  cities 
are  occupied  by  renters  at  the  present  time. 

Mr.  Platt.  Right  in  that  connection:  What  do  you  figure  as 
homes  ?  The  whole  tendency  of  modern  city  life  seems  to  be  to 
house  the  people  up  in  apartments  and  tenements. 

Mr.  Coulter.  That  is  a  very  small  thing  yet.  The  great  mass  of 
the  people  are  in  the  smaller  cities  and  towns  and  villages,  and  it  is 
limited  to  a  very  few  of  your  big  cities  where  apartment  houses  have 
sprung  up  to  any  large  extent.  You  generally  do  not  find  apartment 
houses  in  cities  of  less  than  100,000,  practically,  at  all  — at  least  they 
are  still  very,  very  few  in  number. 

Mr.  Seldomridge.  They  are  coming  very  fast,  Doctor. 

Mr.  Hayes.  Yes;  I  can  show  you  some  in  towns  of  3,000. 

Mr.  Coulter.  There  are  very  few  yet.  I  looked  into  this  whole 
question  to  some  extent.  I  have  been  trying  to  find  out  for  the  past 
six  months,  since  the  idea  first  came  into  my  mind,  which  was  at  a 
Milwaukee  meeting  of  the  association,  just  what  the  situation  was. 

Mr.  Ragsdale.  And  is  it  not  a  fact  that  a  large  percentage  of  the 
people  who  are  in  apartment  houses  to-day  would  be  boarding  if 
they  were  not  in  apartment  houses  ? 

Mr.  Coulter.  I  think  many  of  them  would. 

Mr.  Seldomridge.  But  I  think  there  are  more  and  more  adopting 
that  kind  of  a  life1  rather  than  building  homes. 

Mr.  Coulter.  I  think  it  would  be  just  the  opposite  if  the  building 
and  loan  association  performed  its  function  as  it  could  and  should 


RURAL    CREDITS.  199 

do.  The  reason  many  live  in  apartment  houses  to-day  is  because 
they  can  not  buy  homes  under  present  arrangements  satisfactorily. 

Mr.  Platt.  I  do  not  think  that  is  the  reason. 

Mr.  Seldomridge.  They  pay  more  rent  in  apartment  houses  than 
they  would  have  to  pay  to  live  in  a  home. 

Mr.  Coulter.  I  think  you  will  find  that  the  payments  they  would 
have  to  make  in  buying  a  home  as  things  are  now  would  more  than 
amount  to  what  they  would  have  to  pay  as  rent. 

I  have  a  list  here  of  all  the  building  and  loan  associations  of  the 
United  States.  There  are  6,273  of  these  associations  with  two  and  a 
half  million  members.  At  the  present  time  in  the  District  of  Colum- 
bia there  are  20  such  associations  with  32,000  members  right  now. 
They  are  building  and  working  that  line  here.  The  need  for  it  is 
immense. 

Mr.  Platt.  What  reason  is  there  why  the  farmers  can  not  organize 
these  associations  in  very  small  villages  and  hamlets,  perhaps,  among 
themselves  ? 

Mr.  Coulter.  I  think  they  could  if  the  local  deposits  would  be 
sufficient  to  handle  the  demand  for  loans  and  if  they  would  change  it 
to  biannual  and  annual  payments  and  extend  the  loans  over  a  longer 
period. 

Mr.  Platt.  They  have  done  that  in  Ohio,  apparently. 

Mr.  Coulter.  No;  the  Ohio  loans  are  still  for  short  periods.  I 
think  the}7  do  not  extend  over  12  years,  I  do  not  think  any  of  the 
loans  extend  over  12  years,  and  they  are  trying  the  biannual  payment. 
And  of  course  the  reason  they  are  doing  that  is  because  their  deposits 
exceed  the  demand  for  city  loans  and  they  are  trying  to  find  an  outlet 
out  in  the  country  districts;  they  are  trying  to  make  use  of  their 
surplus  funds  in  that  way.  But  I  feel  pretty  confident  from  all  the 
information  I  have  that  it  is  an  attempt  to  hitch  up  a  milk  cow  and 
have  it  do  the  work  of  an  ox,  or  possibly  to  hitch  up  two  milk  cows; 
and  I  think  it  would  be  better  to  have  one  good  milk  cow  and  one 
good  ox. 

Mr.  Hayes.  I  sympathize  with  your  idea  about  extending  the  build- 
ing and  loan  association  to  the  country;  but  what  do  you  say  to  our 
proposition  of  standardizing  them  just  as  we  are  proposing  to  do  with 
the  rural  credits  ?  Don't  you  think  that  would  give  them  a  great 
impetus  ? 

Mr.  Coulter.  I  think  it  would  be  an  admirable  thing.  But  I 
want  to  add  one  further  argument  to  what  I  have  said.  I  have  taken 
now  all  the  homes  in  the  city  occupied  by  their  owners  and  have 
gotten  hold  of  the  information  of  the  usual  extent  to  which  they  are 
paid  for  and  the  extent  to  which  they  are  mortgaged,  and  of  the  people 
who  do  have  their  homes  in  the  city,  of  this  5,0000,000  out  of 
14,000,000,  about  one-third  of  them  have  mortgages.  Now,  then,  in 
the  first  place  you  have  approximately  two-thirds  of  all  city  families 
living  in  rented  places  and  of  those  who  live  in  their  own  homes 
one-third  of  them  have  mortgages  on  their  homes.  And  I  think  it 
would  be  a  perfectly  fine  thing  to  do  to  help  the  building  and  loan  asso- 
ciation movement — I  am  not  much  on  trying  to  work  out  city  reforms 
or  improvements — but  I  can  not  see  from  my  study  of  it  why  it  would 
not  be  just  as  justifiable  to  do  that  for  the  city  as  to  do  this  other  for 
the  country? 


200  RURAL    CREDITS. 

Mr.  Ragsdale.  How  do  you  propose  to  exempt  them  from  taxa- 
tion? 

Mr.  Coulter.  Let  the  associations  issue  bonds. 

Mr.  Hayes.  And  let  the  bonds  be  exempt. 

Mr.  Ragsdale.  How  could  you  do  that  with  a  municipality? 

Mr.  Hayes.  The  lands  would  be  taxed,  of  course. 

Mr.  Ragsdale.  The  lands  would  be. 

Mr.  Hayes.  But  not  the  mortgage. 

Mr.  Ragsdale.  The  mortgage  would  be,  too. 

Mr.  Hayes.  It  should  not  be;  it  is  not  in  California. 

Mr.  Ragsdale.  It  would  be,  and  how  in  the  world  is  the  United 
States  Government  going  into  a  proposition  of  that  kind  ?  It  would 
be  utterly  impossible  as  a  legal  proposition  for  it  to  go  into  a  propo- 
sition of  that  kind. 

Mr.  Platt.  They  are  included  in  this  bill,  if  you  read  it  through 
carefully. 

Mi\  Ragsdale.  For  a  municipality  I  think  it  is  impossible. 

Mr.  Seldomridge.  We  are  going  to  exempt  mortgages  in  the  States 
from  taxation. 

Mr.  Ragsdale.  From  United  States  taxes  only. 

Mr.  Seldomridge.  From  local  taxation — — 

Mr.  Platt.  From  local  taxation,  too.  You  read  this  bill  and  see 
if  it  does  not  extend  its  provision  to  those  places  where  they  do  not 
allow  mortgages  to  be  taxed. 

Mr.  Ragsdale.  You  might  do  that  in  one  or  two  cities,  but  you 
take  the  whole  United  States  and  it  would  be  impossible. 

Mr.  Hayes.  The  taxation  ol  a  mortgage  is  a  double  tax  anyway, 
and  unless  the  amount  of  the  mortgage  is  deducted  Irom  the  assessed 
valuation  of  the  land  it  ought  to  be  exempt  always. 

Mr.  Ragsdale.  Still  we  would  have  no  authority  to  go  in  and  do 
it.     We  could  not  standardize  that. 

Mr.  Hayes.  That  is  a  question.  I  do  not  know.  It  is  necessary 
in  the  system  we  are  trying  to  organize,  and  if  the  purpose  of  your 
system  is  national  in  its  character  I  think  it  is  pretty  reasonable  that 
we  could  do  it. 

Senator  Hollis.  If  we  have  a  right  to  establish  these  banks  as  a 
part  of  the  agency  of  the  Government,  I  suppose  we  have  a  right  to 
exempt  them  from  taxation.  But  I  agree  with  Mr.  Ragsdale  that  it 
is  something  which  has  got  to  be  very  carefully  considered,  and  that 
we  will  have  to  take  the  very  best  advice  on  it. 

•Mr.  Hayes.  I  know  I  am  not  entirely  satisfied.  I  used  to  think  I 
was  a  lawyer,  but  I  do  not  any  more. 

Senator  Hollis.  Mr.  Coulter,  in  my  State  the  feeling  is  that  build- 
ing and  loan  associations  furnish  splendid  investments,  but  rather  a 
poor  place  to  borrowT  money;  that  under  the  system  in  vogue  it  is 
rather  an  expensive  place  to  borrow  money,  but  a  good  place  to 
invest.     Is  that  your  conclusion  ? 

Mr.  Coulter.* It  depends  on  the  part  of  the  country.  In  parts  of 
the  country  where  the  surplus  is  on  the  side  of  deposits  you  have  one 
situation;  in  parts  of  the  country  where  the  surplus  is  on  the  side  of 
demand  you  have  another  situation.  I  had  a  chance  to  talk  with 
some  gentlemen  from  Colorado  and  South  Carolina  who  are  keenly 
interested  in  building  and  loan  associations  and  to  compare  the  dif- 
ferent views,   and   they  absolutely   took  opposite  positions.     Now, 


RURAL    CREDITS.  201 

their  positions  were  so  opposite  that  I  got  to  asking  questions,  and  it 
finally  turned  out  that  one  was  in  connection  with  an  institution 
where  they  had  a  hard  time  to  find  a  place  to  lend  the  great  amounts 
of  deposits  that  they  could  get.  The  other  was  hunting  for  outside 
money.  I  said  that  the  difficulty  there  was  merely  that  there  was 
not  a  system  of  interchange  hetween  the  cities  by  issuing  bonds  and 
letting  them  be  sold  in  outside  districts — of  getting  money  in  or  getting 
it  out. 

Senator  Hollis.  I  think  the  reason  is  in  my  State  that  the  savings 
banks  furnish  money  so  cheaply  and  they  furnish  such  a  large  margin 
of  the  value  of  the  property  that  loans  are  made  very  largely  at  local 
savings  banks. 

Mr.  Coulter.  Yes,  sir.  In  that  connection  I  think  it  should  be 
borne  in  mind  that  the  mutual  savings  bank  is  not  a  national  insti- 
tution in  this  country.  The  mutual  savings  banks  are  found  only 
in  New  York  and  New  England  and  down  the  line  along  the  eastern 
coast,  but  when  }xou  get  as  far  west  as  Wisconsin  you  only  have  one 
or  two  in  the  whole  State.  I  doubt  if  there  are  any  below  the  Ohio 
River,  and  I  do  not  recall  now  how  it  is  in  the  Far  West. 

Mr.  Hayes.  Yes;  we  have  some  in  California. 

Mr.  Coulter.  The  number  is  so  small  when  3^011  get  out  of  the  old 
northeastern  section  that  they  are  not  important  institutions.  And 
in  that  district  you  have  a  big  question  as  to  how  badly  you  need  in- 
stitutions like  farm-land  banks. 

In  the  north  of  Italy  they  have  what  they  call  people's  banks  and 
savings  banks  which  do  practically  all  of  the  business.  Now,  the 
people's  banks  and  the  savings  banks  are  practically  not  found  in  the 
south  of  Italy,  and  from  Rome  south  the  Italian  Government  has 
gone  into  the  business  of  providing  special  laws  for  each  Province  to 
provide  for  a  system  in  the  particular  Province,  because  of  the  ab- 
sence of  these  banks;  but  it  must  be  remembered  that  there  the 
people's  banks  and  the  savings  banks  in  northern  Italy,  very  early  in 
the  game,  got  in  the  habit  of  issuing  bonds  in  order  to  get  money  and 
they  put  their  collateral  in  back  of  the  bonds  which  take  the  place  of 
a  system  for  special  land-mortgage  banks. 

Senator  Hollis.  I  would  like  to  inform  the  committee  that  even 
in  my  section,  where  we  have  a  great  many  mutual  savings  banks  — 
for  instance,  in  my  own  town  of  only  20,000  people  we  have  one  bank 
with  deposits  of  $12,000,000,  and  then  we  have  two  other  mutual 
banks  not  as  large,  but  with  millions  of  deposits;  and  these  banks  do 
not  like  to  loan  money  to  the  farmers  for  the  reason,  as  the  doctor 
has  stated,  that  they  do  not  want  to  hitch  up  a  buggy  and  drive  out 
5  or  10  miles  to  look  at  the  farm.  And  I  have  found  they  seemed  to 
prefer  to  invest  in  western  farm  mortgages  that  are  looked  after  by 
some  agent  whom  they  trust  than  to  loan  money  on  local  farms 
right  in  the  same  town.  I  have  objected  and  brought  it  up  in  trustees' 
meetings  and  insisted  that  they  should  loan  to  local  farmers  even  if 
there  is  some  little  expense  attached  to  it.  But  there  is  that  disin- 
clination. 

Mr.  Platt.  As  a  matter  of  fact,  Senator,  don't  they  prefer  to  loan 
money  in  the  city  of  Boston  rather  than  in  the  city  of  Concord  ? 

Senator  Hollis.. I  think  in  the  city  of  Concord  they  are  glad 
enough  to  loan  money  in  the  city  there,  but  the  minute  they  get  out- 


202  RURAL    CREDITS. 

side  where  they  can  not  reach  things  with  the  street  cars,  they  are 
not  interested. 

Mr.  Pi.att.  In  my  own  town,  as  I  have  said  in  these  hearings  once 
or  twice  before,  they  have  something  like  $16,000,000  of  deposits, 
and  there  lias  been  some  considerable  complaint  that  they  would 
rather  loan  money  at  4  per  cent  in  New  York  City  than  to  loan  it  in 
Poughkeepsie  at  5. 

Senator  Mollis.  I  won  d  not  say  that. 

Mr.  Platt.  They  loan  out  larger  amounts,  because  it  is  more 
easily  handled  I  suppose. 

Mr.  Coulter.  The  mutual  savings  banks  in  the  United  States, 
taking  all  of  them,  have  resources  of  some  S3, 762.000, 000.  Of  those 
resources  only  42  per  cent  w-ere  secured  by  real  estate,  including 
mortgages. 

Mr.  Hayes.  City  and  rural  both  ? 

Mr.  Coulter.  City  and  rural  both,  and  46  per  cent  were  secured 
by  bonds  and  other  similar  securities.  In  other  words,  you  take, 
then,  all  of  the  mutuals  and  only  about  twro-fifths  of  the  resources 
are  secured  by  mortgages  and  similar  instruments. 

Now,  I  think  the  next  question,  really— the  one  that  strikes  me 
most  forcibly — is  whether  the  National  Government  or  State  gov- 
ernment shall  make  loans  or  guarantee  the  loans,  or  merely  grant 
charters  to  institutions  to  do  that.  I  would  like  to  say  a  few  words 
on  that,  because  it  is  a  subject  very  close  to  my  heart. 

Russia  finds  it  is  necessary  to  make  direct  loans,  practically 
speaking,  through  the  nobility  and  the  peasants  mortgage  banks 
of  Russia.  In  fact,  the  Russian  Government  will  issue  her  own 
bonds  and  raise  money  in  that  way  in  order  to  lend  it  out  through 
these  banks.  But  so  far  as  I  know  very  few  other  Governments 
have  done  anything  of  that  sort  except  in  so  far  as  they  have  had 
trust  funds  left  in  their  care  and  found  it  desirable  to  invest  them. 
Some  Governments  have  made  certain  appropriations  or  loans  to 
institutions  to  get  them  started.  Some  Governments  have  also 
gotten  into  trouble  doing  that  sort  of  thing.  For  instance,  it  may 
be  that  some  of  the  committee  have  been  on  the  committee  looking 
into  the  Brazilian  coffee  troubles.  You  know  that  one  of  the  States 
of  Brazil,  the  State  of  Sao  Paulo,  decided  that  she  would  help  the 
farmers  of  that  State  who  were  practical  coffee  raisers  to  hold  their 
coffee  in  great  warehouses,  and  the  good  Lord  seemed  to  be  against 
the  State  government,  for  year  after  year  there  were  plentiful  crops 
and  the  farmers  did  not  seem  to  appreciate  what  the  State  was 
doing,  because  they  cultivated  deeper  and  planted  more  trees  and 
raised  more  and  more  coffee  because  they  were  getting  good  high 
prices  for  their  coffee.  And  the  poor  State,  which  is  really  a  very 
rich  and  magnificent  State  in  that  great  nation,  the  State  of  Sao 
Paulo,  was  finally  nearly  forced  into  bankruptcy  and  had  to  call 
upon  the  National  Government  of  Brazil  to  help.  And  I  think  we 
have  seen  enough  in  the  press  and  enough  of  the  reports  from  our 
consuls  and  ministers  to  know  of  the  trials  and  tribulations  which 
resulted  from  that  particular  enterprise. 

It  is  true,  and  there  is  no  need  in  trying  to  deny  it,  that  different 
nations  have  attempted  to  deal  directly  with  the  farmers  of  those 
nations  in  various  ways. 


RURAL    CREDITS.  203 

Mr.  Ragsdale.  When  you  spoke  of  the  system  down  there  in  Brazil 
that  would  not  apply  to  the  loans  in  this  country,  because  the  loans 
made  in  this  country  are  made  for  a  different  purpose.  The  loans 
down  there  depended  on  the  buying  and  selling  of  the  coffee,  but  this 
loan  is  made  for  the  purpose  of  its  increasing  the  production  of  the 
land  itself,  and  does  not  depend  on  the  sale  of  the  product,  and  there- 
fore the  entire  principle  would  be  different. 

Mr.  Coulter.  My  only  point  was  that  the  National  Government, 
in  going  into  the  business  of  dealing  directly  with  the  individual  for 
the  purpose  of  making  loans  for  any  purpose,  takes  a  chance  in 
getting  so  far  in  that  all  sorts  of  problems  have  arisen  and  have  been 
followed  by  petty  revolutions,  and  so  forth.  And  I  would  say  further, 
just  at  that  point,  that  nations  that  have  started  in  loaning  to  farmers 
have  found  the  city  folks  wanting  to  borrow  also,  so  as  to  buy  homes — 
to  have  homes. 

Mr.  :Bulkley.  Doctor,  we  would  be  very  glad  to  have  you  elaborate 
that  fully.  That  is  a  matter  which  has  come  up  a  number  of  times 
and  we  would  be  glad  to  have  you  tell  us  the  extent  of  their  experiences 
in  detail,  if  you  can  ? 

Mr.  Coulter.  The  Russian  Government  is  the  best  illustration,  I 
think,  of  a  National  Government  trying  to  loan  directly  and  to  handle 
directly  the  problems  of  individuals,  and  they  have  done  it  purely  in 
order  to  solve  the  great  social  and  economic  problem  in  their  country. 
The  peasants  of  that  country,  7  out  of  10  people  of  the  whole  Empire, 
were  absolutely  illiterate.  It  seemed  absolutely  impossible  for  the 
peasants  to  organize  any  kind  of  an  institution  whereb}?'  they  could 
themselves  become  owners  of  property.  The  Russian  Empire,  then, 
as  a  national  problem,  not  leaving  it  to  the  separate  States  to  do  it, 
took  up  the  problem  and  worked  it  out  for  all  different  parts  of  the 
Empire.  They  woild  say  that  in  a  certain  State — or  they  called  it  a 
"local  government"  there — a  certain  number  of  acres  (or  using  the 
Russian  unit  of  measure)  was  about  the  right  amount  for  a  family  to 
try  to  farm,  because  it  was  very  rich  land  and  very  productive.  In 
other  districts  they  would  say  twice  as  much  or  10  times  as  much 
should  be  allowed,  and  then  they  would  give  a  long  period  of  time  in 
which  to  pay  this  money  in.  The  return  payment  was  really  a  sys- 
tem of  taxation. 

Mr.  Hayes.  Those  peasants  were  all  slaves  a  few  years  before — 
practically  slaves  ? 

Mr.  Coulter.  Yes,  practically  so. 

Mr.  Hayes.  Serfs? 

Mr.  Coulter.  Yes;  called  "serfs." 

Mr.  Hayes.  That  is  the  reason  for  that. 

Mr.  Coulter.  The  idea  was  to  make  them  owners  of  property  and 
establish  them  as  independent  farmers.  The  Prussian  Government 
found,  I  think,  I  am  not  much  on  history,  that  even  using  the  power 
of  taxation  and  actually  collecting  the  annual  payments  as  they  would 
collect  taxes,  that  in  many  districts  if  there  was  a  bad  crop  they  could 
not  collect.  They  could  postpone  payment,  to  be  sure.  But  if  the 
peasants  did  not  do  the  work  they  should,  and  if  they  could  not 
raise  enough  money,  actually  could"  not  get  enough  money  to  make 
their  payments,  the  Government  either  had  to  postpone  the  payments 
or  send  the  officers  out  to  seize  the  property.  And  then  what  were 
they  going  to  do  ?     Send  the  peasants  to  Siberia  ?     The  Government 


204  RURAL    CREDITS. 

could  not  really  do  anything  except  to  give  them  land  in  Siberia. 
It  started  out  to  give  a  sort  of  homestead  right  and  there  I  under- 
stand that  there  has  been  about  1,000,000  families  which  settled 
in  Siberia.  The  Russian  Government  continued,  however,  wherever 
necessary  to  postpone  the  payments.  Eventually,  after  the  period 
of  time  which  was  originally  intended  by  the  Russian  Government 
for  all  of  these  serfs  to  pay  out,  there  had  been  so  many  postpone- 
ments, so  many  delays,  that  at  that  time,  which  was  a  few  years 
back,  there  were  still  these  local  uprisings  and  peasant  revolts,  and  so 
the  Russian  Government  canceled— the  Russian  Government  had 
already  made  the  payments  to  the  original  land  owners — and  the 
Russian  Government  canceled,  I  understand,  hundreds  of  thousands 
of  what  were  originally  intended  to  be  sales  or  loans.  That  is  to 
say,  so  many  serfs  had  failed  to  pay  out  in  that  length  of  time  that 
instead  of  continuing  to  try  to  collect  from  some,  when  they  had  done 
all  they  could  and  worked  just  as  hard  as  they  could,  it  seemed 
necessary  to  cancel  all  of  those  and  start  all  over  again. 

Mr.  Hayes.  When  did  they  do  that  ? 

All-.  Coulter.  I  think  that  was  about  10  years  ago. 

Mr.  Ragsdale.  If  the  Russian  Government  had  tried  to  aid  the 
peasants  by  loaning  through  private  banks,  and  then  the  banks  had 
called  upon  the  law  courts  to  enforce  the  payments,  in  the  endeavor 
to  enforce  those  payments  would  it  not  have  been  necessary  to  use 
the  officers  just  as  it  had  to  do  in  making  the  loan  direct  ? 

Mr.  Coulter.  Oh,  yes. 

Mr.  Ragsdale.  Therefore  the  principle  as  to  whether  or  not  the 
money  was  advanced  direct  by  the  Government  would  not  apply 
there  ? 

Mr.  Coulter.  My  point  is  that  the  Government  went  into  the 
business  of  lending  to  its  citizens  and  finally  gave  up  trying  to  collect 
these  loans  and  canceled  them  and  said,  "The  land  is  yours." 

Mr.  Ragsdale.  The  Government  had  the  land  just  as  this  country 
did  out  in  the  West,  and  that  is  the  reason. 

Mr.  Coulter.  But  the  Russian  Government  canceled  the  loans  to 
get  rid  of  them,  and  got  rid  of  them  in  that  way. 

Mr.  Ragsdale.  One  question  right  there.  Has  the  Russian  Gov- 
ernment abandoned  the  principle  of  direct  loans? 

Mr.  Coulter.  The  Russian  Government  is  still  trying  to  break  up 
the  large  estates  and  has  established  or  reorganized  an  institution 
very  recently 

Mr.  Ragsdale  (interposing).  And  is  still  loaning  directly? 

Mr.  Coulter.  No.  It  has  perfected  an  institution  very  recently, 
and  I  would  like  to  say  just  a  word  or  two  about  it,  although  I  can 
not  go  into  great  detail.  They  reorganized  what  is  known  as  the 
Peasants'  Mortgage  Bank.  It  is  a  national  institution  with  a  Fed- 
eral charter,  or  a  national  charter,  or  whatever  you  call  it.  Now, 
there  is  in  Russia  what  is  known  as  the  Nobility  Land  Mortgage 
Bank.  It  is  an  institution  where  noblemen  have  borrowed  large 
amounts  of  money,  and  if  they  do  not  pay  it  back,  or  if  an  agreement 
can  not  be  reached,  the  Nobility  Land  Mortgage  Bank  wall  take  over 
the  property.  It  is  not  exactly  a  foreclosure,  although  in  many 
cases  it  is  really  a  foreclosure.  It  in  turn  will  turn  that  estate  over, 
sell  it  on  the  books,  to  the  Peasants'  Land  Mortgage  Bank,  which,  in 
turn,  before  it  takes  it  over,  has  it  surveyed  and  so  forth  and  divided 


RURAL    CREDITS.  205 

up  and  sold  without  any  original  payment,  practically,  to  the  peas- 
ants and  they  are  allowed  a  long  period  of  time  in  which  to  complete 
the  payments.  This  is  all  done  through  an  institution  known  as 
the  Feasants'  Land  Mortgage  Bank.  A  more  or  less  detailed  descrip- 
tion of  this  is  found  in  the  report  of  the  commission  (S.  Doc.  214). 

Mr.  Ragsdale.  That  institution,  however,  is  controlled  by  the 
Government  ? 

Mr.  Coulter.  By  the  Russian  Empire;  yes,  sir. 

Mr.  Ragsdale.  And  therefore  it  is  practically  a  direct  loan  of 
Government  money  to  the  peasants  for  the  purpose  of  buying  land 
and  securing  homes  ? 

Mr.  Coulter.  The  Government  does  guarantee  it.  I  say  Russia 
is  a  country  which  has  tried  Government  loans  direct  to  the  indi- 
vidual, which  has  tried  to  educate  them  and  tried  to  establish  them 
on  independent  farms,  and  it  finally  had  to  give  away  land  which 
it  had  to  buy  from  the  original  owners.  Russia  attempted  to  estab- 
lish them  as  independent  farmers.  Now,  in  another  way,  that  is 
exactly  what  England  and  Ireland  are  doing.  In  Ireland  in  the  last 
few  years,  they  have  established  about  385,000  farm  tenants  as  new 
owners.     That  is  being  done 

Mr.  Bulkley  (interposing).  Just  one  question  before  you  get 
away  from  Russia.  You  stated  about  10  years  ago  there  were  a 
good  many  cancellations.  Since  that  time  how  has  the  system 
operated  ? 

Mr.  Coulter.  At  the  original  freeing  of  the  serfs,  the  serfs  were 
given  such  a  small  parcel  of  land  that  it  turned  out  that  few  of  them 
could  make  a  complete  living  on  that.  They  had  to  work  part  of 
the  time  outside  for  the  former  landlords,  the  heads  of  the  property 
which  was  operated  by  the  former  owners,  so  that  they  were  part 
laborers  and  part  operators.  Now,  the  Russian  Government  desired 
to  practically  completely  obliterate  the  old  community  settlements 
and  place  the  individual  farmers  out  on  individual  farms.  In  doing 
this  their  dealings  are  through  the  peasants'  bank  that  I  referred  to. 
The  idea  is  that  this  bank  can  go  out  and  survey  all  of  the  land  of  the 
community,  divide  it  up  into  tracts,  make  independent  farms,  and 
reform  or  reorganize  the  whole  community  and  lend  the  peasant  the 
money  to  build  a  home  out  on  the  independent  farm,  so  when  he 
leaves  the  little  community  center  and  takes  up  the  independent 
farm  life  practically  his  entire  resources  except  a  few  acres  which  he 
got  through  a  long  period  of  years  come  through  the  peasants'  bank, 
which  has  borrowed  on  the  property. 

Mr.  Bulkley.  Then  the  peasants'  bank  has  been  organized  for 
about  10  years? 

Mr.  Coulter.  The  exact  date  of  that  is  in  Senate  Document  214. 
I  have  forgotten  just  the  exact  date.  But  during  that  time  if  my 
memory  serves  me  rightly,  there  have  been  three-quarters  of  a 
million  independent  farms  started;  that  is,  that  many  have  changed 
from  the  old  community  form  to  the  independent  form. 

Mr.  Bulkley.  And  have  the  farmers  paid  up  ? 

Mr.  Coulter.  Prior  to  that  time  ? 

Mr.  Bulkley.  No;  since  that  time;  during  the  operation  of  this 
bank — have  the  farmers  paid  up  well  ? 

Mr.  Coulter.  Generally  speaking.  There  are  some  portions  of 
Russia  where  they  have  had  pretty  hard  times.     Mostly  they  have 


206  RURAL    CREDITS. 

had  comparatively  good  years  and  made  some  progress,  and  they  are 
paying  right  along.  In  some  districts  land  values  have  gone  up 
taster  than  in  this  country.  In  some  places  they  have  doubled  and 
trebled  and  quadrupled. 

Mr.  Bulkley.  Would  you  say  on  the  whole  the  system  is  successful  ? 

Mr.  Coulter.  I  would  say  it  is  working  in  that  direction. 

Mr.  Ragsdale.  Even  if  the  Government  lost  a  great  deal  of  money, 
the  operation  of  the  scheme  has  resulted  in  bettering  the  conditions 
and  placing  the  peasants  on  independent  farms  ? 

Mr.  Coulter.  You  might  say  so.  The  peasants  were  absolutely 
illiterate  serfs,  numbering  6  or  8  persons  out  of  every  10  in  the  whole 
Empire,  and  they  had  no  great  free  lands  to  give  away  such  as  we  had. 
Although  my  observation  of  the  Russian  experience  is  actually  only 
confined  to  a  few  weeks'  visit,  I  believe  it  is  doing  a  very  fine  piece 
of  work.  But  I  do  not  believe  the  conditions  apply  at  all  to  this 
country.  I  do  not  believe  we  have  any  of  the  same  problems  or 
characteristics  in  this  country. 

I  think  that  the  only  other  big  illustration  of  the  Government 
going  into  a  similar  task  is  found  in  the  Irish  movement  at  the  present 
time.  I  do  not  think  we  have  any  such  trouble  in  this  country  as 
Ireland  has,  and  therefore  I  do  not  think  that  their  solutions  are  at 
all  applicable. 

Mr.  Bulkley.  How  has  that  worked  ? 

Mr.  Coulter.  The  exponents  say  it  is  doing  perfectly  wonderful 
things  and  the  opponents  say  it  is  not  doing  so  well. 

Mr.  Ragsdale.  That  started  originally,  I  believe,  by  an  act  of 
Parliament  putting  it  into  effect? 

Mr.  Coulter.  The  Government  itself  took  over  those  estates 
through  its  proper  officers  and  looked  after  a  division  of  the  estates 
and  apportioning  them  out  to  the  tenants  and  then  handling  of  the 
collection.  They  extend  the  longest  period,  I  beliece,  of  87  years 
for  a  complete  repayment  for  the  land  itself — 87  years. 

Mr.  Platt.  The  tenants  on  those  Irish  estates  have  lived  there  a 
good  many  years  % 

Mr.  Coulter.  Generally  speaking,  they  have  lived  there  through 
years  and  years.  Now,  there  have  been  some  very  hard  things  come 
out  of  it,  they  say.  One  man  told  me  that  he  accepted  bonds  in  the 
payment  for  his  big  estate  in  Ireland,  and  that  the  bonds  had  gone 
down  to  about  87  and  he  had  thought  he  was  selling  at  100.  But  he 
was  getting  at  the  rate  of,  say,  $87  an  acre  instead  of  $100  an  acre. 
And  (here  were  many  things  of  that  sort,  but  I  was  not  long  enough 
in  Ireland  to  pass  personal  judgment  on  how  it  was  working  out. 
There  seemed  to  be  great  deal  of  personal  conflict  of  opinion.  How- 
ever, the  fact  is  that  about  385,000  former  tenants  are  now  owners. 
Of  course  many  of  them  have  80  years  yet  to  pay  out,  but  they  are 
owners. 

Mr.  Ragsdale.  There  is  not  any  question,  without  regard  to  the 
loss  probably  to  the  individual  selling  the  land  and  becoming  the 
holder  of  the  bond,  but  what  the  system,  as  a  whole,  is  very  beneficial 
to  the  former  tenants  of  Ireland. 

Mr.  Coulter.  There  is  no  doubt  about  that. 

Mr.  Ragsdale.  Xone. 

Mr.  Coulter.  I  think  the  tenants  are  much  better  off  as  owners 
and  have  a  much  better  chance  to  make  progress. 


EUEAL   CREDITS.  207 

Mr.  Platt.  Would  you  not  say  that  a  great  deal  of  the  conditions 
in  the  South  regarding  the  negroes,  for  instance,  are  somewhat 
similar  to  the  former  serfs  in  Russia  ? 

Mr.  Coulter.  No;  I  should  not  say  that  the  conditions  were  any- 
thing like  the  same. 

Mr.  Platt.  The  Russians  lived  in  communities  and  held  their  land 
in  an  entirely  different  way  from  anything  that  has  ever  been  done 
in  this  country  ? 

Mr.  Coulter.  The  conditions  were  very,  very  different.  The  con- 
ditions here  have  been  such  that  in  a  comparatively  few  years  instead 
of  being  practically  all  illiterate  as  the  Russians  still  are — the  Russian 
peasants  are  practically  still  all  illiterate — very  few  of  our  negroes 
now  are  not  able  to  read  and  write.  Comparatively  here,  in  a  few 
years,  since  they  have  had  the  opportunity,  the  opportunity  to  buy 
seems  to  be  perfectly  open  and  free,  they  are  buying  by  the  tens  and 
hundreds  of  thousands.     It  is  not  the  same  problem. 

Senator  Hollis.  I  am  quite  interested  in  that.  I  do  not  remem- 
ber just  the  source,  but  I  got  the  impression  that  the  majority  of  the 
negroes  can  read  and  write  in  this  country. 

Mr.  Coulter.  Yes,  sir;  they  can. 

Senator  Hollis.  Is  that  an  actual  fact  ? 

Mr.  Coulter.  Yes;  the  statistics  show  that. 

Mr.  Ragsdale.  Oh,  yes. 

Mr.  Coulter.  Do  you  know  what  the  percentage  is  ? 

Mr.  Ragsdale.  No;  I  do  not  remember  just  now,  but  there  is  not 
any  question  about  a  large  majority  being  able  to  read  and  write. 

Mr.  Platt.  The  percentage  of  illiteracy  among  negroes  in  any 
State  is  not  over  30  per  cent,  is  it  ? 

Senator  Hollis.  Oh,  that  is  a  very  small  degree  of  proficiency. 

Mr.  Coulter.  Oh,  yes;  the  percentage  of  illiteracy  is  above  30  per 
cent  in  several  States.  There  are  institutions  all  through  the  country 
that  are  working  for  the  education  of  the  negro. 

Mr.  Ragsdale.  The  truth  of  the  matter  is  that  the  great  influx 
of  foreigners  coming  here  to-day  is  more  illiterate  than  the  negroes. 

Mr.  Platt.  That  is  not  proved  by  statistics  in  any  way. 

Mr.  Ragsdale.  I  think  it  is. 

Mr.  Bulkley.  I  think  we  are  getting  quite  away  from  the  sub- 
ject, and  that  is  a  matter  which  has  a  good  many  kinks  to  it. 

Mr.  Coulter.  That  is  a  fact  that  can  be  proved  one  way  or  the 
other.  It  is  a  fact  that  for  the  negroes  of  Memphis— I  had  a  letter 
the  other  day  on  the  subject — there  is  a  higher  percentage  of  illiteracy 
than  for  the  most  illiterate  borough  in  New  York  City. 

Mr.  Ragsdale.  I  know  New  York  is  looked  upon  as  one  of  the 
illiterate  States  of  the  Union. 

Mr.  Platt.  Its  percentage  is  very  low  as  compared  with  any  of  the 
Southern  States. 

Mr.  Ragsdale.  I  am  not  sure  about  that,  with  this  recent  crowd. 
I  take  it  to  be  the  fact  that  it  was  with  the  old  crowd,  but  the  new 
crowd  is  coming  up  pretty  high. 

Mr.  Bulkley.  Mr.  Ragsdale,  if  you  would  like  to  have  it,  we  will 
have  Dr.  Coulter  insert  in  the  record  the  statistics  on  that  point. 

Mr.  Ragsdale.  I  have  absolutely  no  objection  to  it. 

Mr.  Bulkley.  I  do  not  think  it  is  relevant  here,  but  if  you  want 
it  we  will  put  it  in. 


208  RURAL    CREDITS. 

Mr.  Ragsdale.  I  do  not  think  it  is  of  enough  importance. 

Mr.  Coulter.  Russia  and  Ireland  are  the  best  illustrations  on  the 

Eart  of  a  national  government  attempting  to  actually  go  into  the 
usiness  of  loaning  directly  or  financing  individual  farm  enterprises. 
It  is  true  that  we  have  a  lot  of  other  small  illustrations  that  could  be 
picked  out.  At  the  present  time  I  believe  that  the  German  Empire  is 
trying  to  help  establish  the  Germans  on  farms  in  the  northeastern 
part  of  the  Empire  and  gives  them  an  advantage  over  the  Poles  and 
Bohemians. 

Mr.  Moss.  I  would  like  to  ask  Dr.  Coulter  if  in  that  instance  it  is 
not  only  where  the  land  is  about  to  pass  away  from  the  German  and 
over  to  the  Polish? 

Mr.  Coulter.  Yes.  It  is  a  matter  of  protection  there.  Our  other 
illustration  is  the  illustration  that  has  been  raised  once  or  twice 
concerning  our  policy  with  the  Philippine  Islands.  I  noticed  Mr. 
Norris's  bill,  which  those  who  have  studied  it  carefully  will  see  at 
once,  is  adapting  to  the  United  States  the  provisions  which  are  now 
maintained  in  the  Philippine  Islands.  It  so  happens  at  the  present 
time  that  I  have  a  sister  in  the  Philippine  Islands,  and  her  husband 
is  treasurer  and  this  bank  falls  under  my  brother-in-law's  jurisdiction. 
I  have  talked  with  him  many  times  when  he  has  been  over  here  and 
I  am  fairly  well  acquainted  with  their  activities.  In  the  Philippine 
Islands  there  is  no  doubt  but  what  it  is  a  special  bank,  but  it  is  part  of 
the  treasury,  as  a  matter  of  fact.  There  is  no  clerk  hire  at  all  for  the 
bank,  because  the  treasury  clerks  do  all  of  the  work;  the  institution 
is  run  as  a  sort  of  adjunct  to  the  treasury.  All  of  the  effort  is  to  try 
to  establish  titles  on  a  sound  foundation.  The  attorney  general's 
office,  or  the  proper  law  officers  of  the  Philippine  Islands,  looks  after 
the  straightening  out  of  titles  without  charge  to  the  institution,  and 
so  forth.  Therefore,  between  other  bureaus,  all  of  the  work  is  done, 
so  that  there  is  practically  no  expense  to  the  institution  as  such. 

The  last  time  that  I  talked  with  the  man  that  is  now  in  charge  of 
this  agricultural  bank,  the  loans  were  made  at  10  per  cent,  which  was 
the  minimum  rate  of  interest.  They  were  talking  of  reducing  it. 
I  have  not  had  time  since  I  saw  Mr.  Norris's  bill  to  look  into  the 
present  rates.  The  total  number  of  loans  up  to  that  time  was  less 
than  200,  the  last  time,  I  should  say,  about  a  year  ago,  that  I  was 
talking  with  him  about  it.  And  the  whole  effort  is  practically  to  try 
to  bring  some  system  out  of  chaos.  They  have  not  any  system  of 
recording  their  land  titles  at  all,  you  might  say;  they  have  adopted 
the  Torrens  system  of  land-title  registration  under  a  Federal  act,  and 
there  is  a  very  definite  effort  going  on  there  to  straighten  out  the 
land  question. 

I  should  say  that  just  the  same  as  Alaska  seemed  to  be  an  abnormal 
case  in  the  establishment  of  a  Government  railroad,  so  the  Philippines 
seem  to  be  an  abnormal  case  which  called  for  special  treatment  to 

frovide  for  the  establishment  of  some  kind  of  an  agricultural  bank. 
t  does  not  seem  to  me  to  be  at  all  a  normal  situation. 
Mr.  Bulkley.  How  has  it  worked  out  there? 

Mr.  Coulter.  It  has  worked  in  this  way,  that  only  a  very  small 
fraction  of  those  who  apply  are  able  to  get  loans  at  all,  because  they 
have  not  the  property,  they  have  not  the  title.  They  could  not  get 
things  straightened  out;  they  can  not  prove  any  right  to  their  land. 
The   total  number   of  loans   up   to   date   is  insignificant.     I   doubt 


EUEAL    CREDITS.  209 

whether  it  is  more  than  300  altogether.  They  have  not  had  occasion 
to  foreclose  much.  There  have  been  two  or  three  foreclosures;  they 
had  to  straighten  out  a  few  kinks  in  that  way.  The  loans  are  com- 
paratively small  and  they  have  not  done  much  yet ;  but  it  is  an  incen- 
tive and  many  people  are  trying  to  straighten  out  their  land  titles  in 
order  to  get  loans.  But  immediately  they  get  the  titles  straightened 
out,  then  they  find  they  can  borrow  cheaper  elsewhere  and  go  and 
try  to  do  it. 

My  information,  as  I  say,  is  about  a  year  old,  but  it  is  from  family 
connections.     They  are  greatly  interested  in  their  experiment. 

The  provisions  in  the  Norris  bill,  then,  of  having  various  other 
Government  bureaus  look  after  the  inspections,  the  titles  and  so 
forth  is  taken  from  the  method  established  in  the  Philippine  Islands. 

Mr.  Bulkley.  Doctor,  before  you  go  on  to  another  subject — I  do 
not  want  to  interrupt  you— but  if  you  are  through  with  that  subject, 
I  would  like  to  ask  you  how  the  Irish  peasants  have  been  paying  out 
on  their  loans  ? 

Mr.  Coulter.  They  have  been  getting  along  pretty  well;  but  it 
might  be  said  that  the  amount  which  they  are  required  to  pay 
annually  is  very  small — they  try  to  adjust  it  so  that  it  will  be  just 
the  same,  or  almost  identically  the  same,  as  they  formerly  paid  rent 
to  the  landlord.  The  percentage  which  thus  goes  on  to  the  payment 
of  the  land  is  so  small  that  the  general  idea  is  that  it  will  talce  them 
on  an  average  about  87  years  to  pay  out,  which  would  mean  their 
children  probably  would  have  to  do  part  of  the  paying.  But  they 
are  definitely  establishing  them  as  owners  on  those  estates,  I  should 
say. 

Mr.  Eagsdale.  And  as  I  understand  it,  Doctor,  the  land  is  im- 
proving under  this  system;  they  are  better  satisfied  and  the  proba- 
bility is  they  can  increase  the  amount  of  their  payments  after  a  time  ? 

Mr.  Coulter.  I  should  think  so.  I  think  probably  a  part  of  the 
improvement  in  the  agriculture  is  because  of  the  establishment  of 
the  department  of  agriculture.  They  have  now  traveling  lecturers 
and  local  demonstrations  and  special  schools,  and  they  are  getting 
ahead  by  leaps  and  bounds. 

Mr.  Moss.  In  that  connection,  Doctor,  is  not  one  of  the  big  things 
of  the  Irish  agriculture  that  they  are  going  from  grazing  into  intensive 
farming  ? 

Mr.  Coulter.  Yes;  they  are  going  into  intensive  farming. 

Mr.  Moss.  And  but  a  small  part  of  Ireland  has  ever  been  culti- 
vated— in  some  cases  less  than  5  per  cent. 

Mr.  Bulkley.  Now,  what  can  you  tell  us  about  Government  loans 
in  New  Zealand  ? 

Mr.  Coulter.  I  really  can  not  tell  anything  more  than  a  few  things 
I  have  read,  but  I  could  not  add  anything  at  all  to  what  you  all  prob- 
ably know  much  better  than  I  do. 

I  wanted  to  say  just  a  word  about  loaning  through  local  associa- 
tions. Mr.  Bathrick's  bill  and  Mr.  Hilling's  bill  struck  me,  I  thought, 
as  primarily  suggestions  along  that  fine.  That  is  the  movement  that 
they  are  now  working  at  in  the  southern  part  of  Italy.  In  the  south- 
ern part  of  Italy  there  are  special  laws  for  the  various  .Provinces — 
you  understand  that  the  people  of  the  northern  part  of  Italy  are  very 
much  more  highly  educated  and  there  is  a  better  system  of  agriculture 
than  in  the  southern  part  of  Italy — (I  do  not  know  much  by  personal 

37031—14 14 


210  RURAL    CREDITS. 

visit  there,  but  by  talks  with  others  who  studied  the  southern  Italian 
method  of  long-time  loans,  I  got  this  general  notion  of  it) — the  pro- 
visions of  law  are  that  the  institution  established  ean  lend  through 
any  kind  of  a  local  association  doing  a  credit  1  usiness.  They  are 
encouraging  the  establishment  of  little  IlaefTeisen  societies  and 
peoples  banks  and  marketing  societies  all  through  southern  Italy, 
and  helping  in  every  way  they  can.  Provision  is  made  that  the  land 
bank,  for  instance,  will  be  created  for  the  Province  of  Latium,  or  the 
Basilicate  or  Sardinia.  This  institution  does  business  through  local 
associations,  the  idea  being  that  the  local  associations  will  get  all  of 
the  local  information,  all  of  the  details  there,  and  will  be  aide  to 
advise  the  land  bank,  and  will  also  guarantee  the  loans  and  act  as  a 
go-between  for  that  institution. 

I  was  sony  afterwards  that  I  did  not  go  further  down  into  that.  I 
did  not  know  about  it  at  first.  It  is  very  new,  as  a  matter  of  fact, 
and  there  is  very  little  experience  on  it.  I  found,  after  I  had  gotten 
nearly  read}'  to  come  home,  that  they  were  definitely  working  in  that 
direction. 

Mr.  Bulkley.  Is  that  a  new  thing,  Doctor?  Is  that  different  from 
anything  that  is  done  in  the  other  countries  ? 

Mr.  Coulter.  So  far  as  I  know  there  has  been  very  little  use  of 
other  local  units  to  handle  such  business. 

Mr.  Moss.  Would  this  be  a  difficulty  in  that  way,  that  where  they 
are  loaning  for  50  years  and  the  association  that  guarantees  the  loan 
being  voluntary,  is  not  the  organization  apt  to  be  dissolved  during 
the  life  of  the  guaranty  ? 

Mr.  Coulter.  The  organization  would  not  be  allowed  to  liquidate 
or  go  out  of  business  without  leaving  securities  to  cover  its  guaranty. 

Another  thing  that  might  be  said  of  the  local  societies,  which  are 
considered  as  local  units  for  all  sorts  of  negotiations,  is  this:  They  are 
p  ac  tic  ally  perpetual  institutions.  In  fact,  they  practically  can  not 
die.  In  the  first  place,  they  have  got  to  accumulate  a  surplus,  and 
then  there  is  no  way  to  get  rid  of  that  surplus.  They  are  absolutely 
prohibited  from  dividing  it  among  the  members  and  quitting  busi- 
ness. If  they  go  out  of  business,  the  money  must  be  used  for  some 
purpose  of  public  welfare  or  placed  in  some  sort  of  a  trust  fund  to 
take  care  of  the  poor  people  ot  the  community  or  for  some  other  good 
work.  And  therefore  those  local  societies  are  practically  absolutely 
permanent;  they  can  not  die.  They  have  a  fund  there  that  is  per- 
petual, and  that  is  their  reserve  as  they  accumulate  it. 

Now,  I  would  like  for  the  few  minutes  that  are  left  to  refer  to  one 
other  question  I  have  given  considerable  study  to.  It  may  not  be 
a  point  to  which  you  would  want  to  give  much  thought.  It  is  the 
question  of  whether  a  central  institution  is  needed,  or  not. 

My  office  at  the  present  time,  temporarily,  is  studying  the  matter 
of  State,  municipal,  county,  and  other  government  debt,  sinking- 
fund  assets,  and  related  points,  in  connection  with  the  decennial 
inquiry.  There  are  in  the  United  States  some  3,000  counties,  nearly 
as  many  cities,  towns  and  villages  of  over  2,000  population;  and 
there  are  10,000  smaller  towns  and  villages.  Ana  then  there  are 
thousands  of  road  districts  and  drainage  districts  and  irrigation  dis- 
tricts and  school  districts— even  precincts — very,  very  small  units. 

Almost  all  of  these  in  most  States  have  the  right  to  borrow  money, 
if  they  can  get  it,  for  improvement  purposes,  and  they  arc  required, 


RURAL    CREDITS.  211 

of  course,  to  create  a  sinking  fund  and  the  debt  is  paid  back  by  taxa- 
tion. This  was  the  thing  that  struck  me,  that  these  independent 
little  cities,  towns,  villages,  boroughs,  counties,  road  districts, 
drainage  districts,  and  so  forth,  where  able,  without  any  great  central 
institution,  to  dispose  of  their  bonds  satisfactorily.  Now,  the  total 
number  of  those  is  immense.  There  are  thousands  and  thousands  of 
them.  I  have  been  perfectly  amazed  in  gathering  the  information 
for  the  use  of  the  Government  on  that  point.  And  they  borrow  very 
small  amounts.  It  is  found  that  these  little  units  will  borrow  $5,000, 
$10,000  and  create  a  sinking  fund  and  gradually  pay  them  off.  Of 
course,  they  are  backed  by  taxation  and  as  I  say,  they  borrow  very 
small  amounts. 

Now  a  farm  land  bank  with  a  capital  of  $10,000  could  issue  $100,000 
worth  of  bonds  or  even  $150,000  worth  of  bonds  and  would  be  per- 
fectly safe.  In  some  European  countries  they  are  allowed  to  issue 
20  times  the  paid-up  capital.  That  is  to  say  a  $10,000  institution 
could  issue  $200,000  worth  of  the  bonds,  obligating  the  land  is  all 
the  security  that  is  necessary.  It  seemed  to  me  at  first,  I  must 
confess,  pretty  necessary  to  have  some  sort  of  a  central  institution, 
one  for  each  State  or  one  for  the  United  States,  until  I  commenced 
to  see  the  thousands  and  thousands  of  institutions  and  organizations 
that  were  issuing  bonds  and  found  a  very  good  market  for  those 
bonds. 

Mi'.  Hayes.  At  5  per  cent,  usually? 

Mi*.  Coulter.  Some  cities  because  they  found  the  local  men  will- 
ing to  take  them 

Senator  Hollis  (interposing) .  And  tax  exempt? 

Mr.  Coulter.  Yes;  tax  exempt — issued  them  at  4  per  cent. 

Mr.  Hayes.  The  little  school  districts  in  my  State  can  sell  bonds 
at  5  per  cent  at  par. 

Mr.  Coulter.  Yes. 

Senator  Hollis.  Can  you  tell  us  just  exactly  what  per  cent  of 
those  is  sold  directly  from  the  district  issuing  them  instead  of  through 
bond  houses  ?     There  is  quite  a  good  deal  of  talk  along  that  line. 

Mr.  Coulter.  I  have  tried  to  find  the  information  but  I  can  not 
give  anything  accurate  at  all. 

Senator  Hollis.  I  saw  by  the  papers  that  the  treasurer  of  Massa- 
chusetts has  just  sold  a  large  quantity  right  through  the  treasurer's 
office. 

Mr.  Hayes.  At  what  rate  ? 

Mr.  Coulter,  They  called  for  bids,  and  then  they  picked  out  the 
best  bid  and  said  now  we  will  sell  direct  to  the  people  at  that  bid 
and  give  them  the  benefit  of  the  bid. 

Senator  Hollis.  That  was  rather  rough  on  the  bidder. 

Mi*.  Coulter.  It  was,  but  that  is  what  they  did. 

Mr.  Hayes.  What  was  the  rate? 

Mr.  Coulter.  I  do  not  know— 4.37,  or  something  like  that.  I 
know  it  got  down  into  very  fine  fractions.  The  bids  were  very  close, 
some  of  them,  and  the  best  bidder,  an  underwriting  house,  agreed 
to  take  all  at  a  certain  bid  and  then  the  State  said  that  is  the  price 
we  will  sell  for  now  and  let  the  public  subscribe  for  them. 

Mr.  Seldomridge.  At  Colorado  Springs  I  think  they  just  placed 
$100,000  or  more  at  4  or  4£  per  cent,  and  they  issued  them  in  denom- 


212  RURAL    CREDITS. 

inntions  of  $100  as  the  Unrest,  and  the  people  gladly  came  forward 
and  took  them. 

Mr.  Hayes.  In  California,  San  Francisco  has  been  trying  to  dis- 
pose of  some  bonds  for  various  improvements  at  4£  per  cent,  and 
they  have  had  difficulty  in  disposing  of  them  at  par. 

Mr.  Coulter.  It  may  be  temporary. 

Mr.  Platt.  The  rate  of  interest  on  bonds  has  shown  a  greater 
increase  than  anything  else.  For  instance,  it  was  not  very  difficult 
some  veal's  ago  to  sell  municipal  bonds  in  the  northern  cities,  and  I 
think  even  a  good  many  small  cities  issued  3  per  cent  bonds.  But 
now  we  have  to  pay  4\. 

Mr.  Coulter.  I  think  that  is  a  good  point,  because  I  think  the 
farm-land  banks  would  beat  the  cities  to  it.  The  farm-land  bank 
would  have  absolutely  better  than  a  sinking  fund,  because  on  the 
repayment  of  the  mortgages  the  bonds  are  withdrawn  to  that  extent. 
The  trouble  has  been  with  the  large  cities  that  they  have  refunded 
and  refunded  and  refunded  and  did  not  pay  anything  back.  If  they 
created  a  sinking  fund,  by  the  time  that  sinking  fund  is  equal  to  the 
bonds,  the  property  which  they  improved,  the  paving  which  they 
did  or  the  building  which  they  built  has  entirely  disappeared  and 
they  have  got  to  renew  it  in  order  to  rebuild.  Now  the  farm  bonds 
which  have  a  better  market  than  those  municipal  bonds  unless  the 
municipalities  of  this  country  change  their  methods  very  materially. 

Mr.  Platt.  That  might  very  well  be  true. 

Mr.  Coulter.  The  land-bank  bonds  would  likely  have  a  better 
place.  But  there  is  another  side  on  that  question—  and  I  have  tried 
to  be  fair — the  Arizona  counties  and  cities  found  it  so  difficult  to  get 
money  at  good  rates  that  the  State  took  over  all  of  the  county  and 
municipal  obligations,  outstanding  city  debts,  and  refunded  them 
as  a  State  debt  and  then  in  turn  holds  each  county  and  municipality 
in  proportion  to  the  amount  which  the  State  took  over  for  them. 
The  State  then  took  over  the  bonds  and  sold  them  as  State  bonds 
and  gets  better  rates  of  interest  and  gives  the  counties  and  munici- 
palities in  that  State  the  advantage  of  this  low  rate.  That  is  the 
only  State  I  know  of. 

Mr.  Ragsdale.  You  mean  by  getting  a  "better  rate"  that  it  sells 
at  a  low  rate  ? 

Mr.  Coulter.  Yes,  sir.  Massachusetts  tried  the  nearest  thing  to 
that,  and  that  is  established  the  metropolitan  district,  issues  the 
bonds,  and  really  the  State  is  in  back  of  them.  The  bonds  are  based 
upon  the  metropolitan  districts,  but  they  are  not  equally  distributed 
through  the  State;  they  are  handled  by  the  State  for  the  metropolitan 
districts. 

And  so  we  have  there  two  illustrations  of  States  where  in  order  to 
get  lower  rates  for  the  municipalities  and  counties  in  the  States,  or 
other  districts  of  the  State,  the  State  handles  the  question. 

With  reference  to  the  need  for  a  central  institution,  then:  We  have 
in  this  country  an  illustration  of  the  great  mass  of  units  not  needing 
central  institution,  but  we  see  there  are  some  advantages  for  it.  I 
think  there  is  no  doubt  but  what  parts  of  the  country  in  getting 
money  from  other  parts  would  find  advantage  in  a  central  institution. 

Mr.  Ragsdale.  Now,  those  States  demonstrated  the  fact  that  a 
State  guaranty,  a  Government  guaranty,  includes  some  advantages 


RURAL   CREDITS.  213 

by  way  of  lower  rates  and  getting  loans  more  easily  than  the  localities 
themselves  could  have  secured. 

Mr.  Coulter.  I  think  those  two  States,  by  going  into  that  business, 
have  accomplished  something. 

Mr.  Ragsdale.  They  have  demonstrated,  so  far  as  it  has  worked  up 
to  this  time,  that  it  is  practicable  and  profitable  ? 

Mr.  Coulter.  So  far  as  my  knowledge  goes.  I  wanted  to  bring 
this  point  out  to  show  I  am  not  covering  up  anything  I  know  that  will 
be  helpful  to  the  committee. 

Senator  Hollis.  I  think  it  is  fair  to  say  Senator  Bourne,  who  has 
been  chairman  of  the  Committee  on  Post  Offices  and  Post  Roads  of 
the  Senate,  has  worked  out  a  plan  for  good  roads,  in  which  that  is  the 
principal  feature,  that  the  States  will  have  the  credit  of  the  central 
government  for  borrowing  money  to  build  good  roads.  Of  course, 
that  has  not  been  adopted  yet,  but  it  is  the  result  of  his  study  on  the 
subject. 

Mr.  Ragsdale.  In  my  own  State,  South  Carolina,  the  money  lying 
in  the  treasury  is  loaned  to  the  various  counties,  and  we  find  it 
entirely  satisfactory.  In  other  words,  I  think  it  is  a  function  the 
Government  ought  to  perform.  Where  the  credit  of  the  Government 
can  be  safely  extended  to  a  locality  for  general  improvement  by 
which  all  of  the  people  benefit,  I  think  it  ought  to  be  done.  That  is 
my  own  view. 

Mi".  Platt.  Do  you  know  about  the  early  efforts  of  the  State  of 
New  York  to  loan  directly  to  the  farmers  ?  There  was  a  large  fund 
loaned  directly  to  the  farmers  of  the  State  of  New  York  some  years 
ago,  and  nearly  all  the  money  was  lost,  as  I  remember  it,  and  it  has 
not  been  paid  back. 

Mr.  Coulter.  There  have  been  such  experiences  in  early  years. 
In  fact,  every  New  England  State  offered  a  bounty  for  the  growing 
of  grain,  in  order  to  make  it  possible  for  the  New  England  States  to 
compete  with  the  Middle  West  when  it  commenced  to  grow  grain. 
There  have  been  many  of  those  experiments,  but  although  I  have 
heard  of  many  of  them,  I  have  never  looked  into  the  subject  in 
detail. 

I  would  like  to  say  a  word  or  two  in  conclusion  about  the  whole 
question  of  Government  loans,  the  need  of  a  central,  etc.  I  think 
that  if  the  Government  would  merely  authorize  associations  or  com- 

Eanies  to  form  banks  (they  might  well  be  called  banks)  that  there  would 
e  no  difficulty  in  the  country,  and  I  believe  that  these  banks  would 
be  formed.  I  think  that  these  associations  should  be  pretty  largely 
limited  to  land-mortgage  business.  On  the  other  hand,  I  think  that 
if  a  group  of  farmers  wished  to  get  together  and  take  out  a  Federal 
charter  and  call  it  a  farm-land  bank,  cooperative  (if  that  is  the  name 
that  might  be  adopted)  that  this  group  of  iarmers  should  be  allowed 
to  organize  such  an  institution,  just  using  the  word  "cooperative" 
tacked  onto  the  rest  ol  the  name,  just  the  same  as  I  think  farmers 
should  be  allowed  to  organize  national  banks,  cooperative,  by  adopt- 
ing their  own  rules  of  voting  and  distributing  dividends. 

Now,  my  suggestion  is  that  we  use  the  words  "farm-land  bank" — 
I  have  heard  suggested  "agricultural  mortgage  association."  Those 
are  three  very  long  words  to  put  up  on  your  window.  If  you  have 
no  other  reason  for  substituting  "farm"  for  "agricultural"  it  is  that 
this  is  a  land  bank  as  compared  wdth  a  personal-credit  bank. 


214  RURAL   CREDITS. 

Mr.  Hayes.  A  national  farm-land  bank. 

Mr.  Coulter.  It  is  a  farm  bank,  it  is  a  land  bank,  it  is  a  bank,  and 
I  once  in  a  while  used  to  think  of  trying  to  get  a  simple  name  that 
would  work.  If  I  used  the  words  "farm-land  bank"  and  "cooper- 
ative" freely  through  the  hearing,  it  is  because  I  have  gotten  accus- 
tomed to  talking  of  "farm-land  banks,  cooperative,"  because  I 
believe  the  farmer  should  have  the  opportunity,  if  he  wishes  to,  to 
start  one  of  those  and  take  out  a  Federal  charter,  under  Federal 
supervision  and  inspection,  and  adopt  cooperative  rules.  I  do  not 
think  farmers  should  be  compelled  to,  but  I  think  they  should  be 
allowed  to,  and  I  believe  that  under  a  bill  such  as  we  have  suggested 
many  of  them  would  do  so.  In  fact,  I  have  letters  from  farmers 
asking  me  to  keep  them  posted,  that  they  think  it  is  just  the  right 
idea,  that  they  want  to  organize  one  if  the  thing  goes  through;  and 
I  have  promised  to  keep  them  advised. 

Mr.  Brown.  An  expression  you  used  a  moment  ago  led  me  to 
believe  you  might  favor  a  bank  of  deposit  along  with  it,  or  deposit 
features. 

Mr.  Coulter.  I  think  if  the  farmers  themselves  organize  their  own 
farm-land  banks,  with  their  own  capital,  that  they  should  be  allowed 
to  do  a  banking  business  so  far  as  their  members  are  concerned — 
only  for  their  own  members — because  that  would  give  them,  then, 
so  far  as  desiring  to  do  a  banking  business  is  concerned,  the  various 
advantages  found  all  over  Europe  in  the  people's  banks  which  deal 
only  with,  members. 

Mr.  Hayes.  Do  these  people's  banks  make  short-time  loans  and 
farm  loans  as  well — the  same  bank  ? 

Air.  Coulter.  They  are  the  best  illustration  of  institutions  dealing 
only  with  members. 

Mr.  Hayes.  How  long  have  they  been  doing  it? 

Mr.  Coulter.  A  good  many  years. 

Mr.  Hayes.  How  many? 

Mr.  Coulter.  Of  course  they  are  only  30  or  40  years  old. 

Mr.  Mayes.  That  is  old  enough  to  demonstrate  whether  it  works 
or  not. 

Mr.  Platt.  Have  any  of  those  banks  the  compulsory  saving  feature 
connected  with  them  such  as  a  building  and  loan  association,  for 
paying  in  their  money  deposits  regularly  1 

Mr.  Coulter.  No. 

Mr.  Platt.  They  just  take  them  as  they  have  them  ? 

Mr.  Coulter.  Yes. 

Mr.  Platt.  It  seems  to  me  there  is  one  feature  of  the  building  and 
loan  association,  that  the  deposits  have  to  be  regular,  which  is  a  good 
one. 

Mr.  Coulter.  Oh,  the  savings  feature,  of  course,  comes  in  by  re- 
quiring  members  to  own  shares  of  stock  to  be  members  and  have  some 
capital.  And  there  is  the  only  other  point  I  would  like  to  say  a  word 
on.     That  is,  I  think  these  institutions  must  have  capital. 

Now,  there  is  a  great  deal  being  said  about  the  Landschaften 
societies,  and  I  want  to  say  this,  that  the  early  Landschaften  societies 
of  Germany  did  not  have  any  foundation  capital,  and  they  ran  along 
without  any  trouble  in  selling  their  bonds  until  the  joint-stock  com- 
panies,  doing  mortgage  business  with   a  capital,   came  in.     Now, 


RURAL    CREDITS.  215 

these  banks  had  a  revolving  fund.  The  old  Landschaften  gave  the 
bond  to  the  farmer,  and  he  sold  the  bond  at  some  bank  or  some  place 
else.  But  the  land-mortgage  banks  came  in  with  a  foundation  capi- 
tal and  had  a  revolving  fund  to  do  business  on,  and  they,  instead  of 
handing  out  the  bond  to  the  farmer,  would  hand  out  the  money 
according  to  the  current  rate  of  bonds  of  the  denomination  which  he 
took.  If  he  took  the  4  per  cent  bond,  it  might  not  be  selling  at  par, 
or  if  he  took  a  3  per  cent  bond  it  might  not  be  selling  at  par,  and  he 
could  take  what  kind  of  a  bond  he  wanted  and  sell  it  for  whatever 
he  chose.  The  joint-stock  banks,  coming  in  competition  with  the 
Landschaften,  forced  the  Landschaften  to  do  what  seemed  to  be  the 
best  thing  at  that  time,  to  form  Landschaften  banks,  which  are  sister 
societies,  with  the  same  members.  The  bank  does  this  part  of  it: 
Negotiates  and  sells  the  bonds,  looks  after  the  canceling  of  them,  and 
so  forth  and  so  on.  In  other  words,  the  early  form  of  the  old  Ger- 
man Landschaft — the  new  Landschaften,  they  are  called  now — all 
over  Germany  has  tacked  this  new  Landschaft  bank  to  it  to  do  the 
business  of  that  sort.  That  gives  a  revolving  fund  to  compete  with 
the  joint-stock  banks,  and  as  a  matter  of  fact  the  joint-stock  mort- 
gage banks  have  not  (and  I  believe  as  the  result  of  that)  extended 
very  rapidly  into  the  county  districts.  I  believe  that  is  one  of  the 
reasons  why  the  joint-stock  banks  have  not  extended  very  much 
into  the  Landschaften  territory. 

Mr.  Hayes.  The  new  bank,  you  say,  is  a  new  arm  that  does  this  ? 

Mr.  Coulter.  Yes. 

Mr.  Hayes.  They  are  two  separate  institutions,  are  they? 

Mr.  Coulter.  They  are,  technically,  I  think,  two  separate  institu- 
tions, but  really  only  one  institution  with  the  same  members. 

Mr.  Hayes.  Something  like  our  trust  companies  and  national  banks 
organized  in  the  next  room  ? 

Mr.  Coulter.  Yes,  sir;  except  they  are  all  one  group. 

Mr.  Hayes.  They  are  all  one  group  here,  too. 

Mr.  Moss.  The  liabilities  go  to  the  same  persons.  The  same  mem- 
bers who  take  loans  out  of  the  Landschaft  association  have  the 
responsibility  as  a  Landschaft  bank  ? 

Mr.  Coulter.  Exactly. 

Mr.  Seldomridge.  Doctor,  do  you  not  think  in  this  legislation  we 
will  have  to  provide,  under  certain  rules  and  regulations,  that  these 
farm-land  banks,  in  certain  sections  of  the  country,  can  do  a  cooper- 
ative bank  business  ? 

Mr.  Coulter.  I  do.  I  think  if  they  are  cooperative  they  should  be 
allowed  to  do  so. 

Mr.  Seldomridge.  It  seems  to  me  it  will  be  absolutely  necessary, 
if  we  are  to  meet  the  needs  of  certain  sections,  that  we  shall  have  to 
provide  for  short-term  credits. 

Mr.  Coulter.  I  think  so.  I  think  Mr.  Fischer's  statement  yester- 
day indicated  that.  And  I  think  in  the  case  the  farm-land  bank, 
cooperative,  it  ought  to  be  allowed  to  do  for  its  own  members  only 
a  commercial  business,  the  same  business  the  commercial  hank  is 
allowed  to  do.  I  think  it  is  fundamental  and  can  be  defended,  and  I 
think  it  is  certainly  needed. 

Mr.  Platt.  You  mean  to  loan  to  the  stockholders  1 

Mr.  Coulter.  Yes;  to  loan  only  to  the  stockholders. 


216  KUEAL    CREDITS. 

Mr.  Hayes.  Our  experience  leads  me  to  doubt  whether  it  is  safe 
or  desirable  to  combine  in  tho  same  institution  the  long-time  and 
short-time  mortgage  along  with  the  commercial  features. 

Mr.  Seldomridge.  Even  if  you  limited  tho  amount? 

Mr.  Hayes.  No.  It  is  a  different  institution  entirely.  It  is  run 
on  a  different  basis.  The  worst  bank  failures  I  have  ever  known, 
and  in  fact  the  only  ones  I  have  ever  known,  were  the  result  of  the 
combining  of  those  two  functions. 

Mr.  Seldomridge.  You  will  not  meet  the  needs  of  the  agricultural 
communities  if  you  do  not  do  that. 

Mr.  Hayes.  Let  them  be  organized  in  separate  institutions. 

Mr.  Ragsdale.  Under  the  provisions  in  the  old  general  banking 
law  it  was  absolutely  prohibited,  but  in  the  new  law  we  have  provided 
that  loans  may  be  made  for  not  more  than  five  years. 

Mr.  Hayes.  I  would  take  it  all  out. 

Mr.  Ragsdale.  I  say  merely  this,  that  it  has  been  provided  for 
national  banks  to  accept  deposits  and  make  farm  loans  for  not  more 
than  five  years. 

Mr.  Hayes.  It  is  because  of  my  experience  and  study  of  this  sub- 
ject that  I  am  bringing  this  out.  I  think  that  no  commercial  bank 
that  is  properly  managed  can  make  a  five-year  loan  to  a  farmer  or 
anybody  else;  but  I  want  to  know  if  there  is  any  experience  in 
Germany,  Italy,  or  anywhere  else  that  tends  to  show  it  is  possible 
to  oiganizc  a  bank  which  can  combine  those  two  functions  safely. 

Mr.  Coulter.  Of  course  my  idea  is,  this,  bank  would  lend  only  to 
members.  It  can  not  go  out  and  do  business  with  others,  and 
its  mortgage  business  would  be  kept  absolutely  to  itself,  and 
the  mortgages  would  always  be  placed  in  the  hands  of  a  fiduciary 
agent  who  would  be  the  only  one  to  authorize  land  bonds  to  circulate. 
That  would  be  absolutely  kept  all  by  itself.  But  the  same  group 
in  the  same  institution  could  go  ahead  and  do  business  with  their 
own  members.  I  must  say  if  provision  is  made  separately  for  com- 
mercial credit  I  would  not  want  it  in  this  measure. 

Mr.  Hayes.  You  say  it  should  be  allowed  to  do  business  with  its 
members  ? 

Mr.  Coulter.  Yes. 

Mr.  Hayes.  Just  how  does  that  affect  the  proposition  ? 

Mr.  Coulter.  It  affects  it  in  this  way,  that  every  member  is  in- 
terested in  this — they  are  all  held  responsible  for  each  other  through- 
out Europe,  and  the  scheme  of  having  a  bank  for  its  own  members 
only  is  proving  to  be  thoroughly  sound. 

ftlr.  Hayes.  That  is  all  right  if  it  is  organized  for  that  purpose. 

Mr.  Coulter.  No  one  receives  a  loan  unless  he  has  a  share  of  cap- 
ital, lie  is  liable  then  for  any  loss.  The  idea  of  having  the  bank 
do  business  only  with  its  members  has  proven,  wherever  tried  all 
over  Europe,  to  be  absolutely  sound. 

Mr.  Hayes.  Of  course  that  goes  beyond  my  experience  entirely. 

Mr.  Coulter.  I  do  not  know  of  any  failure  at  all.  But  I  think 
you  are  right  in  the  point  that  the  bank  should  not  do  a  general  com- 
mercial banking  business  with  everybody  if  it  also  conducts  a  land- 
mortgage  business. 

Mr.  Ragsdale.  Why  not?  Let  us  get  the  reasons  for  it.  The 
savings  banks  of  America  come  under  this  same  proposition.  _ 

Mr.  Hayes.  Thev  are  not  doing  a  commercial  banking  business. 


RURAL    CREDITS.  217 

Mr.  Ragsdale.  Yes;  they  are. 

Mr.  Hayes.  No;  they  are  not. 

Mr.  Ragsdale.  I  know  of  some  myself  where  they  are  doing  both 
kinds  of  business  in  the  same  bank. 

Mr.  Hayes.  They  are  two  different  banks. 

Mr.  Ragsdale.  No;  they  are  all  under  one  charter. 

Mr.  Hayes.  They  segregate  the  business  in  the  bank. 

Mr.  Ragsdale.  No;  they  do  not.  For  instance,  in  my  own  town 
we  have  a  bank  which  does  a  savings  bank  and  a  commercial  bank 
business  all  under  one  charter.  It  has  a  capital  of  $125,000  and  the 
funds  are  kept  all  together. 

Mr.  Hayes.  It  is  a  dangerous  system,  then. 

Mr.  Brown.  There  is  one  question  I  would  like  to  ask,  Doctor, 
before  we  leave  this  point.  If  there  was  a  commercial  feature  in  this 
farmers'  loan  bank,  would  you  favor  loaning  in  a  commercial  way 
anything  other  than  the  deposits  themselves? 

Mr.  Coulter.  No. 

Mr.  Brown.  Only  the  deposits  ? 

Mr.  Coulter.  Yes. 

Mr.  Brown.  If  you  would  limit  all  loans  to  the  amount  on  deposit 
with  the  bank  and  only  with  its  members,  will  it  not  mix  that  up  with 
the  mortgage  business  ? 

Mr.  Coulter.  I  merely  say  that  for  these  institutions  for  farmers, 
for  farmers  doing  their  own  business,  they  have  proved  to  be  thor- 
oughly sound,  as  far  as  I  could  ascertain. 

Mr.  Brown.  That  is,  the  commercial  feature  and  the  bank  itself 
would  be  separate  and  apart  ? 

Mr.  Coulter.  Yes. 

(Thereupon,  at  1  o'clock  p.  m.,  the  committee  adjourned  to  Tues- 
day, February  24,  1914,  at  10.30  o'clock  a.  m.) 


TUESDAY,  FEBRUARY  24,    1914. 

United  States  Senate, 

Washington,  I).  C. 
The  committees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Senator  Henry  F.  Hollis,  presiding. 

Present:  Representatives  Bulkley,  Stone,  Seldomridge,  Hayes, 
Woods,  and  Piatt. 

Senator  Hollis.  Gentlemen.  Ave  have  with  us  this  morning  a  num- 
ber of  gentlemen  from  out  of  town  who  wish  to  be  heard.  If  it  is 
agreeable  to  the  committee  we  will  hear  first  Mr.  Scudder. 

STATEMENT  OF  S.  D.  SCUDDEK,  OF  NEW  YORK  CITY. 

Senator  Hollis.  Mr.  Scudder,  will  you  give  your  full  name? 

Mr.  Scudder.  My  name  is  S.  D.  Scudder;  business  address,  care  of 
Jefferson  Bank,  New  York  City. 

I  have  been  in  the  banking  business  and  mortgage-loan  business 
about  25  years,  and  in  farming  about  5  or  6  years.  While  I  am  still 
president  of  the  Jefferson  Bank,  of  New  York  City,  we  have  merged 
our  business  with  the  Century  Bank,  and  we  are  just  simply  now 
liquidating  the  $1,000,000  remaining  assets  of  the  Jefferson  Bank, 
so  that  you  can  put  me  down  as  not  actively  engaged  in  banking  at 
the  present  moment.  My  farming  experience  in  Minnesota  was 
through  tenants — wheat  farming — but  my  farming  experience  for 
4  or  5  years  in  Texas  was  not  by  tenancy,  but  I  actually  lived  on 
the  place,  near  San  Antonio,  and  farmed  it,  although  I  hired  con- 
siderable help,  just  as  everybody  else  does. 

If  you  will  permit  me,  Mr.  Chairman,  in  my  own  way  to  touch 
upon  one  or  two  points  in  this  bill — the  two  main  questions  that 
occur  to  me — and  then,  if  you  wish  to  question  me  after  I  get  through, 
I  will  be  very  glad  to  answer  any  questions  that  I  can.  I  think  that 
method  is  a  timesaver.  I  have  endeavored  to  anticipate  some  ques- 
tions and  to  answer  them. 

As  a  citizen,  I  am  intensely  interested  in  some  such  legislation,  be- 
cause for  over  a  quarter  of  a  century  I  have  felt  it  to  be  absolutely 
necessary.  I  mentioned  the  matter  in  my  talk  before  the  monetary 
convention  at  Indianapolis  some  20  years  ago,  where  I  was  sent  as  a 
delegate  from  Texas,  and  where  I  introduced  the  first  postal-savings 
resolution  which  was  ever  introduced  in  any  convention  in  this 
country.  We  had  a  hard  fight  on  that,  but  it  was  finally  referred  to 
the  executive  committee  for  action.  I  mentioned  the  matter  of  rural 
credits  there  as  being  in  connection  with  postal  savings,  as  an  out- 
come of  postal  savings,  as  it  has  been  in  some  foreign  countries. 

In  the  eighties,  after  resigning  a  good  position  in  the  Bank  of 
Montreal,  01  Wall  Street,  I  represented  the  Scottish  American  Mort- 
gage Co.,  of  Edinburgh,  Scotland,  for  effecting  loans  on  Minnesota 
218 


RURAL    CREDITS.  219 

farms.  Later,  when  my  health  gave  way  and  the  doctors  ordered  me 
South,  I  secured,  after  my  recovery  there,  the  Texas  agency  of  the 
same  company,  and  in  addition  several  other  foreign  and  domestic 
connections.  Out  of  about  $2,500,000  loaned  during,  say,  11  years  in 
Minnesota  and  Texas,  not  a  dollar's  loss  was  sustained  during  my  ad- 
ministration. There  were  some  foreclosures,  but  very  few.  I  can 
conservatively  say  within  two  dozen,  and  these,  as  a  whole,  paid  out 
in  final  disposition  of  the  properties. 

Two  main  questions  arise  in  my  mind  in  connection  with  the  legis- 
lation here  presented.  Our  Nation  has  just  given  to  one-half  its 
population,  the  commercial  half  we  will  call  it,  represented  by  its 
towns  and  cities,  a  bill  that  will  amply  care  for  their  financial  wants. 
But  the  farmer,  representing  nearly  the  entire  other  half  of  the 
Nation,  is  still  to  be  likewise  looked  after,  even  if  only  with  a  reason- 
able beginning.  You  may  say  all  you  please  about  the  town  bank, 
or  the  small  village  bank  being  a  friend  of  the  farmer.  I  have  been 
there,  and  can  talk  right  off  the  bat  on  that  subject.  In  connection 
with  our  mortgage  business,  my  partner,  Frank  Dyckman,  and  I 
established  what  is  to  this  day  known  in  Minnesota  as  the  State 
Bank  of  Sleepy  Eye.  When  we  started  that  bank  there  were  about 
100  people  in  the  town.  We  were  mighty  glad  to  have  the  farmer's 
business.  He  was  a  great  friend.  But  as  the  town  filled  up  with 
merchants  and  business  men  we  found  that  the  money  which  the 
farmer  was  depositing  as  really  going  to  the  merchants.  It  was 
quite  natural.  The  merchant  was  our  next-door  neighbor,  both  in 
business  and  socially.  He  could  reciprocate  by  sending  us  a  new 
customer  most  every  day,  and  in  other  ways  he  could  reciprocate, 
whereas  the  farmer  could  not.  And  the  personal  contact  was  such 
that  it  was  natural;  we  found  our  business,  the  farm  business  as  it 
began,  finally  growing  into  a  town  and  city  business.  I  always  re- 
gretted that  it  was  so,  but  that  was  the  fact,  and  I  saw  it  in  other 
places  as  well  as  our  own. 

The  first  question  which  occurs  to  me,  then,  is :  Will  this  bill,  even 
if  so  framed  as  to  secure  the  15  to  1  credit  line  proposed  therein, 
give  needed  relief  to  the  agricultural  sections  of  the  United  States, 
or  prove  even  an  entering  wedge  in  that  direction  ?  And  the  second 
question,  like  unto  it :  Where,  supposing  the  farmers  possess  $10,000 
to  invest  in  the  initial  capital  of  such  an  association — which  per- 
sonally I  believe  is  quite  possible  now  in  many  sections  of  the  coun- 
try— from  what  source,  I  say,  will  they  be  able  to  secure  a  credit  line 
of  15  to  1 ? 

To  the  first  question  I  answer:  Certainly  this  bill  is  in  the  right 
direction,  but  does  not  go  far  enough.  No  matter  how  much  capital 
a  merchant  or  a  manufacturer  has,  occasionally  some  outside  help, 
some  bank  accommodation  is  needed.  There  are,  of  course,  excep- 
tions; but  I  am  talking  of  the  general  rule.  So  with  the  farmer. 
And  while  you  are  making  it  possible  for  him  to  mortgage  real 
estate  in  order  to  buy  or  improve  it,  you  must,  if  this  plan  is  to  be 
at  all  effective,  give  him  some  short-term  accommodation.  This 
can  not  be  done  with  the  $10,000  capital  he  puts  up,  because  that 
sum  is  needed  for  the  mortgage  turnovers,  as  a  basis  for  his  15  to  1 
mortgage  credit.  You  must  give  the  farmers  of  this  country  a 
chance  to  trade  in  money — that  is,  loose  change — among  themselves. 


220  RURAL    CREDITS. 

This  is  what  they  need,  and,  in  my  judgment,  from  actual  experience, 
I  think  they,  as  a  class  in  the  United  States,  need  this  as  much  as, 
and  more  than,  they  do  cheap  money  with  which  to  buy  and  improve 
their  places. 

This  bill  in  its  stock  plan  provides  "  for  deposits  only  up  to  one- 
half  the  capital  and  surplus" — a  mere  bagatelle,  and  absolutely 
useless.  Neither  are  the  deposits  proposed  under  this  bill  ade- 
quately circumscribed.  What  is  needed  will  be  a  larger  deposit 
line  and  greater  circumscription  of  these  deposits.  Ordinarily  it 
requires  about  $2.50  of  deposits  to  every  $1  of  capital  in  order  to 
meet  the  ordinary  expenses  of  any  banking  proposition,  and  when  the 
ratio  of  5  to  1  is  reached  there  is  a  fair  profit.  I  am,  of  course, 
talking  of  a  small  $10,000  concern,  such  as  this  bill  creates,  and  some 
people  will  consider  my  figures  even  too  low.  Please  do  not  think 
that  *a  large  income  will  accrue  from  the  mortgage  department  of 
such  a  concern — these  $10,000  concerns.  If  in  a  small  community 
150  $1,000  mortgage  loans  are  made  in  a  year,  or  75  $2,000  loans,  it 
will,  in  my  opinion,  be  "  going  some."  According  to  the  bill,  this 
will  only  bring  in  a  gross  profit  of  $1,500— $1,500  on  150  $1,000 
mortgages.     Is  that  not  right,  Mr.  Moss? 

Mr.  Moss.  Your  computation  is  correct,  but  I  prefer  you  give 
your  own  interpretation,  because  your  interpretation  is  not  mine. 

Mr.  Scudder.  Yes.  Deduct  from  this  $1,500  all  the  expenses  of 
appraisal,  bookkeeping,  fiduciary  care,  selling  expense,  office  rental, 
labor  of.  collecting,  interest,  and  looking  after  tax  payments,  and  so 
forth,  and  if  there  is  very  much  profit  left  out  of  the  $1,500,  I  would 
be  surprised. 

To  come  to  the  point,  I  would  recommend  that  both  the  stock  and 
the  cooperative  associations,  provided  for  in  this  bill,  be  allowed  to 
take  deposits  in  unlimited  amounts.  I  would  throw  around  it  cer- 
tain strict  rules,  even  so  far  as  paying  interest.  I  believe  that  I 
should  prohibit  interest  allowance  on  demand  deposits  outside  of 
perhaps  Government,  State,  or  county  deposits.  They  are  not  so 
liable  to  be  called  for  arbitrarily.  I  do  not  wish  to  be  called  ultra  - 
conservative,  but  I  think  to  pay  interest  on  demand  deposits  which 
are  subject  to  call  at  any  time  is  a  dangerous  proposition.  But  more 
especially  would  I  throw  safeguards  around  the  investment  of  the 
deposits — such  a  rule,  for  instance,  providing  that  this  rule  does  not 
apply  to  the  purchase  of  United  States  bonds  or  such  other  savings 
securities  as  are  approved  by  the  Secretary  of  the  Treasury  or  com- 
missioner under  him:  No  deposits  which  are  payable  within  one 
year  shall  be  used  or  invested  in  any  paper  or  obligation  maturing 
beyond  one  year,  and  then  only  after  a  reserve  of  15  per  cent  has  been 
put  by.  One-third  of  this  reserve  to  be  in  cash,  the  remainder  in 
cash  or  on  deposit  with  one  or  more  banks  which  are  members  of  the 
Federal  reserve  system.  Such  paper  or  obligation  purchased  or 
invested  I  would  'make  subject  to  rules  promulgated  by  the  com- 
missioner or  under  the  direction  of  the  Secretary  of  the  Treasury, 
and  I  would  then  even  require  that  the  paper  be  initialed  by  two 
officers  of  the  bank  or  two  directors  or  one  officer  and  one  director,  or 
one  officer  and  the  fiduciary  agent  of  the  bank,  but  make  it  very  strict 
in  the  way  of  the  class  of  investments  representing  these  demand 
deposit. 


RURAL    CREDITS.  221 

I  want  to  call  your  attention  to  this  fact,  that  while  it  is  a  splendid 
provision,  and  I  am  glad  it  is  in  the  bill,  I  really  believe  that  some- 
years  will  elapse  before  the  "cooperative"  or  mutual  associations 
would  be  organized  under  this  bill. 

My  reasons  for  that  are  these :  "  Cooperation  "  means  close  asso- 
ciation, "  mutuality  "  means  the  closest  kind  of  personal  association, 
and  we  have  not  got  that  in  many  sections  of  our  country  yet.  In 
Europe  it  is  all  over.  Every  section  of  Europe  is  so  thickly  settled 
that  you  can  get  that  mutuality,  that  cooperation  in  every  small 
community  over  there.  But  there  are  very  few  communities  in 
America  that  are  in  that  condition  at  the  present  time.  Everyone 
must  admit  that  there  are  only  a  very  few  such  in  the  United  States. 

I  think  the  mutual  idea  was  very  well  illustrated  by  that  Italian 
farmer  who  wrote  to  one  of  the  American  commissions,  or  of  the 
United  States  commission,  I  have  forgotten  which,  in  this  way:  He 
was  asked,  as  I  understand  it,  to  describe  his  mutual  concern  and 
its  workings  in  a  few  words.  "  Well,"  he  said,  "  we  are  a  hundred 
all  spying  on  each  other,  to  see  that  no  one  makes  any  mistake." 

That  is  a  good  illustration  of  the  mutual  idea.  It  takes  acquaint- 
ance, close  association,  to  create  a  mutual  affair  that  will  work  out 
in  the  banking  line.  It  might  not  be  so  necessary  commercially, 
but  in  the  banking  line  it  will  be  absolutely  necessary.  Then  again, 
another  reason  why  the  mutual  concern  will  not  start  as  long  as  you 
have  a  stock  plan,  is  the  fact  that  our  people  here  have  been  educated 
largely  to  the  double  liability  proposition,  and  they  do  not  want 
any  "  unlimited  liability."  I  asked  a  farmer  which  he  would  prefer, 
to  take  $25  or  even  four  $25  shares  in  a  "  mutual "  with  unlimited 
liability,  or  $100  in  a  stock  company  with  only  double  liability? 
"  Well,"  he  said,  "  if  I  had  no  more  than  the  $25  I  would  wait  until 
I  had  $75  more  and  then  put  it  into  the  '  stock  company,'  I  do  not 
want  any  '  unlimited  liability ' — not  in  mine."  And  that  will  be 
the  feeling  among  especially  the  intelligent  farmers  of  the  United 
States.  A  large  part  of  them  are  now  small  stockholders  in  country 
banks,  and  they  know  what  "  liability "  means.  They  know  the 
meaning  of  it. 

But  I  think  it  is  a  very  good  thing  to  have  it  in  the  bill,  and  I 
have  no  doubt  that  the  time  will  come,  and  that  not  so  very  far  dis- 
tant, among  the  little  farmers  in  America  when  that  proposition  will 
be  taken  up,  and  it  will  come  when  this  country  is  more  settled  up 
and  the  farms  are  split  up  into  small  acreages  as  they  are  in  Europe. 

I  have  named  so  large  a  reserve  as  15  per  cent,  Mr.  Chairman,  in 
my  proposition  for  the  demand  deposits,  because,  while  I  hope  some 
day  these  farmers'  institutions  may  be  all  bound  together  under  one 
whole  system,  such  as  the  commercial  banks  now  are,  this  bill  does 
not  provide  for  any  such  thing  as  that,  and  makes  them  separate  and 
distinct  bodies,  each  one  standing  on  its  own  bottom ;  and  you  must 
remember  that  if  you  establish  a  system  of  this  kind  you  must  make 
the  "  credit "  sound — their  credit  must  be  absolutely  sound,  and  it 
will  be  necessary  for  them  to  keep  up  a  larger  reserve  than  the  banks 
would  have  to  do  which  are  under  the  new  Federal  system  and  whose 
members  have  some  higher  source  to  go  to  for  any  extraordinary 
needs. 


222  RURAL   CREDITS. 

And  now  as  to  my  second  question — a  ready  market  for  these  bonds, 
sufficiently  active 

Mr.  Hayes  (interposing).  Excuse  me.  Before  you  pass  to  that  I 
want  to  ask  you  one  question :  If  you  are  going  to  allow  unlimited 
deposits,  what  provision  are  you  going  to  make  for  loaning  the  de- 
posits? The  bill  provides,  as  I  recall,  for  loaning  only  to  members. 
Do  you  consider  that  that  would  be  a  sufficient  market  for  the  loans? 

Mr.  Scudder.  No,  sir;  I  would  not  restrict  the  loans.  The  bill  in 
itself  provides  only  that  the  mutuals  or  the  cooperative  associations 
under  this  bill  shall  be  allowed  to  take  deposits  in  unlimited  amounts, 
and  the  bill  refers,  I  suppose,  in  its  authority  for  loaning  to  that 
particular  class. 

Mr.  Hayes.  But  let  me  understand  you.  You  were  willing  to  allow 
the  stock  bank  to  loan  to  any  person  ? 

Mr.  Scudder.  Oh,  yes;  as  long  as  it  stood  by  its  rules — the  rules 
promulgated  for  it. 

Mr.  Hayes.  And  did  you  consider  whether  or  not  that  would  de- 
stroy the  very  purpose  which  we  are  striving  to  accomplish? 

Mr.  Scudder.  I  am  coming  to  that  a  little  later.  That  is,  you  are 
afraid  it  might  disturb  things  b}'  creating  competition  with  the  other 
banks  ? 

Mr.  Hayes.  Yes;  and  bring  them  into  the  same  situation  you  were 
describing  when  I  came  in,  with  reference  to  banks,  where  these  banks 
would  simply  become  joint-stock  commercial  banks  rather  than  farm 
banks. 

Mr.  Scudder.  I  am  coming  to  that  a  little  later. 

Now,  as  to  my  second  question :  A  ready  market  for  the  bonds  or 
a  sufficiently  active  market  to  warrant  a  credit  aggregate  of  15  to  1. 
You  will  not  be  able  to  find  this  market  in  Europe;  at  least,  not  un- 
til we  establish  the  market  in  this  country.  That  has  been  the  history 
of  all  investments — our  investments.  We  have  first  got  to  establish 
the  thing  here  before  we  can  expect  any  help  from  Europe,  and  I 
make  the  deliberate  statement,  after  much  thought,  that  "  some  Gov- 
ernment help  "  to  start  this  thing  is  absolutely  necessary,  and  it  must 
be  in  some  direction  outside  of  Government  "  deposits."  I  say  to 
start  it,  because  really  that  is  all  that  is  needed  just  now.  And  I 
have  what  I  believe  to  be  a  conservative  and  reasonable  suggestion 
to  offer  which  will  prove  a  sort  of  compromise  between  those  who 
ask  "that  the  Government  should  guarantee  the  bonds  to  be  issued 
by  such  institutions  "  and  those  demanding  "  that  the  Nation  keep  its 
hands  off."  It  may  seem  a  very  small  sum  to  mention,  but  sometimes 
a  small  lever  lifts  thousands  of  pounds.  There  are  now  about  $40,- 
000,000  of  postal  savings  in  that  particular  fund.  These  come  from 
the  small  people  all  over  the  United  States — many  of  these  people 
huddled  in  the  cities,  but  who  ought  to  be  out  in  the  country,  and 
I  feel  pretty  sure  that  some  of  them,  if  not  many,  are  going  to  be 
induced  to  go  there  by  this  very  rural-credit  movement.  Why  should 
not  their  money  be  used  for  their  benefit  and  not  for  the  benefit  of  the 
commercial  banks  who  have  enough  help  and  have  recently  been 
given  added  strength  and  privileges  through  the  national-reserve 
bill? 

I  would  incorporate  in  this  bill  before  you  a  provision  requiring 
that  not  less  than  one-half  nor  more  than  60  per  cent  of  the  postal 


RURAL    CREDITS.  223 

savings  deposits  shall  be  "  invested,"  not  in  the  banks  nor  in  their 
mortgages,  but  in  the  bonds  to  be  issued  under  the  provisions  of  this 
bill.  Of  course,  due  discretion  would  be  given  to  the  trustees  of  the 
postal  savings  banks,  so  that  they  could  determine  purchases  of  these 
bonds  only  after  being  convinced  that  the  banks  issuing  them  had 
complied  with  all  the  requirements  laid  down  by  the  provisions  of 
this  bill,  and  such  other  rules  and  provisions  as  may  be  promulgated 
by  the  Treasury  Department.  If  you  thing  the  Government  and,  I 
will  say,  any  other  holder  of  such  bond  should  have  additional  secur- 
ity, you  can  add  to  the  mortgage  security  by  making  the  holders  of 
these  bonds  "  preferred  creditors  "  to  the  extent  of  the  entire  capital 
and  surplus  of  the  bank.  This  would  add,  even  in  the  extreme  case 
of  a  15  to  1  issue,  a  margin  of  6f  per  cent  to  the  already  good  margin 
under  the  mortgage.  This  would  mean  that  those  people  depositing 
their  cash  in  such  banks  would  need  to  possess  all  the  more  confidence 
in  the  management  of  the  banks  before  they  would  entrust  their  funds 
to  them.  Personally,  I  do  not  believe  such  a  provision  would  be  nec- 
essary, because  the  propert}^  margin  is  already  ample,  and  in  most 
instances  some  liquidation  assets  would  still  remain  after  payment 
of  all  depositors.  The  very  purchase  of  these  bonds  by  the  Govern- 
ment, even  in  the  small  way  I  have  mentioned — say,  about  $20,000,000 
of  the  $40,000,000  of  postal  savings — would,  I  am  sure,  establish  at 
once  before  the  world  the  credit  of  these  farm  mortgage  and  deposit 
societies.  Remember,  please,  that  the  postal  savings  bank  is  only  in 
its  infancy  and  that  even  only  a  slightly  better  rate  of  interest  would 
largely  increase  these  deposits.  Various  States  would  soon  follow 
suit,  through  pressure  on  them  from  farming  communities  for  some 
share  of  the  State's  investment  funds,  now  going  into  every  other 
conceivable  channel  but  that  of  encouragement  to  agriculture.  And 
in  my  judgment  it  would  not  be  very  long  before  foreign  as  well  as 
our  domestic  investment  channels  would  recognize  the  strength  of 
these  35-year  bonds  and  allow  them  to  flow  their  way.  I  would  cer- 
tainly leave  in  the  bill  that  provision  authorizing  the  "  deposit "  of 
the  United  States  court  funds,  and  also  postal  savings;  but  clearly 
require  that  these  deposits  must  be  treated  like  all  other  deposits; 
that  is,  kept  liquid,  not  be  tied  up  in  any  long-time  propositions.  If 
thought  necessary,  a  sufficient  number  of  these  short-time  loans  could 
be  deposited  with  the  Government  fiduciary  agent  to  amply  protect 
these  strictly  "  Government  deposits." 

I  am  referring,  you  see,  to  the  Government  "  deposits,"  which  are 
in  contradistinction  to  the  "  investment  in  the  bonds."  In  my  opin- 
ion there  is  no  more  danger  in  allowing  the  institutions  created  under 
this  bill  stock  companies  as  well  as  the  mutuals,  to  take  deposits 
in  unlimited  amounts,  providing  you  protect  those  deposits  by  proper 
rules,  than  there  is  danger  in  allowing  commercial  banks — as  you  now 
have  done  under  the  new  banking  act — to  make  real-estate  loans; 
because  you  have  hedged  this  privilege  about  by  reasonable  restric- 
tions which  make  for  conservatism.  The  farmers  of  the  country  will 
likely  be  the  only  ones  to  deposit  in  these  institutions,  whether  they 
be  stock  or  cooperative,  and  that  is  just  as  it  should  be.  My  only 
concern  is,  Will  there  be  sufficient  of  these  deposits  to  make  the 
project  really  pay?  And  I  will  answer  this  by  saying  this  will  be  a 
certainty,  at  least  in  a  number  of  communities,  and  very  likely  some 
of  the  banks  now  in  those  localities  will  even  see  it  to  their  interest 


224  EUEAL    CREDITS. 

to  come  into  this  rural-credit  system.  Doubtless  a  cry  will  at  once  go 
up  from  some  of  those  very  sections,  and  it  may  be  from  other  sec- 
tions of  the  country,  to  the  effect  that  their  business  will  be  injured. 
That  is  just  what  they  said  when  I  proposed  the  postal  savings  bank 
system,  20  years  years  ago.  Now,  they  all  agree  it  is  one  of  the  best 
things  this  Government  could  have  done. 

This  same  "  opposition  "  was  put  up  by  the  banks  throughout  the 
United  States  when  the  new  currency  bill  was  submitted.  Four  thou- 
sand delegates  hooted  me  in  Boston,  at  the  last  annual  bankers' 
convention,  because  I  dared  stand  for  the  main  principles  of  the  act. 
Now,  listen — nearly  every  national  bank  has  called  for  application 
papers,  and  State  banks  in  many  spots  are  pleading  with  their  legisla- 
tures to  make  the  same  thing  possible  for  them.  It  seems  to  me, 
gentlemen,  this  is  a  safe  rule  in  the  finance  or  economy  of  any  nation ; 
whatever  is  of  immediate  relief  and  benefit  to  the  whole  country  will 
prove  a  blessing  to  every  particular  class  in  the  end.  And,  mark 
you,  please,  the  banker  never  comes  in  at  the  tail  end;  he  is  one  of 
the  first  to  get  his  fingers  on  the  beneficent  results  of  any  great 
movement. 

My  strong  impression  is  that  Senator  Fletcher's  first  impression 
is  correct,  namely,  that  these  two  matters,  "  long-time  credit "  and 
"  short-term  accommodation,"  will  work  together  harmoniously.  In 
this  country  they  are  meant  to  go  together  and  not  to  be  separated, 
as  they  are  in  Europe.  The  beginning  will  be  small,  but  all  great 
things  start  out  that  way.  My  personal  desire  would  be  to  have 
these  scattered  institutions  linked  somewhat  on  the  new  regional  Fed- 
eral bank  plan.  Some  day  I  believe  it  will  be  so.  But  for  the  pres- 
ent, while  in  its  infancy,  probably  it  will  be  wisest  to  start  the  move- 
ment somewhat  as  the  Government  launched  the  national  banking 
system  50  years  ago — as  individual  units  and  with  a  modicum  of  aid. 
But  let  this  aid  be  a  real  one,  and  not  only  on  paper.  The  simple 
"  deposit"  by  the  Government  of  the  postal  savings,  as  proposed  in  this 
bill,  would  really  be  most  dangerous,  because  these  mortgage  associa- 
tions would  at  once  proceed  to  tie  such  deposits  up  in  long-time  loans 
while  still  responsible  to  the  Government  for  repayment  "  on  de- 
mand." The  Government  of  the  United  States  could  instantly  break 
every  bank  in  the  land.  It  is  no  answer  to  say  that  the  Government 
"  would  not  do  such  a  thing " ;  the  very  fact  that  it  could  would 
from  the  very  start  destroy  the  "credit"  of  these  banks  or  farmers' 
deposit  companies  before  the  world.  On  the  other  hand,  why  should 
not  the  United  States  "invest"  one-half  or  even  60  per  cent  of  the 
postal  savings  in  the  actual  bonds  of  these  institutions?  They  are 
supervised  by  the  Government  and  have  a  large  property  margin,  as 
is  herein  provided  for.  Surely  the  United  States  is  in  much  stronger 
position  than  any  of  the  New  England  or  New  York  mutual  savings 
banks,  which  have  always  made  it  a  practice  to  invest  largely  in  long- 
time bonds,  including  those  on  railroad  security,  and  even  on  some 
industrials.  And  if  such  an  inconceivable  thing  did  happen  as  the 
withdrawal  of  over  half  of  the  postal  savings  at  any  one  time,  our 
Government's  credit  would  be  mighty  small  if  it  could  not  provide 
for  that  contingency.  I  am  satisfied  that  we  can  not  create  a  market 
for  these  bonds  abroad  until  we  have  established  a  market  for  them 
here.     That  is  the  history  of  all  investments.     I  am  also  satisfied 


RURAL    CREDITS.  225 

that  no  beginning  can  be  made  in  the  United  States  unless  the  Gov- 
ernment is  willing  to  give  the  movement  some  more  effective  aid 
than  simply  "  supervision,"  and  that  what  I  have  suggested  will  be 
effective  enough  in  the  beginning,  provided  the  infant's  feet  are  not 
amputated  by  denying  the  "  deposit  privilege  "  to  the  youngster.  No 
mere  real-estate  mortgage  plan  is  going  to  satisfy  the  American 
farmer.  Place  all  the  restrictions  about  a  deposit  and  short-term 
accommodation  plan  you  like,  but  establish  the  principle. 

There  are  one  or  two  details  in  the  bill  which  I  would  like  to  men- 
tion before  finishing.  Some  of  them  are  comparatively  unimportant. 
But  take,  for  instance,  the  name 

Senator  Hollis.  "Which  bill  are  you  referring  to  now  ? 

Mr.  Scudder.  Either  one;  the  Senate  or  the  House  bill.  Are  they 
not  just  alike? 

Senator  Hollis.  There  is  Senate  bill  2909  and  H.  R.  12585  and 
Senate  bill  4246. 

Mr.  Scudder.  Oh,  yes.    This  is  4246. 

The  name  is  very  important.  You  would  not  want,  for  instance, 
a  name  that  would  conflict  with  the  present  banking  system,  National 
or  State.  If  you  called  this  institution,  for  instance,  First  National 
Farm  Land  Bank  you  would  have  a  conflict.  You  would  have  the 
First  National  Bank  on  one  side  of  the  street  and  the  First  National 
Farm  Land  Bank  on  the  other  side  of  the  street.  There  will  not 
only  be  a  mix-up  among  depositors,  one  being  taken  for  the  other, 
but  there  would  be  a  great  confusion  in  the  mails  almost  immediately. 
I  think,  too,  that  there  ought  to  be,  just  as  there  is  in  Germany  and 
all  over  Europe,  a  very  marked  difference  between  the  names  of  the 
commercial  banks  and  these  farm  banks,  and  I  have  this  suggestion 
to  offer,  that  in  the  case  of  the  stock  banks,  stock  institutions,  you 
call  them  "  mortgage  and  deposit  companies,"  and  in  order  to  iden- 
tify them  with  the  national  system  put  the  initials  "  N.  A."  back  of 
the  name.  That  is  done  in  the  national  banking  system  to  this  day. 
The  Bank  of  New  York,  with  which  I  was  connected  at  one  time,  has 
the  old  name  established  by  Alexander  Hamilton,  the  Bank  of  New 
York,  N.  B.  A. — national  banking  association.  Everybody  knows 
it  is  a  "  national  bank."  The  Bank  of  Charleston  has  the  name  of 
the  Bank  of  Charleston,  N.  A. — national  association.  And  so  it  is 
easy  enough  to  identify  these  institutions  with  the  national  banking 
or  national  association  or  the  national  law  by  taking  some  such  name 
as  that  I  have  suggested. 

Mr.  Weaver.  Would  you  not  use  the  word  "  land  "  in  that  con- 
nection? 

Mr.  Scudder.  I  do  not  see  why  it  is  necessary.  Nobody  would 
ever  think  there  was  any  chattel  mortgage  about  it,  and  you  do  not 
want  too  long  a  name.  It  seems  to  me  "  First  Mortgage  &  Deposit 
Co.,  N.  A.,"  is  a  big  enough  name. 

Mr.  Weaver.  There  are  lots  of  private  mortgage  companies. 

Mr.  Scudder.  Yes;  but  none  that  belong  to  the  national  associa- 
tion. First  Mortgage  &  Deposit  Co.,  N.  A.,  distinctly  describes  that 
particular  institution.  There  are  plenty  of  national  banks.  That  is 
just  the  trouble.  I  think  there  is  likelihood  of  confusion,  even  if  you 
use  the  word  "  national,"  because,  supposing  3-011  called  it  the  First 

37031—14 15 


226  RURAL    CREDITS. 

National  Mortgage  Co.,  you  will  have  a  mix-up  just  as  sure  as  you 
do  so. 

Mr.  Weaver.  I  think  your  suggestion  is  good,  except  I  would  use 
the  word  "  national "  and  the  word  "  land." 

Mr.  Scudder.  I  just  throw  this  out  as  a  suggestion.  For  the 
mutual,  I  would  put  the  word  "  mutual "  and  not  "  cooperative." 
The  word  "  cooperative  "  is  rather  long  and  unwieldly ;  it  is  more  like 
cooper.  For  the  "  cooperatives,"  then,  I  should  suggest,  "  Mutual 
Mortgage  Society,  N.  A.,"  so  that  there  would  be  an  absolute  distinc- 
tion between  one  and  the  other.  The  stock  company,  then,  would  be 
"Mortgage  &  Deposit  Co.,  N.  A.,"  and  the  mutual  would  be  the 
"  Mutual  Mortgage  &  Deposit  Society,  N.  A."  That  is  just  simply 
a  detail  suggestion. 

On  page  9,  I  think,  this  is  rather  indefinite  where  it  says  "  interest 
rate  generally  prevailing  in  the  community."  I  think  if  you  just 
simply  cross  that  out  and  say  "  rate  of  interest  not  exceeding  the 
local  rate  in  the  State  where  such  corporation  is  located,"  that  will 
be  so  much  simpler  and  will  not  bring  up  a  dispute  as  to  "  what  is 
the  prevailing  rate  in  the  community."  Some  mention  was  made 
that  the  amortization  35-year  period  was  too  long.  I  sincerely  hope 
there  will  not  be  any  cutting  down  of  that;  because  if  anything  were 
done,  I  should  say  make  it  40  years  rather  than  to  cut  it  down  to 
less  than  35. 

There  seems  to  be  a  conflict,  possibly,  under  the  clause  in  the  fifth 

;ion,  page  12,  which  permits  the  dismissal  of  the  officer  herein 
described  as  fiduciary  agent.  Under  the  terms  of  this  bill  it  would 
be  possible  to  force  upon  a  board  of  directors  a  man  who  might  be 
perfectly  honest,  but  would  be  disagreeable  to  them,  and  I  should 
say  he  could  be  put  out,  say,  by  a  vote  of  four  out  of  five  directors, 
where  there  are  only  five  directors,  and  two-thirds  majority  vote 
where  there  were  more  than  five  directors. 

Mr.  Moss.  Did  you  notice  this  provision  in  the  bill?  [Indicating 
provision  of  bill.] 

Mr.  Scudder.  Yes ;  but  there  might  be  a  dispute  there  as  to  whether 
he  was  objectionable.  That  is,  somebody  might  say  he  was  objec- 
tionable, and  others  might  say  he  was  not  objectionable.  It  is  just 
a  thought.  Of  course,  I  would  certainly  make  his  removal  subject 
to  the  commissioner  of  farm-land  banks,  but  what  I  wanted  to  do 
was  to  provide  that  the  commissioner  could  not  make  a  man  stay 
there  in  the  bank  if  he  was  objectionable  to  the  majority  of  the 
directors. 

Mr.  Moss.  Mr.  Chairman,  will  you  permit  me  to  ask  a  question 
there? 

Senator  Hollis.  Yes. 

Mr.  Moss.  Now,  I  would  like  to  have  you,  if  you  can,  discuss  a 
little  more  fully  that  feature.  The  purpose  of  the  commission  in 
framing  this  bill  was  that  this  fiduciary  agent  was  made  a  Federal 
agent,  and  he  is  responsible  directly  to  the  Government  in  the  first 
place.  He  must  not  be  objectionable  to  the  directors  when  he  is 
appointed,  but  his  appointment  must  come  from  the  Government 
directly,  and  his  responsibility  is  to  the  Government,  and  why  would 
you  have  him  removed  by  another  authority  than  the  Government? 

Mr.  Scudder.  I  think  in  a  small  bank  such  a  fiduciary  agent 
would  be  apt  to  be  a  bookkeeper,  would  he  not  ? 


KUEAL    CREDITS.  227 

Mr.  Moss.  Quite  possible  in  a  small  bank ;  yes,  sir. 

Mr.  Scudder.  I  do  not  think  it  would  pay  otherwise;  the  bank 
would  not  make  enough  profit  to  pay  him  unless  he  did  some  other 
work. 

Mr.  Moss.  That  was  the  idea  of  the  commission;  that  is,  that  he 
could  be  an  employee,  but  not  an  officer. 

Mr.  Scudder.  Well,  but  imagine  a  bookkeeper  who  is  objectionable 
to  four  out  of  five  directors,  perhaps,  who,  on  account  of  his  disagree- 
able manner,  would  not  be  tolerated  in  the  bank,  and  yet  the  com- 
missioner would  have  the  right  to  keep  him  there. 

Mr.  Moss.  Would  you  have  the  bill  so  framed  that  the  fiduciary 
agertt  would  have  to  accept  a  position  under  the  bank;  for  instance, 
would  have  to  be  made  an  employee  of  the  bank? 

Mr.  Scudder.  Well,  I  think  in  small  places  the  postmaster  might 
act  as  fiduciary  agent,  but  I  think  in  most  cases  the  fiduciary  agent 
would  have  to  be  in  the  bank,  because  the  transactions  are  there,  and 
he  would  have  to  initial  the  books,  and  perhaps  the  paper  itself ;  and 
I  think  that  this  bill  ought  to  provide  for  a  deputy,  because  if  your 
fiduciary  agent  is  sick  you  have  no  provision  in  there  for  anyone 
to  take  his  place,  and  the  business  of  the  day  might  be  blocked  and 
could  not  proceed — could  not  make  a  mortgage.  I  imagine  that  in 
most  places,  in  smaller  banks;  the  bookkeeper  or  some  employee  of 
the  bank  would  be  the  fiduciary  agent. 

Now,  I  take  up  another  provision  of  this  bill :  I  think,  where  the 
capital  runs  up,  say,  over  $10,000,  it  is  possible  that  there  might  be 
a  very  large  concern  started  under  this  bill,  $100,000,  or  $200,000,  or 
$500,000,  in  which  case  I  think  1  per  cent  for  the  running  expenses 
of  a  mortgage  bank  is  excessive.  For  small  institutions  1  per  cent 
profit  on  mortgage  business  is  not  excessive;  but  if  you  come  to  a 
very  large  institution — and  I  know  because  I  did  a  very  large  mort- 
gage business,  and  I  found  that  as  this  business  grew  the  profits  were 
proportionately  much  greater  and  the  expenses  proportionately 
less — and  so  I  would  suggest  that  you  have  some  provision  where 
the  capital  runs  up  into  large  amounts  that  this  percentage  of 
charge  which  under  this  bill  is  fixed  at  1  per  cent  for  all  be  reduced. 
I  think  that  would  be  right. 

Mr.  Hayes.  Do  you  think  it  is  desirable  to  encourage  the  forma- 
tion of  large  societies  of  wealthy  capitalists? 

Mr.  Scudder.  I  do  not,  sir.  Personally,  I  would  restrict  it  to 
$50,000. 

Mr.  Hayes.  Why  ? 

Mr.  Scudder.  Well,  because  you  want  this  system  to  be  operated  in 
the  farming  communities.  You  do  not  want  a  big  institution,  for 
instance,  in  New  York,  with  a  large  capital,  to  come  out  there  con- 
trolling, say,  a  capital  of  $500,000  or  $1,000,000.  I  think  it  would 
be  a  great  mistake. 

Mr.  Hayes.  Why?  I  do  not  understand  why  it  would  not  be 
desirable,  and  very  desirable,  to  have  $500,000  o$  money  from  New 
York  come  out  in  the  farming  districts.    I  do  not  see  it. 

Mr.  Scudder.  I  think  if  New  York  wants  to  put  out  the  money 
it  can  buy  the  "  bonds." 

Mr.  Hayes.  That  is  all  right;  they  may  want  them,  but  if  they 
do  not  want  them  why  should  we  object  to  their  putting  their  money 
out  and  making  it  possible  to  form  big  mortgage  associations?     I 


228  .         RURAL    CREDITS. 

would  like,  if  you  have  any  reason  except  your  sentimental  reason, 
to  hear  it. 

Mr.  Scudder.  Well,  I  think  the  u  expense  "  of  a  New  York  bank — 
of  course  they  pay  big  salaries  to  their  offices — could  be  made  to 
absorb  a  large  "  profit "  through  the  payment  of  large  salaries. 
That  is  a  well-known  fact, 

Mr.  Hayes.  Yes;  but  if  they  are  limited  to  the  1  per  cent  I  do 
not  see  why  that  should  interest  the  farmer,  so  long  as  the  farmer 
would  not  have  to  pay  any  more. 

Mr.  Scudder.  Well,  T  differ  with  you.  The  Avrong  to  the  farmer 
might  be  corrected  by  that  suggestion  I  made  about  reducing  the 
amount  of  charge  below  1  per  cent  against  the  farm  lands.  That 
might  correct  it. 

Mr.  Platt.  You  do  not  think  that  the  capital  for  these  banks  can 
be  raised  entirely  among  the  farmers,  do  you  ? 

Mr.  Scudder.  Well,  I  think  in  time  it  is  apt  to  be  so  under  this 
bill.  The  operation  of  it  will,  I  think,  commence  in  the  country 
districts.    I  believe  so. 

Mr.  Bulkley.  Supposing  that  you  limited  the  amount  of  the 
charge  in  the  case  of  a  very  large  bank,  could  not  that  bank,  going 
into  competition  with  the  smaller  bank,  practically  reduce  the  charge 
all  the  way  around? 

Mr.  Scudder.  That  is  to  say,  if  there  were  a  large  bank  starting 
cut  from  Philadelphia  or  New  York  that  it  might  do  the  business 
cheaper? 

Mr.  Bulkley.  You  con, pel  it  to  do  the  business  cheaper  accord- 
ing to  your  suggestion. 

Mr.  Scudder.  Yes. 

Mr.  Bulkley.  Then  how  would  the  smaller  bank  get  business  at 
all.  or  would  they  have  to  reduce  to  the  same  rate  as  the  big  bank? 

Mr.  Scudder.  Yes;  I  think  that  would  be  true.  One  result  <>f  the 
bill  would  be,  if  you  do  not  limit  the  capital,  that  the  large  institu- 
tions would  crush  the  small  ones. 

Mr.  Hayes.  Would  drive  them  out  of  business  \ 

Mr.  Scudder.  Sure;  although  cutting  clown  their  profit  source 
might  somewhat  operate  against  their  entering  distant  or  smaller 
fields. 

Senator  Hollis.  That  is  because  they  can  operate  with  smaller 
expenses  ? 

Mr.  Hayes.  That  is  what  I  mean.  If  they  were  operating  on  the 
same  basis  they  would  not  be  able  to  compete,  but  if  they  were 
allowed  or  prevented  from  making  profits  of.  say.  above  one-half  of 
1  per  cent,  of  course,  they  could  reduce  their  loans  and  drive  the 
small  institutions  to  the  wall ;  they  could  not  get  any  business. 

Mr.  Scudder.  That  might  be  so  if  they  could  once  get  into  the 
field  and  make  such  competition  possible.  Now  to  proceed:  I  think 
I  saw  some  place  where  the  commissioner  was  not  authorized  to  own 
any  stock.  Yes ;  here  it  is :  "  The  commissioner  is  not  authorized  to 
own  any  stock  in  any  farm-land  bank."  I  do  not  think  he  ought  to 
own  any  stock  in  any  bank.  He  ought  to  be  like  the  Comptroller 
of  the  Currency;  he  ought  not  to  be  allowed  to  have  any  stock  any- 
where. Then,  I  think  where  you  allow  branch  banks  there  ought 
to  be  some  clause,  "  under  the  rules  and  regulations  approved  by  the 
commissioner  or  by  the  Secretary  of  the  Treasury,"  or  whoever  else 


RURAL    CREDITS.  229 

has  the  authority  both  in  that  matter  and  the  sales  agency  matter, 
jtt  would  be  well  to  have  it  so. 

I  think  that  is  all.  I  am  ready  to  answer  any  questions  that  may 
have  occurred  to  you  while  I  spoke. 

Mr.  Hayes.  I  would  like  to  have  you  discuss,  if  you  will,  the  propo- 
sition of  whether  a  general  deposit  business  would  not  be  very  likely 
to  destroy  the  purpose  we  have  in  view  in  organizing  these  banks. 

Mr.  Scudder.  What  is  the  purpose?' 

Mr.  Hayes.  Well,  the  principal  purpose  is,  of  course,  to  meet  the 
needs  of  the  farmer,  especially  for  long-time  loans.  I  think  his 
needs  are  fairly  well  met  now  for  short-time  loans.  Perhaps  he  has 
to  pay  a  little  high  rate  of  interest  sometimes.  If  the  farmer  has  any 
credit,  he  can  generally  get  loans  somewhere,  but  I  think  the  great 
need  is  for  long-time  loans,  easy  payments,  and  a  low  rate  of  inter- 
est. That  is  what  I  am  most  impressed  with.  The  thing  that  oc- 
curred to  me  is  that  if  you  allowed  them  to  take  deposits  generally 
and  do  a  general  commercial  business,  such  as,  of  course,  is  more 
profitable  to  the  bank,  would  not  that  necessarily  have  a  tendency  to 
destroy  the  long-time  loan  feature? 

Mr.  Scudder.  Mr.  Hayes,  I  think  there  is  a  difference  between  us 
in  the  very  start  off.  I  believe  that  there  is  more  necessity  for  help- 
ing the  farmer  in  respect  to  short-term  accommodation  than  there  is 
to  help  him  in  long-term  mortgages.  I  believe  that  this  country 
requires  some  such  proposition  to  help  the  farmer,  no  matter  how 
much  money  you  furnish  to  reduce  the  interest  he  pays  on  his  real- 
estate  mortgage.  You  must  remember  he  is  mortgaged  almost  up  to 
the  hilt.  The  farmers  of  this  country  owe  something  like  $3,000,- 
000,000  on  real-estate  mortgages.  Under  this  bill  I  believe  a  big 
help  will  be  given  the  farmer  in  that  respect.  There  will  be  a  re- 
funding— there  will  be  a  reduction  of  interest.  But  you  must  go 
further.  He  needs  more  banking  facilities.  Then,  you  can  not  estab- 
lish a  small  institution  of  $10,000  and  make  it  "  pay  expenses  and 
earn  a  fair  dividend  "  by  simply  doing  a  "  real  estate  mortgage  busi- 
ness." It  would  be  absolutely  impossible  to  form  a  stock  company 
to  do  a  mortgage  business  if  it  were  only  allowed  to  take  deposits 
only  to  the  extent  of  one-half  of  its  capital  and  surplus.  There 
would  not  be  enough  money  out  of  the  "  profit-and-loss  account "  to 
pay  expenses.  And  I  am  not  thinking  of  big  expenses;  I  am  think- 
ing of  the  expenses  that  I  incurred  when  I  was  a  little  banker  out 
in  Minnesota,  and  I  was  very  glad  if  I  could  make  $1,000  gross  a 
year  in  the  beginning.  And  you  must  remember  you  have  got  a  fidu- 
ciary agent  and  inspector  to  pay,  and  in  some  cases  there  will  be 
an  additional  bookkeeper  who  will  have  to  get  at  least  a  book- 
keeper's wage. 

Mr.  Platt.  Is  that  so? 

Mr.   Scudder.  Sir? 

Mr.  Platt.  Building  and  loan  associations  are  run  without  any 
bookkeeper's  wages. 

Mr.  Scudder.  You  would  find  in  this  case  the  responsibility  of  the 
business  to  the  Government  would  require  you  to  pay  some  salaries. 
You  might  be  able,  as  I  said,  in  the  start  off,  in  some  places,  to  get 
the  postmaster  to  act  as  fiduciary  agent ;  or  probably  a  director  of 
the  bank — no :  it  could  not  be  a  director :  but  in  most  cases  vou  will 


230  RURAL    CREDITS. 

have  to  have  some  one  in  the  bank  who  is  connected  with  the  actual 
business  of  the  bank,  i.  e.,  loaning  money. 

Mr.  Hayes.  Would  you  not  have  an  idea  that  plenty  of  good, 
intelligent  farmers,  in  a  small  community,  would  be  glad  to  act  as 
fiduciary  agent  for  a  nominal  salary  that  would  be  absolutely  trust- 
worthy and  all  right? 

Mr.  Scudder.  You  mind  find  a  farmer,  near  a  village  that  had  a 
bank,  who  would  be  glad  to  come  in  and  act  as  such  agent;  but  you 
have  got  to  have  him  come  in  every  day — you  are  making  loans 
every  day,  or  apt  to. 

Mr.  Platt.  The  loan  associations  will  not  be  making  loans  every 
day.  will  they? 

Mr.  Scudder.  Well,  sir;  you  figure  it  out — $10,000  produces 
$150,000  of  credit,  and  it  takes  one  hundred  and  fifty  $1,000  loans 
to  absorb  that  credit,  does  it  not? 

Mr.  Platt.  Yes. 

Mr.  Scudder.  One  hundred  and  fifty  $1,000  loans  in  a  small  com- 
munity is  doing  a  considerable  business. 

Mr.  Hayes.  Yes;  but  when  you  once  get  it  out  it  takes  some  of 
them  35  years  to  get  it  back  in,  and  you  are  only  making  the  loan 
initially  on  such  a  capital  as  that. 

Mr.  Scudder.  Unless  the  $150,000  could  be  kept  outstanding  all 
the  time  there  would  be  very  little  profit. 

Mr.  Hayes.  That  is  all  very  true,  but  for  the  reason  they  are 
standing  out,  you  would  not  be  making  so  many  loans  from  your 
capital. 

Mr.  Platt.  In  this  business  they  run  in  competition  with  the  build- 
ing and  loan  associations  in  the  country,  in  small  communities,  which 
only  meet  once  or  twice  a  month  to  make  loans  or  transact  busi- 
ness, and  they  pay  a  nominal  salary  of  $50  a  year,  or  something  like 
that,  for  the  bookkeeping. 

Mr.  Scudder.  You  mean,  to  have  an  institution  that  would  not  be 
open  every  daj^? 

Mr.  Platt.  No  :  why  should  they  be  open  every  day  ? 

Mr.  Scudder.  You  will  have  to  take  the  deposit  idea  away  entirely. 

Mr.  Platt.  Not  necessarily.  The  deposits  could  be  put  in  at  such 
time  as  the  society  had  its  doors  open. 

Mr.  Scudder.  Then  how  would  the  deposit  be  paid  out?  Sup- 
posing I  deposit  in  such  a  bank  Saturday  and  I  wanted  some  money 
Tuesday,  and  they  did  not  meet  again  until  the  next  Saturday  ? 

Mr.  Platt.  You  would  have  to  wait  until  the  next  Saturday,  I 
suppose,  unless  there  was  some  special  arrangement. 

Mr.  Scudder.  He  has  to  have  his  deposit  on  demand  in  order  to  do 
business. 

Mr.  Platt.  It  seems  to  me  that  if  these  small  associations,  oper- 
ating in  the  smaller  communities,  are  going  to  compete  with  the  build- 
ing and  loan  associations  they  must  keep  their  expenses  down  to  a 
very  low  level,  or  the  building  associations  can  do  the  business  and 
they  can  not. 

Mr.  Scudder.  You  will  have  to  eliminate  the  deposit  feature  en- 
tirely unless  you  prescribe  hours,  or  make  it  possible  to  let  the  insti- 
tution take  the  deposit  and  hold  it  until  it  was  matured  and  ready  to 
pay  it  out. 


RURAL    CREDITS.  231 

Mr.  Platt.  Is  it  not  possible  to  have  some  kind  of  compulsory  de- 
posit such  as  the  building  and  loan  associations  have?  If  you  join 
a  building  and  loan  association,  you  agree  to  put  in  $2  or  $5  a  month 
and  that  is  a  compulsory  deposit,  just  as  amortization  is  a  compul- 
sory payment.     It  comes  along  to  you  every  month  like  a  bill. 

Mr.  Scudder.  Yes ;  but  I  do  not  believe  the  farmer  could  do  that, 
Mr.  Piatt.  I  do  not  believe  you  could  make  such  a  rule  for  a  farming 
community. 

Mr.  Platt.  Probably  not  for  monthly  payments,  but  how  about 
semiannual  or  annual  payments? 

Mr.  Scudder.  Well,  there  are  some  farmers  who  could  not  deposit 
even  semiannually.  You  might  make  it  annually  and  succeed  in  pro- 
viding a  compulsory  deposit  system. 

Mr.  Bulkley.  Mr.  Scudder,  in  the  light  of  your  experience  in  run- 
ning small  banks  in  different  communities,  what  do  you  think  would 
be  the  actual  expenses  of  one  of  these  $10,000  banks  ?  I  mean  in  de- 
tail and  in  dollars. 

Mr.  Scudder.  If  they  are  allowed  to  take  deposits  or  if  they  are 
prohibited  from  taking  deposits? 

Mr.  Bulkley.  Suppose  we  eliminate  the  deposits. 

Mr.  Scudder.  If  they  were  not  allowed  to  take  deposits,  they 
would  have  only  the  mortgage  business  from  which  to  get  any  in- 
come, would  they  not  ? 

Mr.  Bulkley.  Yes. 

Mr.  Scudder.  That  would  be,  at  the  most,  $1,500  a  year,  if  they 
had  out  the  whole  $150,000  in  bonds. 

Mr.  Bulkley.  In  that  case  what  do  you  assume  that  they  do  with 
their  paid-in  capital  stock? 

Mr.  Scudder.  Their  paid-in  capital  stock  is  being  used  in  making 
these  mortgages.  Of  course,  when  the  mortgages  are  actually  made 
they  would  have  $10,000  perhaps  in  mortgages,  which  would  bring, 
say,  5  per  cent. 

Mr.  Seldomridge.  Would  not  this  condition  arise,  that  they  would 
be  unable  to  issue  further  mortgages  until  they  had  a  ready  market 
for  their  bonds?  The  operations  of  the  bank  would  be  immediately 
stopped 

Mr.  Scudder  (interposing).    It  all  depends  en  the  market. 

Mr.  Seldomridge.  Unless  the  market  is  open. 

Mr.  Scudder.  Oh,  absolutely. 

To  answer  Mr.  Bulkley "s  question,  the  income,  at  the  very  most, 
would  be  $1,500  to  $2,000— 

Mr.  Bulkley.  You  think  it  would  not  be  safe  to  not  count  on  any- 
thing from  the  capital  stock  ? 

Mr.  Scudder.  If  you  did,  it  certainly  would  not  be  over  $500  or 
$600. 

Mr.  Bulkley.  No;  I  think  it  could  not  possibly  be  more  than  that. 

Now,  what  would  be  the  necessary  expenses? 

Mr.  Scudder.  I  should  say  that  if  you  did  not  take  deposits,  the 
necessary  expenses  would  be,  first,  you  would  have  to  give  the  presi- 
dent something.    That  might  not  be  very  much  in  certain  localities. 

Mr.  Bulkley.  How  much  do  you  think  that  should  be? 

Mr.  Scudder.  He  would  look  after  the  institution,  supervise  the 
investment  of  funds,  which  he  would  have  to  do,  of  course,  through 


232  RURAL    CREDITS. 

the  directors  and  appraisers,  bui  he  would  have  to  give  it  some  per- 
sona] attention.  If  he  were  a  fanner,  he  would  not  ask  considerable 
for  his  time,  but  I  expect  $150  at  least  in  the  start  off.  His  labor 
might  be  less  later  on,  but  it  would  be  a  considerable  work.  I  do  not 
know  that  you  could  find  very  many  men  who  would  do  it  for  $500  a 
year  in  a  small  place  like  that.  Then  there  would  be  the  bookkeeping 
to  do,  and  I  doubt  whether  you  could  get  a  president  to  do  all  the 
work.  He  would  have  to  have  some  clerical  help,  lie  would  have 
the  taxes  to  look  after  and  the  interest  to  collect. 

Mr.  Bulkley.  What  do  you  think  that  would  cost? 

Mr.  Scudder.  Well,  I  do  not  know;  $500  would  be  very  cheap. 

Mr.  Hayes.  Do  you  think  so,  with  the  farm-land  mortgage  feature? 

Mr.  Scudder.  Yes,  sir;  the  bookkeeping  is  going  to  be  considerable. 

Mr.  Hayes.  Is  that  a  fact? 

Mr.  Scudder.  With  150  loans,  the  taxes  to  look  after,  interest  to 
collect,  to  see  about  insurance,  that  the  property  is  properly  insured— 
it  is  a  good,  big  job,  gentlemen. 

Mr.  Seldomridge.  Then  you  have  got  the  amortization,  later  on, 
to  come  in. 

Mr.  Scudder.  Yes. 

Mr.  Bulkley.  Mr.  Scudder,  how  often  should  some  officer  or  agent 
of  these  banks  inspect  the  several  farms  on  which  loans  were  made? 

Mr.  Scudder.  Well,  in  our  mortgage  business  in  Minnesota  we  at 
first  were  not  able — we  had  so  much  to  do  in  the  office  that  we  could 
not  make  the  inspection  as  often  as  we  desired  to,  but  we  found  that 
inspection  was  absolutely  necessary  once  a  year. 

Mr.  Bulkley.  Each  loan  should  be  visited  once  a  year  ? 

Mr.  Scudder.  Pretty  much  each  loan.  Of  course,  in  some  instances 
we  depended  on  our  agents.  For  instance,  we  would  have  an  agent 
over  in  Winona,  a  very  good  agent,  and  we  could  depend  on  him,  and 
we  paid  him  a  little  extra  to  give  us  reports  on  farms  that  we  had 
loans  on  in  that  community,  but  we  found  inspection  necessary  once 
a  year. 

Mr.  Bulkley.  In  this  estimate  that  you  are  making,  do  you  cal- 
culate that  the  president,  whom  you  are  going  to  pay  $500,  will  do 
all  of  that  personally  ? 

Mr.  Scudder.  No,  sir ;  I  do  not  see  how  he  could.  You  wTould  have 
to  give  the  fiduciary  agent  a  little  more  salary  for  inspecting  the 
150  farms  in  the  community.  I  do  not  care  if  it  is  just  within  one 
county,  it  is  a  big  job. 

Mr.  Bulkley.  Would  you  have  to  pay  some  man  and  furnish  him 
an  automobile  or  a  horse  to  do  that  ? 

Mr.  Scudder.  I  think  so. 

Mr.  Bulkley.  How  much  do  you  think  that  would  cost  ? 

Mr.  Scudder.  I  do  not  know.    It  might  pay  the  bank  to  own  one. 

Senator  Hollis.  Mr.  Scudder,  you  have  seen  commercial  banks 
where  one  man  did  all  the  actual  work,  besides  what  the  weekly 
meeting  of  the  directors  had  to  do,  passing  on  loans?  That  is,  you 
have  seen  a  man  who  would  come  there  in  the  morning,  open  up  the 
bank,  sweep  the  floor,  receive  the  money,  pay  out  money,  and  keep 
the  books?    You  have  seen  that,  have  you  not? 

Mr.  Scudder.  I  have  done  it  myself — for  three  months  only,  be- 
cause my  mortgage  business  got  so  big  I  just  could  not  do  it. 


RUBAL    CBEDITS.  233 

Senator  Hollis.  And  a  man  like  that  in  a  community  such  as 
would  run  a  bank  of  that  sort,  would  do  that  for  a  salary  of  $1,000 
or  $1,200  a  year? 

Mr.  Scudder.  Oh,  yes. 

Senator  Hollis.  That  would  actually  run  one  of  these  little  banks? 

Mr.  Scudder.  A  commercial  bank? 

Senator  Hollis.  That  would  actually  run  a  commercial  bank,  and 
if  it  would  run  a  commercial  bank  it  would  easily  run  one  of  these 
farm-loan  banks,  if  there  were  no  deposit  features  ? 

Mr.  Scudder.  Do  you  think  so  ? 

Senator  Hollis.  I  am  asking  you.     I  do  not  know. 

Mr.  Scudder.  I  think  the  farm  mortgage  business,  looking  after 
the  mortgage  business  is  really  more  expensive  than  the  commercial 
features. 

Mr.  Bulkley.  You  do  not  consider  that  automobile  expense,  do 
you? 

Senator  Hollis.  No. 

Mr.  Seldomridge.  Do  you  think,  Senator  Hollis,  that  a  man  could 
take  all  the  responsibility  of  running  these  banks,  looking  after  the 
bookkeeping,  being  responsible  for  the  transfer  of  money,  and  all  of 
these  things,  that  you  could  get  a  man  of  that  kind  on  a  salary  of 
$1,000  a  year? 

Senator  Hollis.  Yes ;  I  know  that  is  done. 

Mr.  Seldomridge.  Any  such  man  as  that  could  go  into  the  city  and 
get  $1,500  or  $2,000— that  kind  of  a  man. 

Senator  Hollis.  I  know  they  can.  I  know  in  my  own  State  Avhere 
there  are  a  great  many  small  towns  that  do  it.  We  have  a  great 
many  small  banks  that  do  business  just  that  way,  and  the  men  are 
entirely  honest,  stand  well  in  the  community,  and  bring  up  families 
and  educate  them  on  $1,000  or  $1,200  a  year.  It  does  not  seem 
possible. 

Mr.  Hayes.  Less  than  that  sometimes,  too. 

Senator  Hollis.  Well,  I  am  speaking  of  those  I  know.  And  I 
am  wondering  whether  it  will  not  be  possible  to  run  these  farm-land 
banks  the  same  as  suggested  by  Mr.  Piatt,  on  the  building  and  loan 
plan,  by  having  some  business  do  the  banking,  to  be  at  the  banking 
rooms  three  nights  a  week  for  two  hours  to  receive  deposits.  It 
might  look  rather  curious,  but  I  am  wondering  whether  it  could  not 
be  run  on  some  such  plan  as  that,  because  we  can  all  see  that  the  ex- 
pense is  going  to  be  pretty  large,  especially  large  proportionately 
for  a  little  bank. 

What  do  you  think  of  that,  Mr.  Scudder? 

Mr.  Scudder.  Well,  if  they  were  savings  deposits  absolutely — i.  e., 
only  time  deposits — it  might  be  worked  out  that  way.  But  for 
demand  deposits,  if  a  man  gives  a  check  and  the  collector  of  another 
national  or  State  bank  comes  to  the  door  and  it  is  closed  there  would 
be  a  "  protest."  You  can  not  do  it.  But  for  simply  saving  deposits, 
that  might  be  done.  Of  course,  in  your  State  the  savings  banks 
do  nearly  all  of  the  mortgage  business. 

Senator  Hollis.  Yes;  almost  entirely;  and  they  do  not  like  to 
make  farm  loans.  I  will  agree  with  you  on  that.  They  do  not  like 
to  make  farm  loans.  The  banks  have  no  facilities  for  taking  an 
automobile  or  buggy  and  driving  out  8  or  10  miles  to  inspect  that 
loan,  and  they  will  not  make  that  loan  unless  somebody  will  look 


234  RURAL    CREDITS. 

at  it.  and  there  is  that  drag  on  our  farm-land  business  in  our  State. 
They  loan  readily  in  Minnesota  or  Kansas  or  somewhere  through  an 
agent  that  will  tell  them  that  it  is  all  right.  I  do  not  like  that. 
I  have  fought  against  it  in  what  I  have  had  to  do  with  it. 

Mr.  Seldomridge.  Let  me  ask  you  a  question.  Would  it  not  be 
possible  that  the  Government  should  furnish  space  in  the  post-office 
building  for  office  space  for  these  banks  ? 

Senator  Mollis.  In  the  first  place  where  those  hanks  would  be 
hu-ated  the  Government  does  not  own  the  buildings. 

Mr.  Seldomridge.  Yes;  but  it  pays  the  rent. 

Senator  Hollis.  Of  course,  that  is  true. 

Mr.  Platt.  The  Government  does  not  even  pay  the  rent  in  third- 
class  post  offices.    The  postmaster  pays  it  out  of  his  salary. 

Mr.  Seldomridge.  In  third-class  offices  they  do. 

Mr.  Platt.  Not  in  third  class — third  and  fourth,  both. 

Mr.  Hayes.  Just  a  moment  in  this  connection.  If  I  have  a  correct 
understanding,  all  the  expenses  you  refer  to  are  borne  by  farmers 
who  are  interested  in  the  community,  without  expense  to  the  bank 
largely. 

Mr.  S(  udder.  In  the  stock  concerns  or  mutual? 

Mr.  Hayes.  Well,  in  both,  largely.  They  are  borne  by  public- 
spirited  men  who  do  not  expect  to  make  any  profit  out  of  it.  That  is 
the  way  I  am  looking  at  it.  That  is  the  idea  I  have  arrived  at  in  my 
mind  from  my  study  of  the  subject.  Of  course,  there  are  big  stock 
banks  in  which  that  would  not  be  true,  but  I  am  talking  about  the 
small  banks  in  the  country  places. 

Mr.  Scudder.  Well,  going  back  to  my  experience  in  Minnesota — 
in  the  small  places — I  do  not  know  of  a  farmer  who  would  do  a  thing 
like  that  who  would  not  want  to  be  paid  for  his  time. 

Mr.  Bulkley.  What  would  be  the  annual  legal  expenses  of  such 
a  small  bank? 

Mr.  Scudder.  Does  the  1  per  cent  cover  the  legal  expenses? 

Mr.  Moss.  No,  sir. 

Mr.  Bulkley.  I  do  not  think  so. 

I  understand  that  it  does  not  cover  the  examination  of  titles,  but  I 
supposed  it  covered  any  expenses  that  might  result  from  foreclosures, 
would  it  not? 

Mr.  Moss.  I  did  not  catch  that. 

Mr.  Bulkley.  In  case  of  foreclosure,  can  you  not  collect  attorney's 
fees? 

Mr.  Moss.  I  judge  that  would  be  governed  entirely  by  the  note,  and 
I  judge  the  hank  would  avail  itself  of  the  same  kind  of  fee  that  any 
person  would.  They  would  have  to  pay  the  court  expenses,  just  as 
they  do  in  the  case  of  any  foreclosure.     That  is  a  matter  of  contract. 

Mr.  Bulkley.  The  court  expenses,  but  how  about  the  attorney's 
fees? 

Mr.  Moss.  In  my  own  State  that  is  a  part  of  the  court  expenses. 

Mr.  l>i  lkley.  I  contemplated  that  the  mortgagor  would  have  to 
pay  it. 

Mr.  Moss.  I  take  it  for  granted  that  the  court  expenses  would 
always  be  borne  by  the  man  who  breaks  his  contract,  and  I  judge  the 
bank  would  take  advantage  of  the  law  to  protect  itself  just  as  any 
private  lender  would  do  in  that  respect. 


RURAL    CREDITS.  235 

Mr.  Scudder.  You  would  be  apt  to  get  your  attorney's  fees  paid 
through  the  foreclosure  fees  and  examination  of  titles,  and  so  on, 
which  we  did  in  our  business  when  it  became  large. 

Mr.  Bulkley.  Do  you  think  that  any  allowance  should  be  made 
for  rent? 

Mr.  Scudder.  I  should  say  so,  in  a  large  number  of  cases.  There 
may  be  some  few  cases  where  there  would  be  no  rent  to  pay.  You 
would  have  to  have  an  office  somewhere,  it  seems  to  me. 

Mr.  Bulkley.  Then,  you  have  spent  a  pretty  fair  share  of  that 
$1,500  in  this  respect.  How  desirable  does  that  make  the  stock  in  the 
banks  as  an  "  investment "  ?  What  class  of  people  would  you  expect 
would  invest  in  it  ? 

Mr.  Scudder.  I  would  not  expect  very  much  "  investing "  in  a 
bank  that  did  not  do  a  deposit  business.  I  do  not  see  how  it  could 
be  done. 

Mr.  Bulkley.  When  you  speak  of  a  deposit  business,  you  mean  a 
considerable  one?  You  do  not  think  this  50  per  cent  deposit  would 
be  sufficient  ? 

Mr.  Scudder.  No,  sir. 

Mr.  Platt.  You  do  not  mean  deposit  business  confined  wholly  to 
members  ? 

Mr.  Scudder.  No.  With  the  stock  company  you  can  not  do  that. 
With  the  cooperative  company,  you  can  make  such  a  rule,  but  I  think 
that  the  nature  of  the  deposits  that  would  come  into  such  a  bank 
would  be  the  farmers'  deposits  which  now  go  into  commercial  and 
savings  banks,  because  there  is  a  good  deal  of  pride  in  America — a 
good  deal  of  community  pride.  It  is  not  as  it  is  in  Europe.  In 
Europe  the  individual  is  swallowed  by  the  State,  but  in  America 
the  individual  makes  the  State.  That  whole  principle  runs  through 
our  form  of  Government.  If  you  authorize  the  farmers  to  establish 
these  banks,  there  would  be  little  banks  starting  up  everywhere  and 
you  would  find  that  the  farmers  who  own  the  stock  would  be  the 
depositors,  and  the  depositors  would  come  from  the  country,  and  it 
would  encourage  saving  in  the  country,  such  as  it  has  never  been 
encouraged  in  this  country  except  by  "  savings  banks,"  which  are 
few  and  far  apart  in  some  sections. 

Mr.  Bulkley.  Now,  Mr.  Scudder,  suppose  some  remote  community, 
where  there  is  not  an  adequate  amount  of  local  capital,  and  the  bonds 
of  these  institutions  would  have  to  be  sold  somewhere  outside,  on 
what  interest  basis  do  you  think  they  would  sell  ?  I  mean  the  bonds 
of  a  small  bank  such  as  is  provided  for  in  this  bill,  located,  for  in- 
stance, in  Arizona  ? 

Mr.  Scudder.  If  the  Government  did  not  help  in  some  way  to 
establish  the  "  credit "  of  that  bank,  they  could  not  establish  it  at  all. 

Mr.  Bulkley.  That  Government  help  is  sentimental,  is  it  not? 
You  do  not  mean  to  say  that  $40,000,000  would  be  enough  to  make 
the  credit 

Mr.  Scudder  (interposing).  It  is  somewhat  sentimental.  But  show 
me  the  bank  whose  obligation  the  Government  holds  and  I  will  show 
you  an  institution  whose  credit  is  established  and  whose  similar 
obligations  will  be  taken  by  the  general  investing  public  on  any 
reasonably  profitable  basis. 


236  RURAL    CREDITS. 

Mr.  Bulkley.  Assume  you  give  them  that  sentimental  advantage, 
and  assume  you  make  them  absolutely  tax  exempt,  on  what  interest 
basis  would  they  sell  ? 

Mr.  Scuddek.  Well,  in  Arizona,  I  am  afraid  they  would  have  a 
hard  row  to  hoe  locally,  because  there  are  not  enough  commercial 
banks  or  savings  banks  in  Arizona  to  invest  largely  in  such  bonds,  or 
any  kind  of  bonds,  no  matter  how  good,  because  they  have  other  use 
for  their  money. 

Mr.  Bulkley.  Do  you  think  that  is  where  the  capital  would  come 
from,  from  the  larger  banks  in  the  same  community  ? 

Mr.  Scudder.  Yes;  largely;  and  from  people  who  put  their  money 
in  such  banks  now  at  3  per  cent.  It  seems  to  me  these  farm-land 
bank  bonds  would  not  be  issued  at  much  less  than  44  or  5  per  cent, 
and  it  would  be  quite  natural  for  some  money  now  in  the  present 
established  banks  to  be  withdrawn  for  the  purpose  of  buying  such 
bonds,  especially  if  it  were  known  that  the  Government  of  the 
United  States  owned  some  of  them. 

Mr.  Seldomridge.  Do  you  think  it  would  affect  the  volume  of  time 
deposits  in  these  commercial  banks? 

Mr.  Scudder.  It  would  be  apt  to  affect  the  deposits  of  savings 
banks  that  are  paying  3  per  cent  interest  on  their  deposits. 

Mr.  Seldomridge.  There  are  a  good  many  national  banks  that  pay 
3  per  cent  on  time  deposits. 

Mr.  Scudder.  Yes. 

Mr.  Seldomridge.  Would  it  not  affect  those,  too  ? 

Mr.  Scudder.  I  think  it  would  take  some  money  out  of  National  as 
well  as  State   banks. 

Mr.  Platt.  Do  not  the  savings  banks,  nearly  every  one,  pay  4 
per  cent  ? 

Senator  Hollis.  Yes;  most  of  them  do. 

Mr.  Scudder.  The  mutual  savings  banks  nearly  all  pay  4  per  cent, 
yes ;  but  I  was  thinking  of  out  West. 

Mr.  Hayes.  All  the  banks  in  my  own  town  pay  4  per  cent. 

Mr.  Scudder.  That  is  in  California. 

Mr.  Platt.  In  some  places  they  pay  5  and  some  places  they  pay 
even  6. 

Mr.  Scudder.  In  those  sections  where  banks  pay  a  large  interest 
rate,  it  might  take  a  little  increase  to  induce  the  people  to  take 
those  bonds.  Of  course,  in  all  banking  propositions  "confidence"  is 
the  foundation.  If  I  get  the  idea  that  the  Government  has  confi- 
dence in  this  bank  sufficiently  to  purchase  some  of  their  bonds  I. 
as  an  investor,  am  going  to  take  the  bonds,  just  on  account  of  that 
very  fact.     And  no  matter  in  what  State  that  bank  may  be  located. 

Mr.  Bulkley.  On  what  interest  basis  do  you  think  they  would 
invest  in  them? 

Mr.  Scudder.  If  you  mean  local  investors,  it  would  be  different 
in  different  sections.  You  take  such  bonds,  for  instance,  in  Minne- 
sota, and  the  farmers  have  gotten  fairly  well  off  in  Minnesota  now, 
I  think  possibly  4^  per  cent  might  induce  some  to  be  taken  locally 
there.    Do  you  not  think  so,  Mr.  Coulter? 

Mr.  Coulter.  I  do  not  know  about  that. 

Air.  Bulkley.  What  would  you  say  about  the  South — say  Mis- 
sissippi ? 


RURAL    CREDITS.  237 

Mr.  Scudder.  There  is  a  Mississippian  here. 

Mr.  Bulkley.  I  am  going  to  ask  him,  too,  but  I  would  like  to 
get  your  guess. 

Mr.  Seldomridge.  Ask  him  about  Texas. 

Mr.  Scudder.  I  could  better  answer  about  Texas. 

Mr.  Bulkley.  Well,  all  right;  what  would  you  say  about  Texas? 

Mr.  Scudder.  In  Texas  there  are  some  sections  where  the  Ger- 
mans have  absolutely  paid  off  all  their  mortgages  and  are  loaning 
to  each  other  to-day;  and  the  rates  are  fairly  low  in  those  sections  of 
Texas.  I  think  that  such  a  bond  would  take  in  Texas  at  44  or  5 
per  cent,  in  certain  sections,  if  the  people  knew  that  the  Government 
owned  some  of  them. 

Mr.  Bulkley.  Do  you  think  there  would  be  enough  money  in 
Texas  to  take  care  of  the  local  banks? 

Mr.  Scudder.  There  are  other  sections  of  Texas  that  would  not 
take  them  at  any  price.    Texas  is  very  large. 

Mr.  Bulkley.  Do  you  think  there  is  enough  money  in  Texas  to 
be  "  invested  "  to  take  care  of  the  local  requirements? 

Mr.  Scudder.  I  think  there  is  enough  money  in  Texas  to  start 
many  $10,000  banks  on  the  stock  basis,  provided  you  let  them  accept 
deposits;  not  otherwise. 

Mr.  Bulkley.  Take  Mississippi.  I  assume  Mississippi  would 
have  to  sell  bonds  outside  of  the  State ;  they  could  not  sell  them  on  a 
4-J  per  cent  basis,  could  they  ? 

Mr.  Scudder.  No;  not  locally.  I  should  think,  however,  that  they 
could  sell  them  outside  the  State. 

Mr.  Bulkley.  Could  they  sell  them  on  a  5  per  cent  basis  ? 

Mr.  Scudder.  Yes;  they  could  do  that,  if  the  Government  aid  I 
have  suggested  would  first  establish  their  credit. 

Mr.  Hayes.  I  think  they  would  bring  5  per  cent  in  California. 

Mr.  Bulkley.  What  would  vou  say  about  a  State  like  Idaho  or 
Montana  ? 

Mr.  Scudder.  You  would  for  a  while  not  have  many  such  institu- 
tions in  those  States.  The  same  way  with  Arizona.  You  would  not 
actually  have  very  many  institutions  of  that  kind  there  for  some 
time. 

Mr.  Bulkley.  Those  are  the  very  States  that  need  relief,  because 
they  are  paying  too  high  an  interest  rate. 

Mr.  Scudder.  Montana,  of  course,  is  very  largely  agricultural,  and 
is  developing  very  fast;  so  is  Idaho  in  certain  sections;  and  doubt- 
less as  this  development  takes  place  mortgages  on  real  estate  will 
be  needed. 

Mr.  Seldomridge.  The  need  to-day  in  that  section  is  more  short- 
term  credits. 

Mr.  Bulkley.  Do  you  think  such  a  State  as  that  could  sell  on  a 
5  per  cent  rate? 

Mr.  Scudder.  Well,  in  Montana,  I  am  afraid  they  have  so  much 
use  for  other  developments  now  that  locally  there  would  be  little 
investment  in  such  bonds. 

Mr.  Hayes.  I  know  of  some  irrigation  projects  in  Idaho  and  Mon- 
tana that  have  sold  bonds  to  do  this  work. 

Mr.  Scudder.  Yes,  sir;  that  is  true;  but  the  purchasers  of  these 
securities  have  been  outside  those  States. 

Mr.  Hayes.  And  still  they  are  taxable,  you  know. 


238  RURAL    CREDITS. 

Mr.  Bulkley.  At  6  per  cent* 

Mr.  Hayes.  Yes. 

Mr.  Bulkley.  Do  they  sell  them  at  par? 

Mr.  Hayes.  They  sell  them  at  par. 

Mr.  Platt.  All  bonds  sell  on  a  taxable  basis  throughout  the  coun- 
try, with  the  exception  of  a  few  United  States  bonds. 

Mr.  Bulkley.  Of  course,  these  are  small  institutions,  which  are 
independently  managed,  which  we  must  assume 

Mr.  Scudder  (interposing).  Which  all  stand  on  their  own  bot- 
toms. 

Mr.  Bulkley.  Which  stands  on.  its  own  bottom ;  yes. 

Mr.  Hayes.  May  I  suggest  one  thing  more?  Have  you  consid- 
ered that  to  join  the  general  deposit  business  with  the  farm-land 
business,  that  it  means  a  banking  business,  and  it  takes  somebody 
that  knows  something  about  the  banking  business  to  handle  that? 
Have  you  considered  whether  it  would  be  safe  for  us  to  authorize  a 
combination  like  that,  which  is  alwa}rs  dangerous?  Is  it  safe  for  us 
to  do  that  with  men  of  little  experience  in  banking  and  in  business 
generally  that  would  necessarily  have  to  be  handled  in  these  banks 
that  we  propose  organizing?     Have  you  considered  that  feature? 

Mr.  Scudder.  I  have.  The  farmers  with  whom  I  come  in  contact 
personally,  of  course,  have  been  in  Minnesota  and  Texas;  and  I  will 
back  many  a  farmer  I  have  known  to  undertake  the  management  of 
such  a  bank — — 

Mr.  Platt.  Where  did  the  capital  come  from  to  organize  these 
banks  ? 

Mr.  Scudder  (continuing).  Under  certain  conditions. 

Mr.  Platt.  Where  did  the  capital  come  from  to  organize  all  the 
little  banks  in  Minnesota  and  North  Dakota,  for  instance,  the  $10,000 
banks — State  banks? 

Mr.  Scudder.  The  whole  State  of  Texas  is  plastered  with  $10,000 
State  banks. 

Mr.  Platt.  Where  did  the  capital  come  from  ? 

Mr.  Scudder.  It  comes  from  the  country  largely,  right  there  from 
the  farming  people.  Lots  of  farmers  and  ranchmen  in  Texas  own 
one.  two,  or  more  shares. 

Mr.  Platt.  I  do  not  know  anything  about  Texas,  but  I  do  know  a 
little  bit  about  Minnesota.  I  lived  in  Wisconsin  on  the  edge  of 
Minnesota,  and  my  information  was  there  were  chains  of  little  banks 
organized  all  over  that  country. 

Mr.  Scudder.  There  have  been  since  I  left  there,  but  before  I  left 
there  there  were  no  "  chains  of  banks "  in  Minnesota.  Each  bank 
was  formed  in  its  own  little  community.  I  had  $1,500  saved  up  and 
my  partner  had  $1,500,  and  we  started  our  bank  on  $3,000.  That  is 
all  we  had  as  a  banking  capital  at  first.  Of  course  we  secured  a  good 
mortgage  agency.  We  had  the  agency  of  the  Scottish  American 
Mortgage  Co.,  and  that  helped  us  to  start  up  in  business.  But  we 
started  that  bank  before  there  was  any  State  law  made.  We  simply 
opened  our  doors  and  put  a  sign  over  the  bank  and  started  in  to  do 
business.  Our  business  at  first  was  mosth'  with  the  farmers,  with 
our  $3,000.  There  is  another  thing  I  want  to  say  in  this  connection : 
We  soon  found  when  we  made  our  mortgage  business  go  that  a  large 
part  of  our  deposits  would  be  from  loans.  We  would  make  a  loan 
to  a  farmer  for  $2,000.     We  would  say  to  him,  "What  do  you  want 


RUKAf.    CREDITS.  239 

this  money  for  ?  "  "  Well,  I  want  to  build  a  barn  or  I  want  to  put 
so  many  acres  more  in  cultivation;  to  build  this  or  that  building." 
"All  right,  we  will  lend  you  the  money,  but  you  have  got  to  leave 
$1,000  out  of  that  $2,000  '  on  deposit '  until  your  buildings  are  in  such 
shape,  until  we  can  see  that  you  are  using  the  money  for  the  purpose 
for  which  we  made  the  mortgage ";  and  we  had  to  credit  his  account; 
it  went  on  the  books  as  a  deposit,  and  that  is  the  way  it  will  have  to 
be  under  this  system.  If  a  mortgage  is  made  you  can  not  use  your 
"  bond "  until  your  mortgage  is  actually  made ;  and  if  you  only 
allow  "  half  of  the  capital  and  the  surplus  "  to  be  in  deposits  your 
loans  will  soon  fill  you  up ;  you  would  find  that  your  own  cash,  the 
cash  you  are  furnishing  to  the  farmer,  must  under  such  a  rule  be  de- 
posited elsewhere,  because  you  have  got  his  mortgage,  and  you  are 
bound  to  deposit  his  money  somewhere  until  it  is  checked  out  for 
improvements  or  to  make  final  payment  for  the  land. 

Mr.  Weaver.  That  will  be  checked  out  in  a  little  while. 

Mr.  Sctjdder.  Yes;  certainly.  That  will  be  checked  out  in  time; 
but  every  day  and  every  week  it  happens,  and  you  will  soon  accumu- 
late these  deposits. 

Senator  Hollis.  When  was  this  that  you  had  this  experience  in 
Minnesota  ? 

Mr.  Scudder.  In  the  eighties. 

Senator  Hollis.  That  was  before  they  had  this  serious  trouble 
that  our  eastern  ban^s  got  in  from  the  western  banks— I  think  that 
was  in  1893. 

Mr.  Scudder.  Oh,  yes,  sir.     I  went  to  Texas  in  about  1886. 

Senator  Hollis.  Most  of  our  Eastern  States  passed  restrictions 
after  the  experience  in  1893  about  farm  loans,  but  they  are  doing 
a  large  business  now. 

Mr.  Moss.  Mr.  Chairman,  let  me  ask  Mr.  Scudder  a  question  or 
two. 

I  want  to  say  that  I  am  very  much  interested  in  his  analysis  of  the 
earnings  matter,  because  our  commission  gave  a  good  deal  of  live 
attention  to  that.  Under  the  banking  laws  the  national  banks  very 
frequently  have  an  arm  of  the  business,  a  trust  company  doing  an 
entirely  different  business.  Do  you  see  anything  in  this  bill  that 
would  prevent  one  of  these  mortgage  banks  from  being  operated  in 
connection  with  or  on  practically  the  same  scale  with  a  small  bank 
which  is  doing  a  general  banking  business  ?  I  do  not  mean  precisely 
the  same  capital,  but  is  there  not  the  same  relationship  that  there 
would  be  in  the  national  bank  and  trust  company  under  the  existing 
law? 

Senator  Hollis.  You  mean  to  have  two  separate  organizations 
under  the  same  roof? 

Mr.  Moss.  I  wanted  to  get,  Mr.  Chairman,  Mr.  Scudder's  idea. 
We  know  that  there  is  considerable  consolidation  of  skill  already  in 
banking.  For  instance,  that  where  one  bank  does  one  kind  of  busi- 
ness and  is  prohibited  from  doing  another,  that  there  is  a  community 
of  interests.  There  is  no  question  but  that  one  of  the  very  pertinent 
questions  about  this  legislation  is  the  question  of  supplying  personal 
credit  in  the  mortgage-loan  business.  I  want  to  call  Mr.  Scudder's 
attention  to  this  feature :  The  question  has  been  revolving  around  in 
my  mind  quite  a  bit,  leaving  the  provisions  here  prohibiting  deposits, 
except  in  just  a  sufficient  volume  to  do  their  incidental  business,  and 


240  RURAL    CREDITS. 

making  them  a  pure  mortgage  bank.  Does  that,  of  itself,  prohibit, 
if  there  was  a  bank  of  $10,000  capita]  in  a  community  later  on  au- 
thorizing the  formation  of  a  small  bank  to  take  up  the  personal  credit, 
using  the  same  skill  and  clerical  help,  to  carry  on  these  two  businesses 
even  if  they  in  the  law  were  kept  separate  in  some  way,  just  as  the 
oational  banking  business  is  now  carried  on? 

Mr.  Scudder.  Well,  theoretically  perhaps,  but  you  would  have  to 
Lro  still  further  down  to  answer  that  question.  If  a  national  bank  of 
--.000  as  now  organized  under  the  Federal  system  were  allowed  to 
own  such  an  institution  of  $10,000,  and  manage  it,  that  would  be  quite 
possible.  It  could  take,  say,  51  per  cent  of  the  stock  of  this  $10,000 
concern,  and  let  it  have  office  space  and  practically  conduct  it  that 
May.     You  mean  that,  I  take  it? 

Mr.  Moss.  No,  sir.  That  was  not  the  meaning  that  I  had  in  mind 
at  all. 

Mr.  Scudder.  How  are  you  going  to  run  the  expenses  of  the  bank 
without  the  other  bank  being  interested  in  that  way? 

Mr.  Moss.  I  feel  very  much  this  way.  Mr.  Chairman,  in  working 
out  this  plan.  In  the  first  place,  the  profits  of  the  business,  I  believe, 
would  be  fixed.  We  found  no  banking  institution  doing  a  mortgage 
business  in  Europe  on  the  process  outlined  in  this  bill  but  what  had 
capital  income.  Part  of  that  income  comes  and  always  will  come 
from  incidental  expenses  connected  with  the  mortgage  business. 
There  is  always  a  profit  in  the  buying  and  selling  of  bonds,  wdiere 
they  fall  below  par,  and  there  is  always  some  incidental  profit  that 
will  always  come  with  the  mortgage  business.  I  believe  when  per- 
sonal credit  is  finally  established,  it  will  be  established  entirely,  I 
think,  upon  separate  lines,  and  will  be  an  association  among  farmers 
and  one  for  the  mortgage  business.  There  will  be  close  relationship 
between  those  who  conduct  those  two  businesses,  and  I  think  it  is 
entirely  possible  and  entirely  legitimate,  and  so  I  believe.  Mr.  Scud- 
der, in  talking  about  income  and  going  into  a  community  where  there 
is  possibly  no  growth,  where  there  is  no  bank,  but  possibly  where 
it  can  be  organized,  that  it  is  not  taking  the  most  charitable  view 
that  can  be  taken,  because  there  are  but  very  few  communities  where 
a  bank  will  be  finally  limited  to  $10,000  and  no  growth;  and  in  this 
community  there  will  be  very  little  chance  for  deposit  business,  any- 
how, and  in  those  communities,  when  the  personal  credit  is  finally 
passed,  it  would  probably  be  well  to  be  joined  together  by  men  inter- 
ested in  the  same  business. 

Mr.  Scudder.  Is  it  not  a  fact.  Mr.  Moss,  that  under  this  bill  the 
"  cooperative  plan  "  allows  unlimited  deposits  ? 

Mr.  Moss.  Only  from  its  own  members. 

Mr.  Scudder.  I  am  asking  that  question. 

Mr.  Moss.  Yes:  limited,  but  only  from  its  own  members. 

Mr.  Scudder.  Under  the  cooperative  plan.  then,  these  deposits  can 
be  taken  in  "unlimited  amounts/'  I  believe  that  therein  lies  the 
solution  of  the  rural-credit  system.  Why  not  also  allow  the  "joint- 
stock  plan  "  the  same  privilege?  I  believe  that  is  the  very  thing  that 
is  going  to  solve  the  whole  problem  in  this  country. 

Mr.  Moss.  That  is  the  practice  of  the  joint-stock  business,  because 
of  the  view  of  persons  that  hold  stock  in  the  joint-stock  banks. 

Mr.  Scudder.  There  are  four  stockholdings  to  one,  comparing 
these  two  plans  side  by  side,  so  that  if  it  were  possible  to  carry  out 


RURAL    CEEDITS.  241 

such  a  rule  the  cooperative  bank  would  have  four  times  the  number 
of  depositors. 

Mr.  Moss.  The  very  end  you  are  speaking  about  is  made  possible 
under  the  cooperative  banks  under  the  terms  of  the  bill.  I  mean  the 
very  criticism  you  bring  in  about  the  "  deposits  "  is  in  the  terms  of 
the  bill. 

Mr.  Scudder.  Yes;  it  is;  but  I  call  attention  to  the  fact  you  are 
not  going  to  get  very  many  "  cooperative  banks  " — mutual  banks — in 
the  United  States  until  the  United  States  gets  more  settled.  It  takes 
close  association. 

Mr.  Moss.  I  would  not  agree  with  that  view  of  it,  because  I  think 
that  cooperation  depends  upon  not  closeness  or .  contiguousness  of 
population.  I  do  believe,  however,  it  comes  from  general  intelli- 
gence, and  also  in  experience  along  that  line — confidence  more  than 
the  fact  of  being  a  compact  community. 

Mr.  Hayes.  What  you  say  is  demonstrated  by  our  experience  in 
California  in  our  fruit  associations,  scattered  all  over  the  State  of 
California. 

Mr.  Scudder.  It  might  do  in  the  fruit  business  or  in  the  milk  busi- 
ness, but  it  will  not  do  in  the  "  banking  business,"  take  my  word  for 
it.  The  banking  business  is  a  personal  business,  and  you  have  got  to 
know  your  man.  You  have  got  to  know  your  man  personally;  you 
have  got  to  be  personally  acquainted  with  his  character,  to  see  him 
face  to  face,  and  you  can  not  compare  the  fruit  business  with  the 
banking  business. 

Mr.  Platt.  Why  is  it  that  there  have  been  mutual  savings  banks 
organized  all  over  the  country? 

Mr.  Scudder.  Why  is  it  ? 

Mr.  Platt.  Yes. 

Mr.  Scudder.  I  think  I  explained  that  in  the  statement  I  made. 
Only  in  the  communities  that  are  thickly  settled  you  get  your  strictly 
mutual  savings  banks,  mutual  banking  corporations. 

Senator  Hollis.  Now,  we  have  two  other  witnesses  who  would  like 
to  get  away. 

We  will  hear  Mr.  Brooks. 

STATEMENT   OF  PROF.   T.   J.   BROOKS,  AGRICULTURAL  AND 
MECHANICAL  COLLEGE  OF  MISSISSIPPI. 

Senator  Hollis.  Will  you  state  your  full  name,  Mr.  Brooks? 

Mr.  Brooks.  T.  J.  Brooks. 

Senator  Hollis.  What  is  your  residence  and  occupation  ? 

Mr.  Brooks.  Agricultural  and  Mechanical  College  of  Mississippi.  I 
am  a  member  of  the  faculty.  I  represent  the  college  and  the  Na- 
tional Farmers'  Union. 

Mr.  Chairman  and  gentlemen  of  the  committee,  I  wish  to  begin  the 
discussion  of  this  subject  by  trying  to  get  at  what  we  mean  in  using 
certain  terms.  What  do  we  mean  by  rural  credits?  In  short  I  would 
say  that  we  mean  a  system  of  banking  which  furnishes  accommoda- 
tions suitable  to  the  demands  of.  agriculture. 

What  are  its  purposes?  To  make  it  possible  to  mobilize  agricul- 
tural security  and  provide  an  adequate  system  of  rediscounting  agri- 
cultural paper,  or,  in  case  of  Government  subvention,  to  render  avail- 
able funds  provided  by  the  Government — the  expenses  to  be  limited 

37031—14 16 


242  RURAL    CREDITS. 

to  actual  cost  of  operation,  including  interest  on  hired  capital.  The 
end  in  view  being  to  (1)  increase  production,  (2)  cheapen  distribu- 
tion, (3)  check  overurbanization,  (4)  promote  home  ownership  and 
general  welfare. 

There  arc  two  main  divisions  of  the  subject :  (1) Long-time  loans  on 
land,  (2)  short-time  loans  on  personal  security.  Many  foreign  coun- 
tries furnish  us  notable  examples  with  many  subdivisions  of  both 
of  these  kinds  of  cooperative  credit,  and  also  of  credit  backed  by 
Government  aid.  Of  the  land  loans  systems  we  have  the  "  Land- 
schaften  of  Germany,  the  Credit  Foncier  and  the  Credit  Agricole  of 
France,  the  Government  loans  to  farmers  in  Denmark,  and  loans  by 
the  English  Government  to  the  farmers  of  Ireland.  Of  the  short- 
time  credit  systems  we  have  the  Schulze-Delitzsch  and  the  Raiffeisen 
banks  of  Germany,  and  the  Credit  Agricole  banks  of  France.  There 
is  not  a  Government  in  Europe  that  has  not  developed  some  of  these, 
or  modifications  of  them,  for  the  benefit  of  agriculture. 

Evidences  of  need  of  rural  credits. — Before  we  go  into  a  discussion 
of  the  ways  and  means  or  rural  credits  let  us  take  a  survey  of  the 
situation  and  see  whether  we  are  in  need  of  such  an  innovation  in 
our  banking  accommodations.  In  round  numbers  we  have  $140,- 
000,000,000  of  wealth,  $40,000,000,000  of  which  is  classed  as  agricul- 
tural. Of  this  agricultural  wealth  $14,000,000,000  is  owned  by  others 
than  farmers;  we  have  1,903,289,600  acres  of  contiguous  territory, 
6,361,502  farms,  containing  878,798,000  acres,  of  which  478,452,000 
acres  are  improved.  The  land  in  farms  represents  46  per  cent  of 
the  total  land  area,  while  the  improved  land  represents  somewhat 
over  half,  or  54.5  per  cent,  of  the  total  acreage  in  farms.  The 
average  farm  contains  138.1  acres,  of  which  78.2  acres  are  improved. 
Our  farm  property  increased  in  price  from  1900  to  1910  100  per 
cent.  Its  productive  power  by  no  means  doubled.  Our  population 
increased  during  the  decade  21  per  cent.  On  page  285,  chapter  10, 
Thirteenth  Census  Abstract,  we  find  that  the  number  in  1910  was 
6,353,323,  an  increase  of  624,130,  or  10.9  per  cent.  The  number  oper- 
ated by  owners  in  1900  was  3,643,323 ;  the  number  operated  by  owners 
in  1910  was  3,948,722,  an  increase  of  295,399,  or  an  increase  of  8.1  per- 
cent. The  number  of  farms  operated  by  tenants  in  1900  was  2,024,- 
964;  the  number  operated  by  tenants  in  1910  was  2,354,676,  an  in- 
crease of  329,712,  or  15.3  per  cent.  Tenant  farms  constituted  25.6 
per  cent  of  all  farms  in  1880,  28.4  per  cent  in  1890,  35.3  per  cent  in 
1900,  and  37  per  cent  in  1910. 

In  the  States  of  Kentucky,  Tennessee,  Mississippi,  Louisiana, 
Texas,  and  Oklahoma  tenant  farms  have  increased  from  35  to  51  per 
cent  during  the  last  30  years.  In  Texas  55  per  cent  of  the  farms  are 
operated  by  tenants;  in  South  Carolina,  63  per  cent;  in  Mississippi, 
and  Georgia,  two-thirds  of  the  farms  are  tilled  by  those  who  have  no 
share  in  their  ownership.  The  alluvial  bottoms  of  the  Yazoo  Valley 
in  Mississippi  furnish  the  finest  cotton  land  in  the  world.  There 
are  eight  counties  in  this  section  where  there  were  in  1900,  3,004 
farms  operated  by  their  owners  and  25,750  by  tenants.  In  1910  the 
number  operated  by  owners  was  3,506  and  the  number  operated  by 
tenants  was  42,618.  In  terms  of  percentage,  89  per  cent  of  the  farms 
were  operated  by  tenants  in  1900  and  92  per  cent  in  1910.  The  per- 
cent of  farm  tenants  in  Illinois  in  1880  was  30,  and  at  the  present 
rate  of  increase  by  the  next  census  it  will  be  50  per  cent. 


RURAL    CREDITS. 


243 


Production. — That  something  has  gone  wrong  with  agriculture  is 
also  evidenced  by  the  relative  decrease  in  agricultural  production. 
Our  per  capita  of  production  of  cereals  in  1899  was  58f  bushels;  in 
1909  it  was  49£  bushels.  Our  exports  of  food  products  dropped  from 
1900  to  1912  $127,400,000  worth,  and  similar  imports  increased  $111,- 
420,000  worth  for  the  same  dates.  Tennessee,  my  native  State,  pro- 
duced less  cotton,  oats,  wheat,  cattle,  sheep,  and  swine  in  1910  than  in 
1900. 

Overurbanization.—We  have  the  problem  of  overurbanization  con- 
fronting us.  The  ablest  living  historians  claim  that  this  wrought  the 
destruction  of  Kome.  We  have  developed  our  industries  in  a  lop- 
sided fashion,  without  the  proper  poise  and  balance  to  insure  general 
and  permanent  prosperity. 

There  are  a  lot  of  reasons  why  people  leave  the  farm.  One  of 
them  may  be  illustrated  by  the  fact  that  the  young  farmer  with  no 
money  to  begin  with  can  hardly  hope  to  be  the  owner  of  a  decent 
home  by  working  it  out  on  the  farm.  The  average  farm  wages  in 
the  upper  Mississippi  Valley,  where  wages  are  highest,  are  less  than 
$30  a  month.  At  the  present  price  of  farms  in  the  most  productive 
States  of  Illinois,  Indiana,  and  Iowa  if  the  wageworker  saved  every 
dollar  it  would  take  him  from  35  to  45  years  to  earn  enough  to  own 
an  average  farm.  Half  of  the  number  of  those  holding  the  plow 
handles  in  the  United  States  are  homeless. 

And  during  the  last  decade  the  number  of  farms  has  materially 
decreased  in  our  best  farming  States. 

Number  of  farms. 


State. 

1850 

1860 

1870 

1880 

1890 

1900 

1910 

93,896 
76, 208 
14,805 

131,826 
143,320 
61,163 

161,289 
202, 803 
116,292 

194,013 
255, 741 
185,351 

198, 167 
240, 681 
201,903 

221,897 
264, 151 
228,622 

215,485 

251,872 

Iowa 

217,044 

Total 

184,909 

336, 309 

480,384 

635, 105 

640, 751 

714,670 

684,401 

Agriculture  compared  with  manufacturing. — As  compared  with 
other  kinds  of  business,  farming  makes  a  very  poor  showing.  Ac- 
cording to  the  estimates  of  the  present  Secretary  of  Agriculture 
farming  in  the  United  States  pays  only  an  average  of  5  per  cent. 
We  see  by  our  statistics  a  different  story  in  manufacturing.  The 
total  number  of  manufacturing  establishments  in  the  United  States 
exclusive  of  the  hand  and  building  trades,  the  neighborhood  indus- 
tries, and  those  whose  products  were  less  than  $500  per  annum  in 
value,  except  in  the  cases  of  factories  just  starting  or  idle  during 
part  of  the  year,  was  268,491  in  1909,  an  increase  of  52,311  over 
1904.  The  capital  invested  rose  from  $12,675,591,000  in  1904  to 
$18,428,270,000  in  1909. 

We  see  from  these  figures  that  the  manufacturers  had,  in  1909, 
$18,428,270,000  invested  and  turned  out  a  product  valued  at  $20,627,- 
052,000.  And  the  number  of  hands  employed  was  6,615,046  at  a  wage 
cost  of  $3,427,038,000.  The  farmer  had  $40,000,000,000  invested,  em- 
ployed 12,500,000  hands,  and  produced  only  $9,000,000,000  worth 
in  1911,  valued  at  the  farm,  which  was  the  largest  crop  and  of 
greatest  value  of  any  ever  produced.    According  to  the  last  census 


244  RUEAL    CREDITS. 

abstract,  page  265,  we  find  that  we  have  an  urban  population  of 
42,623,383,  and  a  rural  population  of  49,384,883.  So  that  more  than 
half  our  population  is  rural.  I  see  it  estimated  that  the  appropria- 
tions directly  for  the  department  representing  this  class  is  only  2 
per  cent  of  the  whole.  This  does  not  mean,  of  course,  that  other 
classes  get  all  the  other  98  per  cent,  because  a  great  part  of  it  is 
as  much  for  the  farmer  as  for  anybody  else. 

Is  it  not  astonishing,  not  to  say  alarming,  that  the  status  of  farm- 
ing should  be  what  it  is  after  the  recent  developments  in  the  science 
of  agriculture  and  the  achievements  in  scientific  farming?  There 
are  agencies  at  work  destroying  the  foundation  of  rural  prosperity. 
The  situation  as  it  confronts  us  throws  out  a  bold  challenge  to  the 
statesmanship  of  the  age.  We  may  lay  all  the  blame  we  please  on 
the  individual  farmer  for  unfavorable  conditions  here  referred  to, 
but  the  fact  remains  that  there  must  be  a  fundamental  error  in  our 
economy  where  the  tendency  is  toward  the  elimination  of  the  farmer 
from  the  self-dependent  class.  Whatever  Congress  has  power  to  do 
to  remedy  the  unfortunate  condition  is  evidently  not  confined  to  ap- 
propriating money  to  encourage  farmers  to  produce  more.  In  the 
most  productive  parts  of  the  country  we  find  conditions  which  baffle 
the  most  astute  who  wish  to  devise  means  that  will  render  tolerable 
and  attractive  conditions  on  the  farm  for  the  young  farmer  who  is 
born  and  reared  without  a  legacy.  Of  our  49,000,000  of  rural  popu- 
lation it  is  estimated  that  we  have,  in  round  numbers,  13,000,000  field 
hands,  4.000.000  of  whom  are  wageworkers  or  hired  men.  These, 
taken  with  the  tenants,  constitute  more  than  half  the  actual  field 
workers  in  this  country.  The  average  farm  wages  in  the  upper 
Mississsippi  Valley,  where  farm  wages  are  highest,  is  less  than  $30  a 
month ;  and  at  the  present  price  of  farms  it  would  take  a  farm  wage 
earner  in  Illinois  35  years  to  work  out  an  average  farm  and  never  spend 
a  cent.  In  Indiana  it  would  take  40  years;  in  Iowa  it  would  take  45 
years.  These  young  men  and  their  sisters  are  leaving  the  country 
for  the  cities.  If  a  young  man  wants  to  buy  a  home  he  must  go  to 
the  banks  or  insurance  companies  for  the  money  and  have  a  goodly 
portion  to  pay  down  before  he  can  negotiate  a  loan.  The  rate  of 
interest  takes  his  profits  and  he  sees  no  way  to  ever  pay  out. 

What  are  the  suggestions  offered  as  a  solution  to  the  problem? 
Taking  lessons  from  the  Old  World  we  have  studied  rural  credit 
systems  to  find  a  remedy.  We  find  the  long-time  loan  for  land 
credit  and  short-time  loans  for  personal  credit  which  are  run  on 
plans  different  from  anything  we  have  in  this  country.  We  also 
find  that  conditions  are  so  different  that  the  most  we  can  do  is  to 
appropriate  the  idea  and  work  out  a  system  of  our  own,  adapted  to 
American  life  and  American  institutions. 

It  depends  upon  what  class  of  people  you  wish  to  reach  as  to 
which  measure  will  appeal  to  you  as  the  best.  Numerous  bills  have 
been  drawn  and  introduced.  I  have  read  several,  but  not  all  of  them. 
So  far  as  I  hav  examined  them  they  have  really  different  motives 
in  view.  The  bill  formulated  by  the  United  States  commission  is  a 
national  land-bank  measure.  If  this  bill  is  to  be  the  basis  of  your  legis- 
lation I  would  suggest  some  important  amendments.  I  would  amend 
it  by  limiting  the  amount  loaned  to  any  one  man.  I  would  also 
limit  the  loans  to  those  living  on  their  own  land.    I  would  restrict 


EUEAL    CREDITS.  245 

loans  to  specific  purposes.  I  Mould  limit  the  amount  of  hire  paid  to 
stockholders  for  the  use  of  capital  to  G  per  cent,  and  this  to  go  only 
to  capital  paid  in. 

I  would  also  provide  for  short-time  loans,  for  open-account  loans, 
and  this  could  be  done  by  providing  that  members  of  these  banks 
should  have  their  mortgages  received  by  the  land  bank  on  condition 
that  it  was  to  be  the  basis  of  a  short-time  loan  rather  than  a  long- 
time loan,  and  they  could  make  arrangements  with  ordinary  com- 
mercial banks,  which  would  secure  money  for  a  short  time,  with  their 
mortgage  in  this  land  bank  as  a  basis.  Now,  you  might  say,  "  Why 
would  that  be  worth  any  more  to  an  individual  mortagee  than  the 
individual  commercial  bank  at  present  ?  "  I  should  say,  in  answer 
to  that,  "  Because  of  the  laws  that  must  be  passed  in  the  various 
States  before  this  land-bank  law  could  take  effect,  you  would 
have  a  system  of  change  of  land  titles,  registrations,  and  exemptions 
that  would  enable  this  farmer  to  render  his  farm  a  liquid  asset  for  a 
short-time  loan,  which  he  can  not  now  do  under  the  various  State 
laws. 

This  bill  is  evidently  drawn  strictly  for  the  benefit  of  landlords 
and  incidentally  by  filtration  to  reach  the  less  fortunate  neighbor. 

Mr.  Bulkley.  Which  bill  is  that? 

Mr.  Brooks.  This  is  the  bill  that  is  framed  by  the  United  States 
commission,  introduced  in  the  House  and  Senate. 

It  simply  places  the  landowner  on  the  same  footing  with  the 
stockholder  in  a  corporation.  He  can  bond  his  assets  and  secure 
money  on  the  most  favorable  terms  that  the  money  market  will 
afford.  But  the  plan  should  not  lend  itself  to  land  speculation.  For 
this  reason  the  loan  should  be  limited  to  the  resident  or  actual  opera- 
tor of  the  farm.  You  must  be  worth  at  least  half  the  value  of  the 
farm  before  you  could  avail  yourself  of  the  privileges  of  this  bill. 

Is  bonding  dangerous? — Quite  a  number  of  people  are  shocked  at 
the  thought  of  making  it  easy  for  one  to  go  in  debt  on  easy  terms, 
and  that,  too,  by  abolishing  exemptions.  Moralize  against  debt  all 
we  will,  it  is  quite  evident  that  those  who  have  succeeded  in  floating 
the  heaviest  debts  have  gathered  the  harvest.  It  all  depends  upon 
the  relation  of  the  cost  of  the  debt  to  the  profits  of  the  business. 

The  farmers  owe  about  $3,000,000,000,  of  which  $2,000,000,000  is 
backed  up  by  mortgages  already.  The  public  debt  of  all  the  nations 
of  the  earth  is  estimated  by  the  Bureau  of  Universal  Statistics  at 
$42,960,000,000. 

From  returns  made  directly  to  the  Wall  Street  Journal  by  the 
various  treasurers  it  is  shown  that  the  governmental  expenditures 
in  all  the  States  have  risen  from  $189,000,000  in  1*901  to  $423,000,000 
in  1911.  At  a  similar  rate  of  increase  the  country  and  municipal 
taxes  rose  from  $912,000,000  in  1901  to  $2,082,000,000  in  1911,  mak- 
ing a  total  for  State  and  local  purposes  of  $2,505,000,000.  Add  to 
this  the  expense  of  the  Federal  Government  of  $650,000,000  and  we 
have  for  yearly  governmental  expenditures  alone  the  stupendous 
sum  of  $3,155,000,000.  Most  all  of  our  big  corporations  and  trusts 
are  heavily  bonded,  or  mortgaged,  or  both.  The  most  prosperous 
farming  district  of  the  United  States  is  heavily  mortgaged.  The 
most  important  agricultural  section  of  the  United  States  is  the  up- 
per Mississippi  Valley.  In  the  States  that  would  be  touched  by  a 
circle  of  500  miles  radius,  with  center  at  Chicago,  is  found  23  billion 


246  RURAL   CREDITS. 

out  of  the  40  billion  dollars  of  all  farm  property  in  1910  and  53  per 
cent  of  all  the  improved  farm  land  in  the  United  States.  These 
States  raise  considerably  over  half  of  the  live  stock  in  the  United 
States  and  $1,800,000,000  out  of  the  $2,700,000,000  worth  of  cereals. 
To  express  this  in  percentages  this  area  contains  57.7  per  cent  of  the 
value  of  all  farm  property,  G0.7  per  cent  of  the  value  of  all  farm 
lands,  51.3  per  cent  of  all  the  cereals  as  measured  by  value.  If 
we  exclude  cotton,  as  confined  to  the  southern  territory  by  climatic 
conditions,  the  overwhelming  predominance  of  this  section  would 
be  even  more  evident.  Nor  is  this  domination  declining  with  the 
development  of  other  sections  of  the  country.  On  the  contrary,  it  is 
growing  greater  with  each  succeeding  census.  This  territory 
gathered  to  itself  GO  per  cent  of  the  value  added  to  farm  property 
during  the  last  decade. 

Eighteen  of  the  leading  insurance  companies  of  the  United  States 
have  loaned  on  farm  mortgages  in  the  various  States  the  sum  of 
$414,000,000.  Of  this  sum  the  State  of  Iowa  has  absorbed  more  than 
one-fourth,  or  25.5  per  cent;  Kansas  is  using  8.8  per  cent;  Nebraska, 
9.9  per  cent;  Missouri,  8.6  per  cent;  Minnesota,  Indiana,  and  Illinois, 
7.1  per  cent  each.  The  farmers  in  these  States  have  been  able  to 
make  more  than  the  interest  charge  on  their  debts.  If  the  bill  pre- 
sented by  the  United  States  commission  were  passed,  perhaps  most 
of  these  mortgages  would  be  shifted  to  the  land  bank.  Then,  the 
insurance  companies  would  invest  in  the  bonds  instead  of  holding 
the  mortgages  direct.  People  who  own  farms  but  have  moved  to 
town,  for  one  reason  or  another,  and  live  on  the  rent  from  the  land, 
would  be  inclined  to  sell  the  land  and  invest  in  land  bonds  rather 
than  see  the  land  depreciate  in  value  because  of  neglect  by  renters. 
But  I  am  solicitous  for  those  whom  this  scheme  would  not  reach. 
Is  there  no  record  in  the  annals  of  history  where  Government  went 
to  the  relief  of  the  lowly?  Can  the  Government  afford  to  set  the 
example  of  doing  such  a  thing? 

I  consider  Mr.  H.  W.  Wolf  the  greatest  living  authorit}'  on  rural 
credit,  and  in  his  address  before  the  American  and  United  States 
commissions  at  Dublin,  in  speaking  of  personal-credit  banks,  said: 

I  do  not  think  the  Government  should  interfere  in  their  work,  and  to  show 
what  State  interference  will  do  I  want  to  tell  you  what  happened  to  a  Prussian 
Raiffeisen  bank  through  State  interference.  In  1895  a  State-endowed  bank  was 
formed  in  Prussia  to  finance  a  cooperative  credit  society.  Up  to  that  time  the 
Raiffeisen  unions  had  been  solvent.  In  1895.  when  this  bank  was  formed,  they 
said,  "No;  we  don't  want  any  assistance;  we  have  money  enough,  and  we  ask  you 
for  nothing."  However,  the  financial  people  brought  pressure  to  bear,  and 
eventually  they  entered  negotiations,  and  consequently  they  rather  overrated  the 
amount  of  money  at  their  command,  and  a  few  years  later  found  themselves 
In  very  serious  difficulties.  They  had  speculated  and  had  some  pretty  hard 
times.  They  got  out  of  it  only  by  rather  heroic  methods,  and  I  do  not  think 
there  will  be  any  losses  in  the  end.  for  the  contributions  of  the  societies  will 
be  repaid.  Now,  that  these  Raiffeisen  institutions  are  free  from  State  aid 
they  are  doing  well  again. 

Go  about  it  privately  and  you  will  find  that  even  the  Imperial  Federation,  in 
Prussia,  which  relies  on  State  advance,  is  heavily  impoverished  with  the  inter- 
ference it  has  to  submit  to.  For  what  the  State  gives  it  asks  about  10  times 
the  amount  in  return.  The  head  of  this  union  complained  to  me  in  1S98.  "  We 
can  not  stand  it  any  longer."  There  followed  rebellion;  and  when  the  State 
wanted  to  tighten  the  strings  the  unions  grew  very  restless  and  said,  "  We  will 
make  ourselves  independent.  We  have  £150.000,  and  we  will  throw  off  this 
Government  yoke."  The  only  banking  aid  they  had  open  to  them  was  the  State 
banks,  so  they  went  to  the  Raiffeisen  Union  to  try  and  make  its  societies  the 


RURAL    CREDITS.  247 

collective  agencies  for  its  own  work,  and  in  return  to  act  as  agent  for  them  and 
cash  their  bills;  but  the  Raiffeisan  societies  would  not  consent  to  this.  Then 
they  went  to  an  ordinary  joint-stock  bank,  one  of  the  largest  in  Germany.  This 
institution  does  not  tie  them  to  exclusive  business ;  and  to  both  parties  this  is 
a  far  more  satisfactory  arrangement.  Even  the  tradesmen  societies,  which  have 
been  favored  in  every  respect,  opeuly  say  they  would  like  to  break  with  the 
State. 

In  France  you  have  seen  the  system  of  the  Credit  Agricole;  there  is  unrest, 
and  the  result  of  the  State  aid  has  not  been  what  they  had  expected.  I  under- 
stand that  you  have  visited  some  of  the  French  banks  where  they  really  have 
accumulated  a  reserve  fund.  That  is  what  State  aid  is  intended  for ;  but  only 
in  one  or  two  districts  has  it  actually  been  done.  A  select  committee  of  the 
French  Chamber  of  Deputies,  reporting  recently  on  credit  to  be  given  to  the 
trading  classes,  points  out  that  in  agricultural  banks  supported  by  the  State 
in  France  the  people  did  not  repay  as  they  should.  The  money  being  advanced 
by  the  State,  according  to  this  report,  some  of  the  people  did  not  expect  to  have 
to  pay  it  back. 

I  hear  the  banking  interests  of  the  United  States  are  distinctly  opposed  to 
the  introduction  of  cooperative  banks,  and  I  think,  if  it  is  so,  that  the  banking 
interests  of  the  United  States  are  very  shortsighted.  Banking  people  20  years 
ago  gave  us  a  lot  of  trouble  in  Ireland  about  savings  banks,  but  now  everywhere 
we  find  among  the  more  intelligent  bankers  a  friendly  feeling  toward  the  coop- 
erative banks.  The  cooperative  banks  come  into  the  field  not  as  competitors 
of  the  commercial  banks  but  as  feeders  for  them.  People  who  want  to  do  bank- 
ing should  go  to  the  cooperative  banks.  In  Italy  it  was  the  cooperative  banks 
that  stimulated  progress  and  brought  banking  up  to  date.  I  do  not  think  there 
Is  any  danger  in  this  country,  or  in  the  United  States,  of  cooperative  banks 
becoming  rivals  of  the  ordinary  commercial  banks. 

But  Mr.  Wolf  is  not  opposed  to  Governments  doing  as  Denmark  is 
doing.  Allow  me  to  quote  from  page  551  of  the  report  of  the  Ameri- 
can commission : 

By  Mr.  Waage.  I  shall  give  you  a  report  of  the  small  farmers'  credit  in  this 
country  under  the  control  of  the  Government  and  aided  by  Government  loans. 
In  1899  the  Government  called  this  system  into  existence — first,  for  a  period 
of  5  years  and  later  renewed  for  5  or  10  years.  The  State  has  put  at  the 
disposal  of  the  people  who  want  to  start  small  farms  some  millions  of  crowns: 
it  started  with  2.000,000,  and  now  it  has  been  increased  to  4,000.000,  per  year 
at  3  per  cent.  The  loaus  the  Government  has  granted  in  this  way  amount  to 
25,000,000  crowns. 

Neither  does  Mr.  Wolf  oppose  the  policy  of  England  in  her  deal- 
ings with  the  Irish  peasants,  in  helping  them  become  home  owners. 
On  page  865  of  the  report  of  the  American  and  United  States  com- 
mission we  find  the  following: 

Some  of  the  facts  elicited  are  as  follows:  The  estates  commission  of  three 
members,  appointed  for  life,  had  its  origin  in  the  Windham  Act  of  1902,  dealing 
with  the  division  and  purchase  of  estates  by  tenants.  Tbis  commisson  now 
bandies  about  £8,000,000  per  year,  all  used  for  the  purchase  and  division  of 
estates. 

These  estates  may  be  purchased  at  a  voluntary  sale  from  the  owners  or 
(within  the  area  of  the  congested  districts  board)  the  sale  may  be  made  on 
compulsion.  At  present  the  sales  are  almost  all  voluntary.  Since  its  inception 
the  estates  commission  has  purchased  and  resold  about  8,000,000  acres,  valued 
at  £90,000,000. 

The  congested  districts  board  is  a  larger  commission,  also  nominated  by  the 
Government,  and  has  for  its  object  the  division  and  sale  of  estates  in  nine 
western  counties  of  Ireland,  where  the  congestion  of  tenants  was  such  that 
ihe  cottager  was  unable  to  make  a  living  on  his  small  parcel  of  ground.  This 
board  has  purchased  land  worth  perhaps  £3,000,000.  of  which  it  has  sold  about 
£100,000  to  date. 

The  procedure  is  about  as  follows:  A  large  estate,  perhaps  entirely  in  pas- 
ture land,  is  put  up  for  sale.  The  officials  appraise  it  with  reference  to  its  pro- 
ductiveness. If  the  price  asked  by  the  owner  is  satisfactory  the  estate  is  pur- 
chased, and  the  owner  paid  in  Government  land,  scrip,  or  stock  bearing  3  per 
cent  interest.     Hitherto  the  voluntary  seller  has  been  given  a  bonus  of  12  per 


248  RURAL    CREDITS. 

cent  of  the  purchase  price,  hut  this  bonus  seems  to  have  been  withdrawn 
recently. 

Estates  sold  under  compulsion  the  Government  must  pay  for  in  cash.  As 
;i  matter  of  fact,  there  are  three  methods  of  paying  for  bind:  («)  in  stock,  the 
usual  and  immediate  payment  method;  (6)  in  cash,  an  option  which  is  rarely 
resorted  to,  since  the  prospective  seller  must  in  this  case  await  his  turn,  for 
cash  sales  are  often  very  long  delayed;  (c)  or  partly  in  cash  and  partly  in  scrip. 

Once  purchased,  the  estate  is  divided  into  tracts  of  25  to  30  acres;  line  walls 
are  built  if  necessary,  a  house  is  constructed  at  a  cost  of  about  £200.  and  the 
place  is  sold  to  a  tenant,  preferably  a  former  tenant  on  the  estate,  sometimes  a 
purchaser  from  some  other  district.  Since  there  are  frequently  25  to  40  appli- 
cants for  each  holding  it  is  not  difficult  to  find  honest,  capable,  industrious 
purchasers.  Very  often  an  estate  is  purchased  by  the  tenants  thereon  by 
mutual  agreement  with  their  former  landlord  as  to  purchase  price.  The  Gov- 
ernment buys  the  estate,  pays  the  landlord  in  stock  or  scrip,  and  sells  it  in 
small  holdings  to  the  tenants  who  thus  become  the  debtors  of  the  State. 

The  small  holder,  who  may  have  no  capital — and  seldom  has  enough  to  stock 
the  holding — pays  at  present  3  per  cent  interest  on  the  purchase  price  and 
one-half  of  1  per  cent  amortization,  or  a  total  of  3§  per  cent,  payable  in  semi- 
annual installments.  This  rate  amortizes  the  debt  in  about  62  years.  The 
purchaser  is  given  a  title  to  the  land,  pays  taxes  on  it,  and  may  transfer  his 
equity  at  any  time  if  he  chooses. 

Out  of  £90,000,000  sold  the  failures  to  pay  the  installments  promptly  have 
been  inconsiderate.  In  the  county  of  Cork  the  defaults  have  been  nil.  In  case 
of  default  or  failure  the  installments  are  paid  out  of  the  county  exchequer, 
hence  the  tendency  to  pay  promptly  is  warmly  applauded  and  the  slow  payer  is 
frowned  upon.     The  results  of  this  system  seem  to  be  excellent. 

We  find  on  page  662  the  following  from  Mr.  Dop,  vice  president 
of  the  International  Institute  of  Agriculture: 

Agricultural  credit  in  France  is  cheap;  and  this,  in  my  opinion,  is  one  of  its 
most  important  features. 

The  problem  of  how  to  discount  agricultural  paper  at  the  lowest  possible 
rate  is  the  real  difficulty  in  any  agrcultural  credit  system.  To  rescue  the 
farmer  from  the  evils  of  mortgage  credit,  often  from  the  bondage  of  usury, 
and  to  secure  him  loans  at  a  lower  rate  of  interest  than  is  usually  required  by 
ordinary  banks  would  seem  to  be  a  difficult  and  even  an  impossible  task.  Yet 
the  problem  has  been  solved  in  France  in  a  most  practical  and  profitable 
manner,  as  the  rate  of  interest  charged  the  farmer  varies  from  2  to  5  per  cent, 
according  to  the  length  of  time  for  which  the  loan  is  made. 

To  organize  agricultural  credit  so  that  it  may  be  adaptable  to  all  the  require- 
ments, to  all  the  needs,  to  all  the  incidents  which  may  arise  in  the  complex 
business  of  the  farming  industry  is  an  ideal  which  it  would  seem  difficult  to 
attain  without  derogating  from  basic  principles  and  without  weakening  the 
very  foundations  on  which  the  edifice  of  rural  wealth  reposes.  Yet  this  seeming 
impossibility  has  been  rendered  possible,  thanks  to  the  good  will  and  the  ability 
of  our  legislators  and  thanks  more  especially  to  the  suppleness  of  the  organiza- 
tion which  they  have  built  up  to  meet  the  varied  needs  of  our  farmers. 

If  Monarchies  and  Republics  in  other  parts  of  the  world  can  step 
down  from  their  lofty  perch  and  do  these  things,  and  we  can  not, 
which  do  you  suppose  will  appeal  to  the  people  of  this  class  as  the 
better  government  for  them?  It  is  not  philanthropy;  it  is  not 
charity ;  it  is  not  giving  anything  to  anybody ;  it  is  statesmanship. 

However,  we  all  know  that  to  go  into  recldess  loans  loosely  ad- 
ministered would  result  in  a  calamity.  We  should  not  develop  a 
hothouse  nursery  for  the  incapable,  neither  should  we  ignore  and 
neglect  so  important  a  part  of  our  population  as  those  who  produce 
half  the  food  and  the  raw  material  for  the  raiment  that  is  produced 
in  the  United  States.  Every  other  bite  you  eat  comes  from  the 
bounty  of  their  hands;  every  other  article  of  raiment  you  use  comes 
by  the  sweat  of  their  brows. 


RURAL    CREDITS.  249 

Need  of  laborers. — If  some  one  should  say  that  Ave  would  have 
no  laborers  if  they  were  allowed  to  own  land  of  their  own,  I  will 
say  that  when  I  hear  of  the  dearth  of  labor  I  rejoice;  for  I  know  that 
means  that  all  who  are  worthy  are  employed.  But  when  I  hear  of 
millions  out  of  work  I  am  alarmed.  I  know  there  is  wretchedness 
and  danger.  Old  Rome  used  to  try  to  solve  the  unemployed  prob- 
lem by  using  them  in  the  cities  on  public  works  and  private  extrava- 
gance, with  feasts  and  amusements  thrown  in.  We  all  know  how 
much  of  a  remedy  that  was. 

I  wonder  if  any  of  you  surmise  that  patriotism  is  dying  from 
the  disinherited,  the  submerged,  within  the  confines  of  this  Govern- 
ment? How  could  it  be  otherwise?  Revolutions  are  landmarks  of 
bad  statesmanship. 

Source  of  funds. — If  the  Government  should  advance  money,  how 
should  it  be  obtained  ?  That  depends  upon  whether  we  have  sufficient 
money  to  answer  the  demands  or  not.  It  can  be  secured  by  deposits 
from  the  Treasury,  by  selling  bonds,  or  by  the  issue  of  Treasury  notes 
in  like  manner  as  is  provided  under  the  new  banking  and  currency 
act  which  is  to  answer  the  needs  of  purely  commercial  business. 

Class  legislation. — We  expect  the  charge  of  class  legislation  is 
to  be  presented.  It  all  depends  on  what  we  define  as  class  legisla- 
tion. If  it  means  legislation  that  is  for  one  class  at  the  expense 
or  to  the  injury  of  another,  then  this  is  not  class  legislation.  If 
class  legislation  means  legislation  that  favors  one  class  without 
injury  to  another,  this  is  class  legislation.  If  class  legislation  means 
legislation  that  benefits  one  class  with  indirect  benefits  to  another, 
then  it  is  class  legislation.  I  wonder  how  many  laws  are  on  the 
statute  books  that  do  not  come  under  the  head  of  class  legislation 
under  such  constructions. 

(A  recess  was  taken  until  2  o'clock  p.  m.) 

AFTER    RECESS. 

The  committee  met  at  2  o'clock  p.  m.,  Hon.  Robert  J.  Bulkley 
presiding. 

Senator  Hollis.  Mr.  Brooks,  you  were  cut  off  this  morning.  If 
there  were  any  other  observations  you  would  like  to  make,  we  would 
be  glad  to  hear  you. 

STATEMENT  OF  PROF.  T.  J.  BROOKS— Continued. 

Mr.  Brooks.  Mr.  Chairman,  I  really  was  through  with  my  main 
statement,  but  I  would  like  to  submit  a  report  which  was  adopted 
at  the  last  national  convention  of  the  Farmers'  Union  on  this  point, 
and  let  it  go  into  the  record  on  the  question  of  long-time  land  loans. 
It  is  as  follows : 

We  could  have  a  system  whereby  the  Government  would  provide  a  sum  of 
money  to  be  loaned  at  the  same  rate  of  interest  that  the  Government  pays  on 
its  bonds,  plus  a  fraction  of  a  per  cent  to  cover  cost  of  administration.  This 
fund  to  be  made  available  for  the  purchase  of  land  by  the  homeless  on  the 
amortization  basis,  to  be  furnished  through  rural  banks  organized  for  the 
purpose  under  laws  providing  for  the  same;  no  man  allowed  to  utilize  it  for  the 
purpose  of  purchase  of  land  who  has  at  present  more  than  a  specified  number  of 
acres.  This  would  put  at  the  service  of  the  homeless  a  fund  of  money  at  a 
rate  below  the  net  increase  possible  to  produce  from  the  farm.     At  present 


250  EUEAL    CREDITS. 

loans  mii  real  estate  en  I  up  all  not  profits  and  make  11  almost  impossible  for  the 
purchaser  to  liquidate  his  debts,  principal,  and  interest  in  the  length  of  time 
that  is  allowed  for  such  loans. 

In  the  ease  of  the  landowner  who  wishes  to  borrow  money  for  the  better 
equipment  of  his  farm,  this  could  be  provided  for  by  the  Landschaften  system 
of  pooling  of  land  and  issues  debentures  based  on  the  collective  guaranty.  This 
would  place  a  landowner  on  equal  footing  with  all  the  great  corporations 
which  utilize  the  sale  of  bonds  as  a  means  of  securing  capital. 

SHORT-TIM  K    I  OANS. 

The  advantages  to  the  fanner  of  the  open  account  has  been  demonstrated  by 
the  rural  credit  systems  of  the  Old  World.  The  American  farmer  has  never 
had  the  privilege  of  the  open  account.  He  should  be  allowed  to  comply  with 
the  requirements  of  securing  the  privilege  of  borrowing  on  daily  balances  at 
a  fraction  of  a  per  cent  above  the  rates  allowed  on  deposits.  If  he  does  not 
choose  to  avail  himself  of  the  privilege,  he  is  not  obliged  to,  but  it  is  manifestly 
unjust  and  unfair  not  to  give  the  American  farmer  the  same  privilege  that  is 
granted  the  commercial  world.  The  excess  of  interest  that  is  paid  by  farmers 
over  commercial  men  is  enormous,  and  forces  them  in  many  instances  to  run 
store  accounts,  buy  on  credit  from  year  to  year,  pay  a  premium  for  this 
credit,  and  thereby  submit  to  an  enormous  tax,  which  is  a  continuous  drain 
upon  the  borrowing  element  of  the  agricultural  class.  Where  the  advantage  of 
rural  credits  is  provided  the  farmer  with  unimpeachable  character  can  secure 
money  for  his  necessities  at  a  fraction  of  a  per  cent  above  the  rate  allowed  on 
deposits.  This  enables  him  to  pay  cash  for  his  purchases  and  eliminate  the 
credit  system. 

This  system  of  banking  could  be  provided  either  by  State  or  National 
legislation.  Three  States  have  already  passed  laws  providing  for  such  system 
of  rural  banking,  namely,  Massachusetts,  Texas,  and  New  York.  In  order 
to  provide  an  adequate  system  of  rediscounting  necessary  for  the  operation 
of  rural  credit  banking  it  needs  to  be  national  in  scope.  For  this  reason  a 
national  law  governing  such  system  of  banking  we  think,  would  be  necessary. 
Under  this  law  could  be  established  a  system  that  would  coordinate  the  rural 
banks  of  the  whole  country  under  one  system  of  rediscounting. 

Mr.  Platt.  Is  that  your  statement? 

Mr.  Brooks.  It  is  a  copy  of  extracts  from  the  minutes  of  the  last 
national  meeting  of  the  Farmers'  Union,  at  Salina,  Kans..  last  Sep- 
tember, which  I  simply  submit  to  go  into  the  record. 

Senator  Hollis.  That  will  be  made  a  part  of  the  record. 

Mr.  Brooks.  As  to  the  uses  to  be  made  of  these  credit  systems,  I 
would  like  to  quote  a  paragraph  from  Mr.  David  Lubin: 

The  farmers  could  then  form  another  cooperative  association,  another  cor- 
poration, their  own  cooperative  bank,  in  which  they  could  deposit  the  money  ob- 
tained by  the  sale  of  Landschaft  bonds.  This  bank  could  in  turn  first  give  the 
farmers  the  open  account,  which  would  enable  them  to  do  business  for  cash: 
it  could,  secondly  furnish  the  money  for  the  cooperative  distribution  of  the 
products  of  the  farm.  All  this  would  it  make  possible  for  the  farmers  to  form 
the  third  and  last  cooperative  group  or  corporation  for  the  collective  purchase 
of  requirements  and  the  collective  distribution  of  their  products.  There  would 
thus  be  three  distinct  cooperative  groups,  three  corporations.  First,  the  Land- 
schaft; second,  the  cooperative  bank:  third,  the  cooperative  purchasing  and 
distributing  association.  The  safeguarding  proposal  by  the  State  and  Nation 
would  only  refer  to  the  Landschaft  and  not  to  the  other  two. 

As  I  spoke  of  the  different  purposes  involved  at  the  beginning  I 
read  that  as  testimony  of  the  uses  that  would  be  made  of  these 
different  systems  in  case  the  farmers  are  allowed  to  organize  ap- 
propriate banks,  land  banks,  and  by  securing  capital  through  these 
banks  they  can  organize  their  cooperative  selling  associations,  and 
thereby  perform  the  carrying  function  which  is  now  carried  by  mid- 
dlemen and  speculators,  or  merchants,  whatever  you  choose  to  call 
them,  who  buy  the  crops  of  the  farmer  and  carry  them  until  they 


EUEAL    CREDITS.  251 

are  needed  by  the  consumer,  pay  the  insurance,  storage,  and  interest 
on  money  which  they  have  invested,  etc.  Of  course,  the  consumer 
has  finally  to  pay  it  all. 

You  take  the  cotton  crop  of  the  South.  It  is  gathered  and  mar- 
keted, most  of  it,  in  two  months,  and  the  farmer  can  not  perform  the 
carrying  function.  He  must  sell  it  because  he  owes  debts,  and  he  is 
not  financially  able  to  carry  it  until  the  mills  need  it  and  by  being 
allowed  to  finance  his  own  operations  he  could  become  his  own  dis- 
tributor, and  not  in  any  sense  of  the  word  form  a  trust  or  monopoly 
or  combination  to  influence  prices,  but  to  keep  from  flooding  the 
market  faster  than  the  consumption  demands  it.  There  has  never 
been  a  time  when  the  farmer  did  not  sell  faster  than  the  consumer 
would  consume  the  staple  products,  so  that  he  needs  to  have  a  system 
that  will  enable  him  to  finance  his  selling  organization,  just  as  is 
done  by  the  large  manufacturers.  The  International  Harvester  Co. 
does  not  have  to  auction  its  stuff  off.  It  has  agents  that  solicit  and 
sell  their  products  throughout  the  world  at  their  own  prices  and  they 
can  finance  themselves.  But  there  never  can  be  a  time  when  the 
farmer,  as  a  class,  can  form  and  operate  a  trust  as  is  done  by  the  big 
industries,  organized  and  operated  by  what  we  call  captains  of  in- 
dustry, for  this  reason :  To  form  a  trust  you  have  to  have  control  of 
the  supply.  The  farmer  produces  the  supply,  but  he  does  not  con- 
trol it.  He  does  not  control  the  amount  that  is  to  be  produced. 
There  is  no  way  for  him  to  dictate  to  any  member  of  the  farming 
class  how  much  he  shall  plant  of  anything  or  how  much  of  anything 
he  shall  produce.  He  has  got  to  take  that  just  as  it  comes  from  each 
individual's  efforts,  and  then  he  has  got  to  market  it  within  a  year, 
because  another  crop  will  come  along  and  force  him  to  do  it.  So 
he  can  not  form  a  trust,  as  could  be  done  by  a  concern  that  regulated 
the  output  and  dictated  the  amount  that  is  to  be  produced.  So  I 
think  we  would  not  need  to  have  any  fear  that  it  would  lead  to  his 
becoming  an  oppressive  dictator  in  prices,  because  you  give  him  the 
right  and  privilege  under  these  systems  to  do  his  own  financing. 

Mr.  Bulkley.  Mr.  Brooks,  I  understand  that  you  do  not  think 
that  it  would  be  of  benefit  to  the  country  to  increase  the  price  of 
farm  lands  generally? 

Mr.  Brooks.  Well,  I  do  not  suppose  that  these  measures  that  you 
have  under  discussion  could  really  contemplate  what  the  effect  on 
farm  lands  might  be,  because  that  is  incidental.  I  do  not  consider 
that  it  will  change  the  value  of  farm  lands  in  a  great  many  places. 
In  some  few  places  it  might. 

Mr.  Bulkley.  You  said  something  this  morning  about  the  bill 
being  drawn  in  the  interest  of  the  landlords.  Was  not  that  what 
you  meant? 

Mr.  Brooks.  No  :  I  meant  that  it  could  be  used  only  by  those  who 
own  the  land. 

Mr.  Bulkley.  As  a  matter  of  fact,  if  you  did  reduce  the  interest 
rates  generally  on  land-mortgage  security,  would  not  that  tend  to 
increase  the  prices  of  land? 

Mr.  Brooks.  Where  land  was  exceptionally  productive  it  might 
have  that  influence;  but  the  most  of  this  money  would  be  used  to 
increase  production  and  not  to  buy  land  for  speculative  purposes. 

Mr.  Bulkley.  Do  you  mean  that  to  be  a  suggestion  that  we  make 
such  restrictions? 


252  RURAL    CREDITS. 

Mr.  Brooks.  Oh,  it  needs  to  be  in  the  bill,  so  that  it  could  not  be 
used  for  speculative  purposes. 

Mr.  Bulklet.  You  would  favor  putting  such  a  restriction  in  this 
bill? 

Mr.  Brooks.  Yes,  sir.  Land  speculation  does  not  produce  any- 
thing, and  it  does  not  do  anybody  any  good,  except  the  man  who  gets 
the  money.    That  does  not  do  society,  as  a  whole,  any  good. 

Mr.  Bulkley.  So  that  you  would  favor  limiting  the  purposes  for 
which  these  funds  could  be  loaned.    What  would  you  limit  it  to  ? 

Mr.  Brooks.  I  would  not  want  to  risk  naming  all  of  them  just  off- 
hand; it  might  be  reached  by  specifying  what  purposes  it  could  be 
used  for  or  by  a  process  of  elimination,  that  certain  things  it  could 
not  be  used  for.  In  European  countries  the  limitation  is  not  placed 
upon  loans  secured  by  land  mortgages,  but  they  are  on  all  personal- 
credit  loans  through  the  cooperative  banks.  The  rural  credit  banks 
require  the  borrower  to  state  what  he  is  going  to  do  with  it,  and  if 
he  does  not  he  eliminates  himself  as  a  borrower. 

Mr.  Bulkley.  That  is  on  the  short-time  loans? 

Mr.  Brooks.  That  is  on  short-time  loans;  yes. 

Mr.  Bulkley.  But  in  the  long-time  loans — how  about  that? 

Mr.  Brooks.  No  ;  they  do  not  have  it  for  the  long-time  loans. 

Mr.  Bulkley.  You  would  favor  putting  a  limitation  on  the  long- 
time loans,  would  you  not? 

Mr.  Brooks.  Yes,  sir. 

Mr.  Bulkley.  The  Moss  bill  proposes  that  the  purposes  shall  be 
limited  to  completing  the  payment  of  the  purchase  price  of  the  land 
or  to  pay  preexisting  debt  or  to  improve  the  land  that  is  mortgaged. 

Mr.  Brooks.  I  understand  some  of  those  have  been  put  in  the  bill 
since  it  was  first  drafted. 

Mr.  Bulkley.  That  is  true.  Are  those  good  limitations,  in  your 
judgment? 

Mr.  Brooks.  They  may  be  a  little  too  restrictive.  There  are  other 
things  that  the  money  ought  to  be  allowed  to  be  used  for,  I  think. 

Mr.  Bulkley.  What  else  do  you  have  in  mind  ? 

Mr.  Brooks.  A  man  often  needs  to  stock  his  place,  to  go  into  the 
cattle  business,  and  he  needs  equipment  that  he  perhaps  could  not 
get  unless  he  could  get  it  by  this  method,  and  that  will  require  him 
to  develop  that  kind  of  business,  and  if  we  restricted  him  during  the 
whole  time  of  the  loan,  reaching  35  years,  he  could  not  directly  use 
it  that  way.  He  would  have  to  circumvent  it  by  different  invest- 
ments if  he  used  it  for  that  purpose. 

Mr.  Bulkley.  Do  you  think  that  a  man  ought  to  be  allowed  to 
borrow  on  long  time,  say,  35  years,  for  the  purpose  of  buying  equip- 
ment which  is  perishable? 

Mr.  Brooks.  It  would  not  be  necessary  for  him  to  borrow  for  that 
length  of  time,  but  he  could  borrow  it  for  that  length  of  time  and 
pay  it  back  earlier. 

Mr.  Bulkley.  He  could,  but  the  question  is,  What  shall  we  allow 
him  to  do.    That  would  be  voluntary. 

Mr.  Brooks.  Well,  if  you  have  a  short-time-loan  provision  in  con- 
nection with  that,  then  that  ought  to  come  in.  When  you  have  a 
short-time  provision  in  it,  it  ought  to  come  in  under  that  head. 


RURAL    CREDITS.  253 

Mr.  Bulkley.  I  think  that  is  true.  What  do  you  think  of  the 
estimates  made  by  Mr.  Scudder  this  morning  about  the  expenses  of 
these  little  local  banks  proposed  by  the  Moss  bill  ? 

Mr.  Brooks.  I  think  he  had  his  expenses  too  high. 

Mr.  Bulkley.  How  would  you  estimate  it? 

Mr.  Brooks.  You  would  find  that  it  varied  so  much  that  you  could 
not  get  a  standard.  In  some  places  it  might  be,  and  I  believe  it  would 
be,  possible  to  get  men  to  attend  to  that  for  what  would  be  almost 
nothing.  In  other  places  they  would  be  compelled  to  pay  prices 
commensurate  with  the  same  kind  of  work  of  another  kind  of  busi- 
ness. If  it  was  located  in  a  considerable  sized  town,  you  would  have 
to  pay  more  than  in  the  strictly  rural  districts.  Of  course,  we  could 
not  expect  it  to  be  carried  on  in  such  districts  as  cheaply  as  you  could 
in  a  district  where  some  public-spirited  men  might  be  found  who 
would  not  charge  anything. 

Mr.  Bulkley.  Would  you  expect  that  to  be  done  in  this  country  I 

Mr.  Brooks.  No,  sir ;  I  would  not  expect  it. 

Senator  Hollis.  In  New  England  the  mutual  savings  banks  are 
very  large  institutions.  I  think  that  is  the  plan  the  one  I  am  con- 
nected with  is  run  on.  The  president,  who  usually  has  knowledge 
about  investments,  is  paid  a  rather  moderate  salary.  The  treasurer, 
who  actually  has  the  handling  of  the  funds  and  looks  after  the  book- 
keeping, etc.,  has  a  fair  salary.  The  trustees  who  are  really  the  direc- 
tors of  the  enterprise  and  meet,  say,  once  a  month,  get  practically 
nothing.  It  may  be  that  they  get  $1  or  $2  for  attending  a  monthly 
meeting.  These  trustees  do  that  just  as  they  would  serve  on  a  school 
board  or  any  other  position  of  honor  in  the  community,  and  they  con- 
sider it  quite  an  honor  to  be  elected  to  be  a  trustee  of  one  of  these 
mutual  savings  banks.  And  so  I  say  that  that  sort  of  superinten- 
dence is  given  for  that  institution.  Should  you  not  expect  to  find 
that  sort  of  feeling  in  every  rural  community  to  a  certain  degree? 

Mr.  Brooks.  In  most  communities  you  would  find  it,  at  least  in 
some  degree.  I  know  of  quite  a  lot  of  what  you  might  call  country 
banks  that  the  president  does  not  draw  a  cent  of  salary.  He  is  very 
often  a  farmer  who  lives  out  in  the  country,  and  he  is  pretty  well 
fixed  and  has  money  on  deposit,  and  just  to  get  his  influence  he  is 
made  president— he  does  not  know  anything  about  the  business  of 
banking.  He  gets  no  salary,  but  attends  the  meetings.  But  the 
banker,  who  is  sometimes  the  cashier  and  bookkeeper  and  all-purpose 
man  and  does  all  the  work  of  the  bank,  is  paid  a  salary  for  his  time. 

Mr.  Bulkley.  Of  course,  the  president  does  not  spend  much  time 
on  it? 

Mr.  Brooks.  No,  sir;  except  to  seeing  whether  or  not  these  farms 
are  being  properly  cared  for.  There  would  not  be  so  much  work  to 
attend  to  as  in  a  land  bank. 

Mr.  Bulkley.  How  much  do  you  think  you  would  have  to  pay  the 
right  sort  of  man  to  do  the  active  work  of  directing  the  affairs  of 
one  of  those  little  banks  ? 

Mr.  Brooks.  As  I  said,  it  would  vary  so  that  it  would  be  impossible 
to  fix  a  standard.    Some  places  vou  would  get  him  for  $100. 

Mr.  Bulkley.  Is  that  $100  a  year? 

Mr.  Brooks.  Yes.  And  some  places  you  would  have  to  pay  $1,000 
because  of  larger  business  and  more  expensive  location. 

Mr.  Bulkley.  Would  you  have  to  pay  as  high  as  $1,000  '. 


254  RURAL    CREDITS. 

Mr.  Brooks.  Some  places  you  could  not  get  a  man  to  do  it  unless 
you  paid  him  as  much  as  he  could  make  in  that  same  length  of  time 
in  another  business.  He  hasn't  any  interest  there,  when  there  is  no 
public-spirited  man  in  the  community — and  there  are  communities 
with  no  such  man  in  it. 

Mr.  Bulklet.  Do  you  agree  with  Mr.  Scudder's  idea  that  each  loan 
ought  to  be  inspected  once  a  year? 

Mr.  Brooks.  It  ought  to  be  inspected,  in  most  cases  I  would  say, 
once  a  year.  If  you  had  a  man  who  was  thoroughly  acquainted  with 
all  the  community  where  the  bank  operated,  that  need  not  be  neces- 
sary. In  some  communities  there  is  a  man  who  deals  in  cattle,  who 
drives  all  over  the  country,  or  he  may  be  the  constable,  or  something 
of  that  kind;  he  could  do  this  work,  and  he  would  know  the  condi- 
tion of  everybody's  farm  and  has  known  it  for  years.  He  could  at- 
tend to  it  without  hardly  any  trouble,  incidental  to  his  other  duties. 
Mr.  Seldomridge.  Would  you  require  a  man  who  had  made  a  loan 
with  one  of  these  banks  to  file  a  report  each  year  as  to  his  output? 

Mr.  Brooks.  That  is  a  detail  that  I  had  not  deliberated  on  much. 
I  do  not  know  that  that  would  be  a  mistake. 

Mr.  Seldomridge.  I  want  to  ask  you  another  question.  In  youi 
statement  to  the  committee  in  reference  to  the  farming  conditions  in 
thet  Yazoo  cotton  district  of  Mississippi,  was  that  the  district  you 
mentioned  ? 

Mr.  Brooks.  Yes,  sir. 

Mr.  Seldomridge.  Is  land  there  largely  occupied  by  tenants? 
Mr.  Brooks.  Yes,  sir. 

Mr.  Seldomridge.  Are  they  mostly  negroes? 
Mr.  Brooks.  Yes,  sir. 

Mr.   Seldomridge.  Are  they  of  that  class  described  here  in  the 
early  stages  of  the  hearings  who  were,  in  a  certain  sense,  under  con- 
tract with  the  storekeepers,  or  do  they  mortgage  themselves  from  one 
year's  end  to  the  other  with  the  stores? 
Mr.  Brooks.  A  great  many  of  them  do. 

Mr.  Seldomridge.  What  rate  of  interest  do  they  pay  for  that  ac- 
commodation? 

Mr.  Brooks.  Well,  I  could  not  state  definitely,  for,  while  I  do  not 
live  in  the  Delta,  those  storekeepers  that  run  those  accounts  some- 
times take  enormous  profits,  as  I  know. 

Mr.  Seldomridge.  We  know  that.  That  was  brought  out  in  the 
hearing,  but  I  did  not  know  but  what  maybe  you  were  familiar 
with  it. 

Mr.  Brooks.  No;  I  could  not  give  you  exact  data  any  more  than 
in  a  general  way. 

MrT  Seldomridge.  What  is  the  prevailing  rate  of  interest  on  what 
von  might  call  short-time  or  chattel  loans  in  that  section? 

Mr.  Brooks.  Two  years  ago  the  State  passed  a  law  making  6  per 
cent  the  legal  rate  and  exempting  all  accounts  that  ran  at  a  rate 
below  that  "from  taxes,  and  I  do  not  know  just  what  effect  that  has 
had.  generally  speaking,  on  the  price  of  money. 

Mr.  Seldomridge.  What  is  the  average-sized  farm  or  plantation? 
Mr.  Brooks.  Do  you  mean  in  the  Delta  ? 

Mr.  Seldomridge.  In  the  Delta,  yes;  where  these  conditions  exist? 
Mr.    Brooks.  I   have   not   the   figures   to  show   how   much   they 
average. 


RURAL   CREDITS.  255 

Mr.  Seldomridge.  How  much  is  given  to  a  tenant  to  cultivate — the 
average  number  of  acres? 

Mr.  Brooks.  It  would  depend  upon  what  kind  of  crop  he  is  going 
to  raise. 

Mr.  Seldomridge.  Cotton,  for  instance. 

Mr.  Brooks.  If  he  raises  nothing  but  cotton,  you  mean? 

Mr.  Seldomridge.  Yes. 

Mr.  Brooks.  That  varies;  I  would  say,  oh,  from  12  to  18  acres,  one 
hand.  If  he  has  machinery  he  could  use  that  to  advantage  and  could 
cultivate  some  more  land. 

Mr.  Seldomridge.  What  has  been  the  success  of  the  small  farmers 
that  have  engaged  in  cotton  raising;  are  they  gradually  merging 
into  better  conditions  or  have  they  been  retrograding  ? 

Mr.  Brooks.  Take  the  State  as  a  whole ;  it  has  been  going  down,  be- 
cause it  has  been  aggravated  in  the  last  few  years  by  the  boll  weevil, 
and  southern  Mississippi  farmers  are  in  very  bad  shape. 

Mr.  Seldomridge.  What  is  the  cotton  land  worth? 

Mr.  Brooks.  From  $10  to  $45  an  acre.  Of  course,  some  of  the 
Delta  costs  considerably  more  than  that, 

Mr.  Seldomridge.  Is  it  easy  to  secure  loans  on  that  land  ? 

Mr.  Brooks.  No,  sir;  the  banks  do  not  like  to  loan. 

Mr.  Seldomridge.  I  beg  your  pardon  ? 

Mr.  Brooks.  The  banks  do  not  like  to  make  long-time  loans. 

Mr.  Seldomridge.  Will  they  loan  on  short  time? 

Mr.  Brooks.  They  do  not  absolutely  refuse.  There  is  some  of  it 
done ;  but  they  do  not  court  it. 

Mr.  Seldomridge,  How  do  the  men  operate ;  where  do  they  get 
the  money  on  land  in  Mississippi  in  the  cotton  belt  ? 

Mr.  Brooks.  A  great  many  of  those  big  Delta  farmers  go  to  Mem- 
phis, make  a  contract  with  some  wholesale  supply  house  to  furnish 
them  with  what  they  will  need  during  the  year — to  furnish  their 
hands,  croppers,  tenants,  and  hired  hands — and  they  pledge  their 
crop  to  some  cotton  commission  man  there  to  get  these  lonas,  and  the 
cotton  has  to  be  delivered  to  the  cotton  man,  and  he  has  no  more  to 
say  about  who  is  to  get  that  cotton  than  somebody  that  did  not  raise 
it.    They  carry  enormous  amounts  in  that  way. 

Mr.  Seldomridge.  Are  there  many  banks  in  the  smaller  towns? 

Mr.  Brooks.  In  Mississippi  ? 

Mr.  Seldomridge.  Yes. 

Mr.  Brooks.  Oh,  yes;  we  have,  I  suppose,  a  due  per  cent  of  small 
banks. 

Mr.  Seldomridge.  Do  you  think  that  the  provisions  of  this  bill 
would  be  of  particular  benefit  in  the  particular  section  that  you  have 
been  describing? 

Mr.  Brooks.  Well,  the  general  principles  involved  in  this  bill  will 
be  the  same  benefit  to  the  farmers  in  that  country  as  they  would  any- 
where else,  I  suppose.  The  landowner  would  get  the  benefit  from  it. 
The  men  that  did  not  own  land  could  not  get  the  benefit,  and  I  guess 
most  of  the  people  in  the  State  do  not  own  the  land. 

Mr.  Seldomridge.  A  man  to  become  a  borrower  under  this  bill  has 
got  to  have  the  land  first? 

Mr.  Brooks.  He  has  got  to  have  the  land  or  the  equivalent,  He 
has  got  to  have  at  least  half  the  value  of  the  land  before  he  can  mort- 
gage it  for  the  other  half. 


256  EUEAL    CREDITS. 

Mr.  Bulkley.  I  do  not  quite  understand  how  it  would  be  possible 
to  have  a  land-mortgage  system  without  the  mortgagor  owning  some 
of  the  land  or  being  in  the  way  to  own  some  of  the  land. 

Mr.  Brooks.  You  could  not.  All  I  said  on  that  other  proposition 
was  to  this  effect,  that  there  are  places  where  the  man  who  has  no 
money  or  land  is  helped  to  be  a  home  owner  by  the  Government  pur- 
chasing the  land  and  then  letting  him  buy  it  from  the  Government, 
like  it  was  originally  public  domain.  We  have  had  millions  of  acres 
of  public  domain  in  the  United  States  and  sold  it  to  actual  settlers 
and  handled  it  without  any  public  scenes  or  scandal  or  any  mishaps, 
and  it  could  be  done  again. 

Mr.  Seldomridge.  Could  he  not  buy  it  from  anybody  else? 

Mr.  Brooks.  He  has  got  no  way  of  buying  it,  because  he  has  no 
money,  no  credit;  that  is  to  say,  he  has  got  no  money  to  pay  down, 
and  he  can  not  buy  it  unless  he  can  make  a  part  payment  of  a  sum 
that  would  make  the  seller  safe  in  delivering  it  over  to  him. 

Mr.  Bulkley.  Then  the  Government  would  be  practically  loaning 
him  the  full  value  of  the  land  at  the  outset,  according  to  your  theory? 

Mr.  Brooks.  Yes,  sir.  The  Government  does  that  in  Denmark, 
but  it  does  not  allow  him  to  buy  unless  he  has  been  a  farmer  for  at 
least  four  years  previous.  In  Ireland  the  Government  buys  the  land 
outright  and  sells  it  to  the  tenant,  and  half  of  the  area  of  Ireland 
has  been  bought  under  that  law. 

Mr.  Platt.  In  Ireland  these  men  that  are  buying  that  land  have 
been  living  on  the  identical  land  for  centuries. 

Mr.  Brooks.  They  are  farmers,  and  it  would  have  to  be  limited 
to  farmers. 

Mr.  Seldomridge.  Have  you  made  any  calculation  as  to  how  much 
money  the  Government  would  have  to  advance  in  order  to  carry  out 
that  idea  ? 

Mr.  Brooks.  No  ;  because  you  would  not  know  yourself,  and  no- 
body would  know  just  Iioav  much  would  be  called  for,  because  we 
would  have  to  have  certain  requirements,  and  I  do  not  know  how 
many  would  meet  them. 

Mr.  Seldomridge.  You  would  either  have  to  provide  for  it  by  the 
issuance  of  bonds  or  the  issuance  of  Treasury  notes. 

Mr.  Brooks.  Yes,  sir. 

Mr.  Seldomridge.  Both  of  which  would  be  a  credit  obligation  of 
the  Government. 

Mr.  Brooks.  Just  as  your  currency  contemplated  under  the  new 
law  is  a  credit  obligation  of  the  Government,  which  is  for  the  service 
of  commerce. 

Mr.  Seldomkidge.  It  has  back  of  it.  however,  a  certain  reserve  of 
gold. 

Mr.  Bulkley.  Is  there  not  a  very  great  distinction  there,  Mr. 
Brooks?  The  security  required  in  the  currency  law  is  140  per  cent 
of  the  currency  issue.  You  arc  proposing  that  we  sell  them  the  land 
without  any  security. 

Mr.  Brooks.  The  question  resolves  itself  to  this:  The  bill  which 
you  have  been  considering  contemplates  helping  the  man  who  is  least 
in  need  of  help  among  the  agricultural  class.  T  say  that  that  would 
result  iu  good  both  to  him  and  to  the  man  who  is  most  in  need  of 
help,  indirectly:  but  T  still  say  that,  as  statesmen,  you  have  got  this 
problem  face  to  face  with  you  to  deal  with,  either  to  ignore  it  or  to 


KUEAL    CEEDITS.  257 

do  something  with,  that  half  of  the  people  who  produce  the  wealth 
of  this  country  from  the  farm  are  not  in  position  to  utilize  the  ad- 
vantages of  this  measure. 

Mr.  Seldomridge.  Are  we  not  helping  the  farmer,  who  has  shown 
by  his  thrift  and  industry  and  intelligence,  making  a  success  of  his 
work,  has  shown  by  his  efforts  that  he  is  worthy  of  this  confidence  ? 

Mr.  Brooks.  If  that  had  been  the  only  farmer  that  Denmark  had 
in  consideration,  they  would  never  have  enacted  the  laws  they  did 
for  the  fellow  that  did  not  have  that  confidence,  and  it  would  not  have 
been  worth  anything  to  the  Irish  peasant  if  they  had  not  gone  further 
than  that. 

Mr.  Seldomridge.  I  think  we  are  dealing  with  a  different  type  of 
people  in  this  country. 

Mr.  Brooks.  We  are  a  different  type  of  people  only  in  one  sense ;  we 
are  the  same  race,  the  same  blood,  the  same  kind  of  folks  by  descent, 
and  a  peasant  is  a  peasant,  whether  he  lives  in  the  United  States  or 
Great  Britain  or  France  or  any  other  place. 

Mr.  Platt.  I  do  not  quite  agree  with  you  on  that. 
Mr.  Brooks.  Financially,  he  is. 
Mr.  Platt.  I  think  they  are  very  different. 

Mr.  Bulkley.  Let  me  see  how  far  you  would  carry  this.  Suppose 
a  man  had  served  an  apprenticeship  of  three  or  four  years  as  a  black- 
smith. Would  you  favor  the  Government  buying  him  a  blacksmith 
shop  and  setting  him  up  in  business? 

Mr.  Brooks.  If  there  is  not  anything  in  this  beyond  the  helping  of 
a  class,  there  is  no  need  for  any  legislation. 

Mr.  Bulkley.  That  is  what  I  am  trying  to  find  out. 
Mr.  Brooks.  Unless  this  applies  to  a  condition  that  concerns  every 
class,  you  are  not  justified  in  taking  it  up.  If  civilization  is  at  stake, 
I  think  this  kind  of  legislation  is  needed.  It  is  not  because  the 
farmer  as  a  class  deserves  any  special  laws;  it  is  not  because  he  as  an 
individual  is  any  more  worthy  of  legislation  at  your  hands  than  any 
other  class ;  it  is  not  because  he  has  any  more  influence,  is  any  more 
important  as  a  private  citizen,  but  when  you  allow  agriculture  to  go 
down  it  takes  all  others  with  it,  and  everybody's  welfare  is  at  stake, 
the  welfare  of  the  Republic  is  at  stake,  and  the  perpetuity  of  free 
institutions  is  at  stake,  and  civilization  is  at  stake,  and  it  is  short- 
sightedness for  any  class  to  get  jealous  of  agriculture.  When  you 
see  it  drifting  into  tenancy,  making  nomadic  farmers,  drifting  from 
place  to  place  because  they  have  lost  all  hope  of  ever  being  able  to 
be  home  owners,  it  is  time  to  call  a  halt.  It  drives  country  people  to 
the  cities  and  creates  overurbanization,  and  it  will  take  more  radical 
measures  than  anything  I  have  suggested  here  to  right  that  in 
the  end. 

Mr.  Bulkley.  Then  you  would  give  that  privilege  to  experienced 
farmers  and  deny  it  to  experienced  men  in  other  classes  on  the  ground 
that  society  requires  it.     Is  that  your  position? 
Mr.  Brooks.  Yes,  sir. 

Mr.  Platt.  In  the  case  of  Ireland,  again,  the  National  Government 
has  not  loaned  money  to  the  Irish  peasants  and  farmers,  which  you 
propose,  for  the  purpose  of  promoting  agriculture,  has  it? 

Mr.  Brooks.  It  is  for  the  promotion  of  home  ownership,  and,  indi- 
rectly, that  promotes  agriculture. 
37031—14 17 


258  RURAL    CREDITS. 

Mr.  Platt.  It  was  not  primarily  for  agriculture.  It  might  pro- 
mote agriculture,  but  it  was  not  done  for  the  purpose  of  promoting 
agriculture;  it  was  for  the  purpose  of  taking  care  of  these  tenants 
and  giving  them  the  land  which  they  considered  they  should  own. 

Mr.  Brooks.  It  was  not  for  sentimental  purposes,  it  was  an  eco- 
nomical necessity.  The  people  of  Ireland  were  leaving  the  country. 
There  are  not  half  as  many  people  in  Ireland  to-day  as  there  were  50 
years  ago.  Ireland  used  to  be  an  asset;  it  was  liable  to  become  a  lia- 
bility rather  than  an  asset,  and  all  the  ambitious  young  people  were 
leaving  the  country,  and  they  adopted  this  as  a  means  of  stopping 
emigration  from  Ireland.  It  was  for  the  purpose  of  making  the 
Irish  peasant  feel  like  it  was  worth  while  to  work  at  home,  to  bring 
about  more  patriotism  and  public  spirit.  It  had  all  those  things  in 
view. 

Mr.  Platt.  I  agree  with  you  on  that  theory.  But  it  was  not  pri- 
marily for  the  purpose  of  promoting  agriculture;  and  I  think  that 
the  same  thing  is  true  of  the  loans  in  Denmark. 

Mr.  Brooks.  Yes ;  but  it  promotes  agriculture. 

Mr.  Platt.  The  Government  loans  were  not  made  primarily  to 
help  agriculture;  they  were  made  for  other  reasons,  including  those 
you  have  mentioned  in  the  case  of  Ireland. 

Mr.  Moss.  May  I  ask  a  question? 

Mr.  Bulkley.  Certainly. 

Mr.  Moss.  Dr.  Coulter  submitted  some  very  interesting  figures 
and  showed  them  to  me,  that  there  was  only  15  per  cent  of  the  farm 
laborers  who  did  not  ultimately  become  landowners.  If,  as  a 
matter  of  fact,  85  per  cent  of  the  farm  population  to-day  became 
landowners,  is  there  any  great  necessity  now,  in  order  to  promote 
civilization,  that  these  15  per  cent  shall  be  helped  directly  to  home- 
steads as  your  remarks  would  indicate? 

Mr.  Brooks.  I  do  not  know  just  what  process  was  used  to  gather 
the  statistics  proving  that  only  15  per  cent  of  them  failed  ultimately 
to  become  home  owners.     I  know  that  at  present  they  do  not. 

Mr.  Moss.  In  Ireland  there  is  a  very  large  percentage  of  people 
who  could,  under  no  circumstances,  become  landowners  without  this 
loan. 

Mr.  Brooks.  Yes;  and  the  same  thing  is  true  in  this  country. 

Mr.  Moss.  Not  if  the  doctor's  figures  are  true,  and  they  are  taken 
from  the  United  States  census  figures,  that  under  present  condi- 
tions 85  per  cent  of  the  population  to-day  become  landowners.  If 
that  is  true,  then  you  would  agree  with  me,  would  you  not,  that  there 
is  no  analogy  whatever  between  the  conditions  in  Ireland  and  those 
in  America  to-day,  so  far  as  farm  landowners  are  concerned? 

Mr.  Brooks.  That  statement  does  not  bear  out  my  own  observation 
in  the  matter,  if  it  shows  that  all  but  15  per  cent  do  become  owners. 

Mr.  Woods.  I  think  there  is  a  little  error  in  that.  Certainly  not 
all  but  15  per  cent  of  the  farm  laborers  become  landowners. 

Mr.  Moss.  I  should  have  said  15  per  cent  of  the  farm  tenant-. 

Mr.  Skldomridge.  What  was  the  statement? 

Mi-.  Coui/ter.  The  statement  was  that  we  had  now  collected  statis- 
tics showing  that  of  all  farmers,  tenants  and  all.  taking  all  farmers, 
I  think,  over  50  years  of  age,  only  15  per  cent  were  tenants,  while  85 
per  cent  were  owners;  while  taking  the  young  men  it  was  practically 


EUKAL    CREDITS.  259 

the  reverse,  I  think  23  per  cent  were  owners  and  77  per  cent  were 
tenants,  showing  that  they  started  in  as  tenants,  only  a  very  few 
starting  in  as  owners,  and  by  the  time  they  got  over  60  they  were,  85 
per  cent  of  them,  owners  and  only  a  very  few  of  them  tenants. 

Mr.  Brooks.  Is  that  increase  in  home  ownership  over  tenantry  as 
great  now  as  it  used  to  be? 

Mr.  Coulter.  We  have  not  any  earlier  statistics  to  compare  with. 
We  simply  have  them  as  of  the  census  of  1910,  and  this  is  the  first 
we  have  definitely  tried  to  show  any  relationship  between  the  age  of 
the  farmer  and  his  status.  I  would  like  to  say,  further,  that  since  I 
was  on  the  witness  stand  here  I  made  a  further  comparison  of  the 
statistics  they  are  compiling,  and  it  shows  that  the  older  the  age  of 
the  group  of  farmers  the  larger  the  farm,  that  the  younger  the 
farmers  the  smaller  the  farms,  indicating  that  the  younger  farmers 
have  the  smallest  farms  and  the  older  farmers  have  the  largest  farms. 
That  question  has  been  disputed  by  a  number  of  students,  and  a  com- 
pilation has  been  made  and  a  report  is  being  prepared  on  that  subject 
down  at  the  office  now. 

Mr.  Woods.  The  probability  is  that  these  tenants  did  not  become 
farm  owners,  but  the  majority  moved  to  towns;  therefore,  of  those 
remaining  all  but  15  per  cent  would  become  farm  owners. 

Mr.  Coulter.  Possibly  so;  I  can  not  say.  But  we  discussed  this 
subject  the  other  day. 

Mr.  Woods.  The  interest  rates  were  so  high  that  it  compelled  him 
to  move  to  town. 

Mr.  Platt.  I  think  there  is  no  doubt  that  the  tendency  is  that  the 
37oung  men  do  start  as  tenants  and  become  owners.  I  know  that 
is  true  of  farmers  I  have  known. 

Mr.  Bulkley.  I  wanted  to  pursue  a  little  further  the  line  of 
thought  that  I  started  on  a  few  minutes  ago. 

Your  argument,  I  understand,  is  that  the  Government  should  help 
the  farmers  to  get  land,  not  because  you  advocate  doing  any  special 
thing  for  the  farmers,  but  for  the  sake  of  saving  society  from  the 
lack  of  production  of  the  soil.  That  is  essentially  your  argument,  is 
it  not  ? 

Mr.  Brooks.  Yes;  and  a  lack  of  interest  in  his  country,  that  he 
can  only  have  when  he  has  a  home. 

Mr.  Bulkley.  Yes.  Now,  I  think  that  is  a  very  interesting  argu- 
ment and  I  think  there  is  a  good  deal  to  it,  but  I  hope  it  will  not  get 
confused  with  something  else  that  is  not  so.  You  implied  that  you 
were  asking  for  legislation  that  would  do  for  the  farmer  what  was 
already  done  for  commercial  classes  in  the  currency  bill.  As  a 
matter  of  fact  you  are  asking  that  much  more  should  be  done  for 
the  farmer,  not  because  it  is  for  the  farmer,  nevertheless  you  are 
asking  that  much  more  should  be  done  for  the  farmer.     Is  that  not 


so 


Mr.  Brooks.  Of  course,  there  is  not  any  provision  in  the  other  bill 
that  does  exactly  as  much  for  any  class  as  buying  the  land  and  sell- 
ing it  by  the  Government  to  the  individual  farmer  would  be. 

Mr.  Bulkley.  In  fact,  there  is  not  any  analogy  in  that  bill.  That 
does  not  destroy  your  argument  at  all.  but  I  just  want  to  clear  up 
that  situation.  There  is  not  an  analogy  in  the  currency  law  such  as 
you  are  suggesting. 


260  EURAL    CREDITS. 

Mr.  Brooks.  The  currency  law  takes  the  risk  of  the  Government  on 
commercial  paper,  and  this  would  take  a  risk  on  the  farmer  with 
real  estate  to  back  him. 

Mr.  Seldomridge.  What  risk  does  the  Government  take? 

Mr.  Bulkley.  Let  me  see  if  this  is  not  so.  Is  it  not  true  that  you 
are  proposing  that  the  farmer  should  put  up  $10  and  borrow  $90 
from  the  United  States,  whereas  the  currency  law  provided  that  the 
regional  banks,  with  double  liabilitv.  should  put  on  $140  to  borrow 
$100? 

Mr.  Brooks.  The  difference  is  only  in  degree. 

Mr.  Bulkley.  Is  not  the  difference  in  degree  so  great  as  to  be  a 
difference  in  kind? 

Mr.  Brooks.  And  the  purpose  is  greater. 

Mr.  Platt.  Does  not  the  currency  law  provide  this,  that  the  United 
States  Government  shall  issue  that  currency  and  loan  to  the  banks 
at  one-half  of  1  per  cent  and  the  banks  are  in  turn  allowed  to  turn 
around  and  loan  it  out  at  6  per  cent  ? 

Mr.  Brooks.  That  is  not  exactly  its  operation. 

Mr.  Platt.  Is  not  that  the  way  the  currency  law  reads? 

Mr.  Bulkley.  That  is  not  the  effect  of  it.  and,  of  course.  Mr.  Platt 
knows  that  as  well  as  anybody  else. 

Mr.  Platt.  That  is  the  way  it  read-. 

Mr.  Bulkley.  I  am  going  to  ask  Mr.  Brooks  one  other  question, 
whether  he  thinks  that  the  loaning  of  currency  as  provided  by  the 
Glass-Owen  bill,  by  the  Federal-reserve  act.  is  any  benefit  to  the 
bankers;  whether  the  indorsement  of  the  United  States  is  any  benefit 
to  the  bankers? 

Mr.  Brooks.  Do  you  mean  to  ask  if  I  think  that  it  is  worth  any- 
thing to  the  bank  for  the  Government  to  indorse  it  ? 

Mr.  Bulkley.  I  am  asking  you  whether  it  is  any  benefit  to  them 
to  have  the  United  States  Government's  indorsement  on  those  notes 
which  are  loaned  and  which  are  required  to  pay  interest? 

Mr.  Brooks.  Where  the  Government  indorses  any  proposition  it 
gives  it  a  moral  support,  whether  it  does  anything  less  or  not. 

Mr.  Bulkley.  I  think  that  is  true ;  but  do  you  think  it  is  any  bene- 
fit to  the  banks? 

Mr.  Brooks.  If  the  law  was  carried  out  according  to  its  purposes, 
it  would  not  need  any  indorsement,  and  for  that  reason  you  may 
say  it  does  not  do  any  good :  but  nevertheless  if  you  get  a  moral  aid 
it  is  a  good. 

Mr.  Bulkley.  Is  it  not  a  fact  that  the  principal  bankers  of  the 
country  fought  bitterly  against  having  any  Government  indorsement 
©n  it,  and  said  they  wanted  to  issue  their  own  notes  without  Gov- 
ernment indorsement  on  them? 

Mr.  Brooks.  I  think  it  was  for  a  different  purpose. 

Mr.  Bulkley.  But  certainly  they  did.  and  they  figured  their  notes 
were  absolutely  good  without  Government  indorsement,  and  they 
wanted  to  put  them  out  without  Government  indorsement.  That 
would  save  the  interest  which  they  would  otherwise  have  to  pay. 
Is  it  not  a  tax  on  them  and  a  detriment  to  them  to  have  that  indorse- 
ment ? 

Mr.  Platt.  You  could  put  the  tax  on  them  just  the  same  without 
fehe  Government's  indorsement  if  you  wanted  to. 


EUEAL    CEEDITS.  261 

Mr.  Bulkley.  Yes;  but  that  is  not  the  way  de  did  it. 

Mr.  Brooks.  It  was  a  war  between  two  theories,  and  one  theory 
won,  and  I  think  the  right  one. 

Mr.  Bulkley.  I  remember  you  made  a  very  excellent  statement 
on  that  when  you  came  before  our  committee  last  winter,  and  to  my 
mind  it  had  a  good  deal  of  influence  with  the  committee. 

Mr.  Brooks.  Unless  there  are  other  questions,  that  is  all  I  have  to 
say. 

Mr.  Bulkley.  That  is  all  I  have  to  ask. 

Mr.  Brooks.  I  wish  to  thank  the  committee  for  its  kindness. 

The  Chairman.  We  are  very  glad  to  have  you  with  us. 

STATEMENT  OF  T.  C.  ATKESON,  MORGANTOWN,  W.  VA. 

Senator  Hollis.  Will  you  give  your  full  name  to  the  stenog- 
rapher? 

Mr.  Atkeson.  T.  C.  Atkeson. 

Senator  Hollis.  Where  do  you  live  ? 

Mr.  Atkeson.  I  live  at  Morgantown,  W.  Va.  I  am  a  West  Vir- 
ginia farmer  and  master  of  the  State  grange,  and  representative 
here  of  the  national  grange,  as  member  of  the  legislative  committee. 
I  got  notice  Saturday  to  appear  before  this  committee,  and  I  got  up 
Sunday  morning  and  did  what  some  people  perhaps  think  I  ought 
not  to  have  done,  prepared  a  few  remarks  to  make  to  this  committee, 
and  spent  Sunday  afternoon  in  that  way,  and  did  not  go  to  church ; 
my  daughter  typed  it,  and  she  did  not  go  to  church.  I  might  say, 
however,  that  a  good  many  of  the  statements  in  the  way  of  statistics 
and  data  that  I  had  collected  and  had  contemplated  submitting  have 
been  submitted  already  by  Prof.  Brooks,  and  I  shall  not  repeat  them. 

In  the  first  place,  the  statements  I  make  are  on  my  individual  re- 
sponsibility for  I  am  not  able  to  employ  high-priced  attorneys,  as 
some  of  the  representatives  of  high  finance  did  who  appeared  before 
the  committee  when  the  general  banking  bill  was  under  considera- 
tion, possibly  to  suggest  what  they  should  saj^,  and  particularly  to 
see  that  they  did  not  say  the  wrong  thing.  So  if  I  happen  to  say  the 
wrong  thing  I  do  it  on  my  own  responsibility.  In  my  representative 
capacity  I  shall  assume  to  speak  for  the  organization  that  I  represent. 

I  shall  read  a  part  of  what  I  have  written  here,  and  will  try  to 
hurry  along. 

In  presenting  the  subject  of  farm  credits  to  this  committee  I  hope 
to  do  so  from  the  standpoint  of  the  real  farmer  who  is  the  man  with 
primary  or  first  interest  in  the  action  Congress  takes  upon  this  mat- 
ter.  The  farmers  of  this  country  do  not  want  to  be  set  apart  from 
other  business  men,  and  if  absolute  equality  before  the  banking  laws 
can  be  secured  by  them,  they  do  not  ask  any  subsidy  or  special  priv- 
ilege for  the  business  of  farming.  Just  now  they  are  greatly  con- 
cerned that  no  undesirable  or  burdensome  system  be  fastened  upon 
them,  since  they  know  by  large  experience  that  it  is  easier  to  take  on 
burdens  than  it  is  to  get  them  taken  off. 

So  far  as  I  have  been  able  to  learn  the  general  banking  law  enacted 
by  this  Congress  is  universally  approved  by  our  farmers.  And  as 
evidence  that  the  farmers  are  able  to  understand  a  financial  propo- 
sition, I  have  only  to  restate  the  fact  that  in  November,  1909,  the 
national  grange  was  in  session  in  Des  Moines.  Iowa,  when  Senator 


262  RURAL    CREDITS. 

Aldrich  came  to  that  city  to  deliver  an  address  in  support  of  the 
Aldrich  banking  scheme.  A  large  banquet  was  given  in  his  honor 
in  the  hotel  where  the  national  grange  had  its  headquarters.  A  few 
of  us  had  the  privilege  of  hearing  the  Senator's  eloquent  and  learned 
address,  presented  with  all  the  seductive  skill  of  which  he  is  past 
master.  About  the  first  thing  on  assembling  the  next  morning,  the 
national  grange,  by  a  unanimous  vote,  adopted  this  resolution: 

Whereas  a  project  is  now  being  actively  promoted  to  establish  a  great  cen- 
tralized banking  institution,  and  believing  this  to  be  a  revival  of  a  dangerous 
proposition  which  once  before  in  our  country's  history  raised  its  threatening 
beat],  but  which  danger  was  averted  by  the  veto  act  of  a  brave  President: 
Therefore  be  it 

Resolved  by  the  national  grange  in  forty-third  annual  session  ascmbled  and 
representing  1,000,000  conservative,  liberty-loving  people,  That  we  are  unalter- 
ably opposed  to  any  legislation  by  Congress  looking  to  the  establishment  of  a 
great  centralized  bank. 

Congress  did  not  pass  the  Aldrich  bill,  and,  for  all  I  know,  the 
distinguished  Senator  went  back  to  Rhode  Island  and  hanged  him- 
self. 

As  I  have  already  said,  the  farmers  of  the  country  approve  the 
general  banking  law  enacted  by  this  Congress.  Not  because  they 
believe  it  is  perfect  or  wholly  just  as  between  the  people  and  the 
bankers,  but  because  they  believe  it  vastly  better  and  fairer  to  busi- 
ness men  generally  and  the  farmers  particularly  than  the  law  it  dis- 
places. We  shall  know  more  about  its  excellence  and  defects  in  a  few 
years  than  we  do  now. 

When  the  general  banking  law  was  under  consideration,  if  we 
were  not  misinformed  by  the  newspapers,  the  bankers  had  a  good 
deal  to  say  about  the  banking  bill,  and  when  they  failed  to  get  quite 
all  they  wanted,  as  usual,  they  are  taking  all  they  can  get  quite 
cheerfully. 

Coming  more  directly  to  the  farm-credit  proposition,  if  we  are  to 
find  justifiable  excuse  for  enacting  any  kind  of  "  farm  credit "  or 
"  farm  land  bank  system,''  we  must  find  some  broader  and  more  of 
a  general  welfare  reason  than  the  granting  of  a  special  privilege  to 
the  men  who  till  the  soil  and  feed  the  Nation.  It  must  be  based 
upon  the  common  good,  as  are  our  schools,  roads,  rivers,  harbors, 
postal  service,  and  many  other  laws  that  come  within  the  province 
of  progressive,  broad-minded  statesmanship. 

For  100  years,  more  or  less,  the  trend  of  legislation  in  this  country 
has  been  toward  the  building  up  of  the  cities  through  a  protective- 
tariff  policy,  which  resulted  in  the  drift  of  our  population  toward 
the  cities,  until  the  inevitable  high  cost  of  living  wail  is  heard  from 
one  end  of  the  land  to  the  other. 

All  the  people  were  taxed  to  secure  a  special  privilege  to  the  money 
changers,  which  concentrated  the  wealth  of  the  country  in  the  cities. 
If  that  is  undesirable  (and  the  history  of  all  former  civilizations 
teaches  us  that  it  is)  then  it  is  about  time  our  national  legislators 
look  under  the  surface  of  things  and  see  what  is  going  on.  If  we 
are  to  have  farm-credit  legislation  in  this  country,  it  should  be  based 
upon  the  common  good  and  not  upon  a  special  privilege;  and  upon 
that  proposition  I  believe  the  farmers  stand  with  me.  And.  what  is 
more,  the  farmers  are  tired  of  being  priest-ridden  by  those  who 
would  assume  to  do  their  thinking  with  a  salary  attached,  and  espe- 


EUEAL    CREDITS.  263 

cially  do  they  believe  they  are  entitled  to  a  hearing  upon  the  subject 
3^011  gentlemen  now  have  under  consideration. 

The  people  who  go  to  Europe  to  study  conditions  all  seem  to  be 
able  to  find  what  they  want.  That  is  a  wonderfully  prolific  country 
over  there.  The  Aldrich  Commission  went  over  there  and  dug  up 
the  so-called  Aldrich  scheme.  The  Rural  Credit  Commission  went 
over  and  brought  back  a  mass  of  literature  and  somebody  incubated 
the  Fletcher-Moss  banking  bill.  Our  people,  if  you  will  not  put  this 
in  the  record,  call  it  the  "  Mossbacked  Fletcherized  monstrosity."  I 
hope  you  will  not  put  that  in  the  record. 

With  all  the  seeking  for  light  on  how  to  make  the  farmers'  assets 
of  the  country  available  as  security  for  the  money  changer,  the 
farmer  himself  has  not  been  consulted;  but  I  want  to  assure  you  he 
means  to  have  something  to  say  about  it.  To  presume  upon  his 
ignorance  or  helplessness  is  hardly  safe.  Confuse  the  subject  as  we 
may.  there  remain  three  clearly  drawn  propositions  in  the  public 
mind  upon  the  subject  of  rural  credits. 

First,  a  new  banking  scheme  known  as  farm-land  banks,  con- 
trolled and  operated  wholly  by  the  capitalistic  class  without  any 
guaranty  of  reduced  interest  to  the  borrower.  Second,  national  farm- 
land banks,  cooperative — and  don't  forget  the  comma — ;'  national 
farm-land  banks",  comma,  "cooperative";  and,  third,  Government 
loans  direct  to  farmers  on  first  mortgages. 

We  shall  pay  our  respects  to  the  first  of  these  propositions  as  it 
is  embodied  in  the  Moss-Fletcher  bill,  which  in  some  respects  is  the 
rankest  kind  of  special  privilege  granted  to  the  capitalists  who  con- 
trol these  banks. 

For  these  so-called  national  farm-land  corporations,  which  are 
private  profit-sharing  institutions  in  every  sense,  this  bill  exempts 
from  taxation — 

their  capital  stock  and  surplus  therein  and  the  income  derived  therefrom  and 
the  mortgages  and  deeds  of  trust  and  notes  and  bonds  secured  thereby  held 
by  said  bank  and  the  national  land-bank  bonds  issued  by  the  same. 

This  bill  repeals  the  income-tax  law  in  its  application  to  indi- 
viduals who  have  income  from  these  banking  institutions  and  in  its 
application  to  the  income  of  the  corporation  itself.  It  renders 
nugatory  the  law  of  States  which  tax  the  capital  stock  of  corpora- 
tions. The  tax  exemption  includes  the  profits  of  these  banks  and  the 
profits  of  individuals  who  make  their  investments  solely  for  profit 
and  who  have  no  regard  for  the  great  national  policy  of  conserva- 
tion of  agriculture  and  the  perpetuation  of  our  food  supply. 

The  exemptions  are  totally  without  the  warrant  of  a  great  national 
beneficence.  The  Nation  might  be  justified  in  making  these  exep- 
tions  for  the  good  of  the  whole  people,  but  to  make  them  for  the 
benefit  of  the  few  bankers  is  special  legislation  of  the  rankest  type. 

William  Pitt,  the  great  English  statesman,  was  not  far  wrong 
when  he  said : 

Let  the  American  people  go  into  their  debt-funding  schemes  and  banking 
systems,  and  from  that  hour  their  boasted  independence  will  be  a  mere  phantom. 

There  never  has  been  a  time  in  the  history  of  the  United  States 
when  the  farmer  was  treated  fairly  or  equitably  in  the  nature  or 
management  of  the  money  system  of  the  country.  And  this  pro- 
posed farm-land  bank  scheme  does  not  make  any  effort  to  treat  him 


264  RURAL    CREDITS. 

fairly.  Some  so-called  statesmen,  who  know  as  little  about  it  as  the 
man  in  the  moon,  have  undertaken  to  say  what  the  farmers  ';  do  not 
desire,"  with  the  assurance  of  an  over-lord  who  would  underesti- 
mate the  average  farmer  intelligence.  All  such  may  rest  assured  he 
•'does  not  desire"  the  kind  of  farm-land  bank  provided  for  in  the 
Moss-Fletcher  bill  for  several  very  vital  reasons. 

First.  Because,  so  far  as  they  provide  for  the  special  privilege  of 
exemption  from  taxation,  it  is  a  special  legislation  for  private 
profits. 

Second.  There  is  no  effect  to  fix  the  rate  of  interest  below  the  pre- 
valing  rate.    The  interest  is  uncertain. 

Third.  It  gives  no  guaranty  against  the  devious  ways  of  money 
sharks,  who  have  been  responsible  for  much  obstruction  to  agri- 
culture. 

Fourth.  It  is  folly  to  trust  a  private  corporation  to  carry  out  a 
great.  Government  policy,  and  the  creation  of  a  private  banking 
scheme  will  never  handle  their  business  for  an  altruistic  purpose. 

"  The  private-bank  plan  of  farm  credits  is  not  a  thoroughbred." 
I  have  quoted  that  from  Congressman  Bathrick.  "  It  is  part  public 
policy  and  part  greed.  It  can  be  nothing  but  an  abortive  attempt 
to  hitch  altrusm  with  avarice."  For  these  and  many  other  reasons 
the  farmers  "  do  not  desire  "  a  farm-land  bank  system  without  pro- 
tection against  the  type  of  men  that  Christ  scourged  from  the  temple. 

My  time  is  too  limited  to  go  any  further  into  this  phase  of  th.e 
subject,  but  the  further  you  go  into  it  the  more  you  will  realize  some 
of  the  things  the  farmers  "do  not  desire;"  any  statement  of  the 
self-appointed  overlords  to  the  contrary  notwithstanding. 

The  second  proposition,  as  stated,  is  involved  in  the  National 
Farm-Land  Bank,  Cooperative.  Every  time  I  see  that  title  I  am  re- 
minded of  a  statement  made  to  me  by  ex-Gov.  Atkinson,  of  my  State, 
now  judge  of  the  United  States  Court  of  Claims.  He  is  an  ardent 
member  of  the  Methodist  Episcopal  Church,  while  my  membership 
is  in  the  Methodist  Episcopal  Church.  South.  The  governor  told 
me  that — 

the  difference  between  our  churches  was  that  his  church  was  the  Methodist 
Episcopal  Church  of  God,  and  that  mine  was  the  Methodist  Episcopal  Church, 
South  of  God. 

That  is.  it  failed  to  make  a  very  impotent  connection.  And  I  am 
afraid  the  National  Farm-Land  Bank,  Cooperative,  lacks  the  vital 
connection  with  the  people  on  the  farms. 

We  have  great  respect  for  any  honest  effort  at  cooperation  among 
the  people  which  may  in  any  way  assist  them  in  holding  their  own 
against  the  encroachments  of  the  people  who  control  the  money  of 
the  country.  The  farmers  would  have  more  confidence  in  the  pro- 
posed National  Farm-Land  Bank.  Cooperative,  if  it  were  not  for  the 
company  it  is  in  and  the  cooperative  part  being  set  off  by  a  comma 
and  hung  on  at  the  tail  as  a  kind  of  afterthought.  Because  of  the 
conditions  existing  in  this  country,  if  cooperative  banking  ever  be- 
comes general  among  the  farmers  it  must  come  about  gradually  and 
be  a  long  time  in  developing.  "We  believe  the  greatest  possible  en- 
couragement should  be  given  to  self-help  and  genuine  cooperation, 
but  instead  of  yoking  up  with  a  special  privilege,  private  banking 


RURAL    CREDITS.  265 

institution,  it  should  be  part  of  a  broad,  comprehensive,  national 
policy  administered  by  the  Government  itself. 

This  brings  us  to  the  consideration  of  our  third  proposition.  As 
an  expression  of  what  at  least  some  of  the  farmers  of  this  country 
desire,  we  submit  the  following  declarations  and  resolutions  adopted 
by  the  national  grange  at  Manchester,  N.  H.,  last  November.  That 
was  before  any  of  these  bills  were  prepared.     These  resolutions  state : 

The  commerce  of  this  Nation  is  conducted  upon  a  basis  of  $1  (if  cash  and  $8 
of  credit,  and  the  cost  of  credit  is  a  heavier  burden  upon  agriculture  than 
upon  any  other  industry ;  and 
Notwithstanding  that  the  products  of  agriculture  bear  a  more  important  rela- 
tion to  the  necessities  of  the  people  th-m  any  other  and  the  success  of  all 
Commerce  awaits  the  success  of  agriculture,  the  burden  of  the  cost  of  credit 
upon  agriculture  has  handicapped  its  progress  and  it  has  been  the  victim  in- 
stead of  the  beneficiary  of  our  system  of  credit;  and 
Although  the  conditions  surrounding  agriculture  are  distinctly  different  from 
those  of  other  countries,  it  has  been  compelled  to  accept  terms  and  cost  of 
credit  unsuited  to  its  needs,  with  the  result  that  the  highest  courage  and 
thrift  of  our  farmers  has  often  eventuated  in  loss  of  home  and  pitiful  failure 
to  thousands  of  them  ; 
Farm  tenantry,  with  its  consequent  probable  depletion  of  production  per  acre, 
has  increased  from  25.6  per  cent  of  all  farms  in  1880  to  37.1  per  cent  in  the 
year  1910.  which  reveals  a  progressive  and  alarming  advance  toward  land- 
lordism, a  condition  which  every  nation  on  earth  has  found  disruptive  of 
peace  and  productive  of  internal  disorder; 
As  the  productive  acreage  in  the  United  States  is  not  keeping  pace  with  the 
mortgage  indebtedness  or  increase  in  population,  as  the  interest  charge  must 
be  borne  by  all  consumers,  farm  credits  is  a  national  issue.  The  present 
agricultural  conditions  are  not  attractive  to  our  people,  as  is  shown  by  the 
20  per  cent  increase  in  the  population  of  the  country  as  compared  with  the 
100  per  cent  increase  in  the  cities  in  the  last  20  years.  It  is  the  duty  of  the 
Government  to  take  care  of  our  food  supplies ; 
It  should  carry  out  a  far-sighted  policy  to  conserve  our  agriculture.  Our  Gov- 
ernment has  guaranteed  railroad  bonds,  given  the  railroads  158,000,000  acres 
of  land,  furnished  public  funds  to  banks  at  2  per  cent  interest  or  with  no 
Interest,  used  Government  funds  for  irrigation  schemes  and  to  aid  agricul- 
ture in  the  Philippines.  Our  Government  can  not  delegate  and  intrust  poli- 
cies to  the  greed  and  selfishness  of  all  men.  We  should  profit  by  the  experi- 
ence of  the  other  countries  of  the  world,  especially  those  that  are  most  pro- 
gressive: Therefore  be  it 

Resolved,  That  it  is  the  opinion  of  the  national  grange  that  any  legislation 
for  the  purpose  of  bettering  farm  credits  is  a  part  of  the  national  policy  of 
conservation  of  food  supply  and  as  such  the  Government  of  the  Nation  should 
itself  carry  out  this  policy  and  it  can  not  properly  be  delegated  to  private 
capital  for  general  exploitation  and  profit. 

Resolved,  That  any  farm  credit  association  which  receives  any  privileges 
by  or  under  State  or  Federal  law  should  be  composed  of  farmers  and  not  of 
capitalists  of  high  finance',  who  have  heretofore  dominated  agricultural  credit 
and  created  conditions  which  now  demand  relief. 

Resolved,  That  any  farm-credit  plan  which  does  not  include  a  direct  reduc- 
tion of  the  "prevailing  rates"  of  interests,  as  well  as  a  long  term  of  small 
a.nnual  payment  upon  farm  mortgages,  will  not  meet  agricultural  requirements. 
Resolved,  That  the  Government  of  the  United  States  should  borrow  money 
at  a  rate  of  interest  not  to  exceed  3$  per  cent  and  lend  the  money  at  a  rate 
not  to  exceed  4 1  per  cent  to  the  farmers  upon  long-time  farm-land  mortgages 
with  such  restrictions  as  may  be  necessary  to  make  the  Government  perfectly 
secure,  and  the  profit  to  the  Government  to  be  expended  in  road  improvement  or 
for  some  other  object  that  will  benefit  the  whole  people. 

These  resolutions  provide  specifically  for  two  things.  They  were 
unanimously  adopted  at  the  session  of  the  national  grange  of  Man- 
chester, N.  H.,  last  November.  It  was  before  you  prepared  any  of 
these  bills. 


266  RURAL    CREDITS. 

Senator  Hollis.  I  think  I  ought  to  say,  Mr.  Atkeson,  that  I  made 
a  special  effort,  at  the  request  of  the  officers  of  the  national  grange, 
to  get  Mr.  Moss  or  Senator  Fletcher  to  come  up  and  explain  what 
they  had  in  mind,  but  their  engagements  were  such  that  they  could 
not  do  so.  Secretary  Houston  went  up  and  he  apparently  was  not 
received  very  much  more  favorably  than  this  bill  is. 

Mr.  Atkeson.  These  resolutions  provide  specifically  for  two 
things :  The  direct  loan  by  the  Government  of  money  secured  upon 
long-time  farm  mortgages  at  a  fixed  rate  of  interest,  and  for  the 
formation  of  farm-credit  associations  under  Federal  or  State  control 
to  provide  short-time  loans. 

The  national  grange  did  not  wait  for  some  overlords  to  tell  them 
what  thev  "  desired,"  and  they  believe  with  Congressman  Bathrick 
that— 

The  way  to  carry  out  •!  national  policy  is  for  the  Nation  itself  to  do  it  as 
nearly  as  possible  and  not  turn  it  over  to  private  interest  as  much  as  possible. 

As  a  foundation  for  any  farm-mortgage  loan  plan  we  should  have  a  power 
with  stability  unquestioned  now;  not  one  requiring  a  generation  in  which  to 
gain  a  confidence  of  the  people  and  make  a  remedy  efficient  against  the  evil  we 
wish  to  cure. 

Such  a  power  can  establish  at  once  the  best  possible  market  for  the  bonds 
or  debentures  required  to  liquefy  mortgage  security,  at  once  solve  the  problem 
of  tax  upon  mortgages  and  debentures,  at  once  institute  a  low  rate  of  interest 
and  decrease  the  cost  to  the  lowest  possible  minimum,  at  once  provide  an  ade- 
quate supply  of  money  at  the  lowest  possible  cost,  at  once  place  mortgage  bonds 
upon  a  footing  with  the  very  best  security  know  in  the  world,  at  once  begin 
work  of  relief  aimed  at  all  over  the  country  instead  of  in  a  few  places. 

The  power  exists  and  is  none  other  than  the  Federal  Government.  This  is 
the  central  authority  of  the  people.  It  is  the  apex  authority  covering  all  the 
units  of  cooperative  Government.  Tf  we  wish  to  institute  an  effective  farm- 
credit  system,  why  should  we  defer  wholly  to  the  unrelated  efforts  of  these 
units?  Why  should  we  suffer  the  long  waiting  for  these  units  to  coordinate  ou 
this  great  purpose  when  the  apex  authority  can  do  it  at  once?  These  various 
units  are  free  to  perform  this  service  as  they  wish,  but  the  Federal  Govern- 
ment could  at  least  so  act  that  the  waiting  for  State  action  shall  be  a  season  of 
accomplishment  and  not  one  of  procrastination,  that  the  country  may  be  cov- 
ered by  the  policy  in  a  complete  instead  of  a  desultory  manner. 

To  this  should  be  added  that  if  it  is  not  class  legislation  and 
paternalism  to  exempt  from  taxation  the  stocks,  notes,  bonds,  in- 
come, and  surplus  of  a  private  bank,  who  will  have  the  nerve  to  say 
that  Government  loans  to  farmers  is  class  legislation? 

The  academic  political  economist  may  elaborate  his  theories  of 
government  and  go  on  using  language  about  the  forms  of  govern- 
ment, but  theories  change  and  fallacies  wither  and  the  conflict  be- 
tween the  right  of  men  and  the  arrogance  of  the  dollar  remains 
with  'is.  teaching  the  folly  of  trying  to  serve  man  and  mammon  at 
the  same  time. 

"We  have  made  a  careful  study  of  most  of  the  farm-credit  bills 
introduced  in  the  House  and  Senate  and  we  find  that  the  Bathrick 
House  bill  and  the  Norris  Senate  bill  most  nearly  conform  to  the 
resolutions  adopted  by  the  national  grange,  and  which  have  been 
indorsed  by  the  Farmers'  Union  and  the  Federation  of  Labor.  All 
of  these  organizations  believe  that  the  adoption  of  a  farm-land  credit 
system  along  the  lines  of  the  Bathrick  bill  will  do  much  to  multiply 
happy  homes  in  the  country,  which  is  the  greatest  possible  achieve- 
ment  of  human  government,  and  is  essential  to  the  upbuilding  of 


RURAL    CREDITS.  267 

the  character  of  a  people  without  which  all  forms  of  government 
will  ultimately  result  in  failure. 

Mr.  Platt.  Did  you  have  the  Lafferty  bill  before  you  when  you 
made  those  observations?  That  provides  for  2  per  cent  loans. 
Wouldn't  that  be  better? 

Mr.  Atkeson.  You  mean  in  preparing  this  paper,  or  the  resolu- 
tions? 

Mr.  Platt.  When  your  resolutions  were  passed? 

Mr.  Atkeson.  No,  sir.  The  Bathrick  bill  was  not  in  existence  at 
that  time,  as  I  understand  it. 

Mr.  Platt.  The  Lafferty  bill,  I  spoke  of. 

Mr.  Atkeson.  Oh,  I  heard  Mr.  Lafferty 's  discussion  of  the  bill 
when  I  appeared  before  the  subcommittee  here  in  December,  I  be- 
lieve it  was,  and  I  am  quite  familiar  with  the  provisions  of  the  Laf- 
ferty bill.  There  are  some  very  important  differences  between  the 
Lafferty  bill  and  the  Bathrick  bill,  whether  we  favor  the  one  or  the 
other.  I  trust  the  committee  will  interpret  all  I  have  said  as  not  in- 
dorsing any  particular  bill  as  a  piece  of  perfection.  I  am  expecting 
the  combined  wisdom  of  the  committees  of  the  House  and  Senate 
will  give  us  a  piece  of  perfection,  if  we  could  so  name  it. 

Summing  up,  the  grange  stands  for  direct  Government  loans  upon 
long-time  farm  mortgages,  with  a  limit  of  not  more  than  $15,000  to 
be  loaned  to  any  one  man,  and  a  farmers'  cooperative  loan  association 
under  Federal  or  State  control,  surrounded  by  every  possible  protec- 
tion against  loss  by  the  Government  or  the  cooperative  association. 

In  conclusion,  I  desire  to  place  in  the  record  a  circular  letter  sent 
out  by  the  National  Grange  legislative  committee.  I  will  not  read  it 
without  some  one  desires  me  to  do  so.  It  represents  the  grange's 
position  upon  this  subject.  We  have  sent  them  to  pretty  nearly 
1,000,000  people  in  this  country  within  the  last  10  days:  that  is. 
through  the  organization  it  has  reached  pretty  nearly  that  many. 
As  I  understand  it,  the  farmers'  unions  and  the  Federation  of  Labor 
say  substantially  the  same  thing-  to  their  membership  from  one  end 
of  the  country  to  the  other.  If  there  is  no  objection.  I  will  place 
this  in  the  record. 

(The  circular  letter  referred  to  is  as  follows:) 
To  the  members  of  State,  Pomona,  and  subordinate  Granges: 

Just  at  this  time  the  most  important  and  urgent  subject  before  Congress,  so 
far  as  the  farmers  are  concerned,  is  that  of  "  farm  credir."  Recognizing  its 
paramount  and  immediate  importance  the  National  Grange  at  its  last  session, 
and  many  State  granges  meeting  since  that  time,  have  given  it  careful  consider- 
ation. Many  bills  have  been  introduced  in  the  Senate  and  House  of  Represen- 
tatives and  many  more  are  likely  to  be. 

Your  legislative  committee,  after  careful  consideration  of  the  "farm  credit" 
bills  pending  in  Congress,  find  that  the  bill  which  most  nearly  conforms  to  the 
resolutions  adopted  by  the  National  Grange,  is  the  Bathrick  bill  (H.  R.  11897), 
and  have  unanimously  agreed  to  support  that  bill. 

The  bill  provides  that  the  Government  shall  borrow  money  at  a  rate  of  inter- 
est not  in  excess  of  3£  per  cent  and  lend  on  farm  first  mortgages  at  a  rate  not 
in  excess  of  4A  per  cent. 

The  mortgage  contracts  are  payable  in  small  annual  installments.  The 
debtor,  however,  can  pay  all  or  any  part  of  the  mortgage  at  any  interest-paying 
period. 

Loans  can  be  made  direct  to  farmers  or  to  farmers  through  farmer's  farm- 
credit  associations.  The  rapid  organization  of  these  self-help  associations  will 
be  encouraged  by  employing  and  paying  them  to  attend  to  the  work  of  appraising 


268  RURAL    CREDITS. 

and  Inspecting  mortgage  loans,  leaving  their  capital  free  to  care  for  local  short- 
time  loans.  This  program  is  in  conformity  with  the  best  European  experience, 
whore  self-help  and  Government  aid  go  hand  in  hand. 

Limitations  and  restrictions  on  loans  will  encourage  the  ownership  of  farm 
homes,  but  discourage  unwholesome  land  speculation  and  tenantry.  The  cost 
of  Investigation,  appraisal,  and  inspection  in  making  a  loan  will  be  confined  to 
actual  expenses.  The  bonds  issued  to  secure  the  loan  fund  will  be  in  small,  as 
well  as  large,  denominations  and  their  total  will  at  no  time  exceed  the  amount 
of  mortgages  held  to  secure  them.  The  money  borrowed  must  be  used  for  the 
discharge  of  obligations,  purchase  price,  or  the  improvement  of  the  property 
offered  as  security.  The  applicant  must  be  thrifty  and  of  good  character  and  no 
loans  shall  exceed  60  per  cent  of  the  value  of  the  farm.  All  applications  must 
be  sworn  to  and  a  heavy  penalty  is  provided  for  misrepresentation. 

Postmasters  and  other  Government  officials  will  be  employed  to  assist  in  ad- 
ministering its  provisions.  Without  detailing  the  administrative  features,  it 
can  he  said  that  they  seem  well  designed  to  carry  out  the  provisions  of  the  bill. 
Profits,  if  any,  are  to  be  expended  in  building  and  maintenance  of  good  roads. 

This  bill  comprehends  the  best  plan  of  bettering  the  conditions  of  both  long- 
time mortgage  and  short-time  loans  and  is  devoid  of  any  taint  of  private  profit. 
By  it,  those  now  struggling  with  a  hopeless  mortgage  would  be  shown  a  way 
out.  Those  out  of  debt  would  be  awakened  to  the  advantage  of  a  safe  credit 
and  those  who  wish  to  own  a  home  on  the  farm  would  be  given  substantial 
opportunities.  All  this  can  be  done  expeditiously  by  Government  loans,  but  by 
private  banks  or  by  any  unaided  self-help  plan  the  benefits  will  drag  slowly 
through  a  generation. 

All  the  leading  nations  of  the  earth  are  doing  as  much  as  is  intended  by  this 
bill.  England  and  Germany  lead  in  Government  and  State  aid.  The  bill  does 
not  express  a  new  proposition.  It  is  not  even  new  to  the  United  States.  Loans 
to  banks,  gifts  and  guarantees  to  railroads,  loans  to  Philippine  farmers,  irriga- 
tion appropriation,  and  many  laws  give  color  of  practice  to  it. 

There  is  no  chance  of  loss  to  the  Government  but,  rather,  a  sure  chance  of 
gain  for  all  the  people.  This  seems  preferable  to  a  new  system  of  private  mort- 
gage banks  gathering  profit  for  a  few. 

If  this  bill  is  class  legislation,  so  is  it  class  legislation  to  lend  money  to  the 
banks.  The  success  of  agriculture  is  as  important  to  the  whole  people  as  the 
banks. 

Government  bonds  issued  for  this  purpose  could  not  invade  the  public  purse 
or  the  taxing  power.  Hence  could  not  affect  the  Government  credit,  or  cost  the 
people  a  penny.  Nine  of  our  States  now  lend  their  school  funds  to  farmers  and 
lose  nothing. 

The  Bathrick  bill  at  once  removes  the  obstacle  of  taxation  on  mortgages  and 
the  debentures:  a  vitally  necessary  thing  to  do  before  interest  rates  on  farms 
can  be  reduced.  This  is  done  in  the  interest  of  food  producers  and  consumers 
and  therefore  is  for  all  the  people.     It  is  for  all  and  not  for  a  few. 

Some  bills  attempt  to  cover  this  phase  by  exempting  private  profit-seeking 
banks  from  taxation.  These  are  distinctly  class  measures  without  the  slightest 
warrant  of  Government  beneficence  for  their  special  privileges. 

Of  this  class  are  the  Moss  bill  in  the  House  and  the  Fletcher  bill  in  the  Sen- 
ate. These  are  distinctly  private  profit-sharing  measures  which,  in  our  opinion, 
will  do  little  to  aid  farm  credit,  but  will  build  up  a  new  class  of  national  banks, 
interfering  with  the  operation  of  the  new  banking  and  currency  bill,  and 
strengthen  the  hold  of  the  money  power  upon  the  people.  These  bills  are  in 
utter  opposition  to  the  resolutions  passed  at  the  last  National  Grange  meeting. 

They  leave  the  important  question  of  interest  rates  uncertain  and  delegate  the 
great  national  policy  of  conservation  of  agriculture  to  individuals,  who  can  be 
actuated  only  by  a  desire  to  make  as  much  money  as  possible  out  of  the  operation. 

If  it  is  constitutional  to  give  exemption  from  taxation  to  the  stock,  surplus 
profits,  bonds,  notes,  and  other  securities  of  these  individuals  and  thereby  add 
to  their  profits,  who  will  raise  a  question  of  the  right  of  the  people's  Govern- 
ment to  lend  money  on  farm  securities  free  from  taxation? 

Fraternally   submitted. 

Oliver    Wilson, 
T.  C.  Atkeson, 
H.  J.  Patterson, 
Legislative  Committee  of  the  National  Grange. 


RURAL    CREDITS.  269 

Mr.  Platt.  When  were  those  resolutions  published  ? 

Mr.  Atkeson.  About  the  middle  of  November.  I  do  not  remem- 
ber the  date.  It  was  during  the  session  of  the  grange  at  Manchester, 
N.  H.,  about  the  middle  of  the  month. 

Now,  I  had  expected  the  master  of  the  national  grange  to  be  here — 
Mr.  Patterson,  the  president  of  the  National  Agricultural  College—- 
and  also  Mr.  Wilson.  Since  Mr.  Wilson  is  not  here,  I  want  to  place 
in  the  record  a  little  reprint  from  his  annual  address  to  the  national 
grange  at  Manchester.  I  do  not  believe  he  had  read  any  of  these 
bills  when  he  wrote  this  brief  statement.    He  says : 

I  believe  that  the  time  has  come  when  the  national  grange  should  be  heard 
upon  this  very  important  question. 

There  did  not  any  of  them  go  to  Europe  that  I  know  of. 

It  is  not  my  desire,  even  if  I  had  the  authority,  to  outline  an  exact  policy 
for  the  grange  to  follow.  I  desire  to  submit  a  few  thoughts,  suggestions,  and 
conclusions  which  I  have  arrived  at,  so  as  to  bring  the  question  in  tangible 
form  up  for  consideration,  realizing  that  your  honest,  calm,  and  conservative 
deliberations  will  fairly  establish  the  truth  and  will  be  the  means  of  our  going 
before  the  world  as  a  united  body,  standing  for  justice  and  equality  for  all 
classes. 

I  believe : 

First.  Any  rural  credit  system  should  make  it  easy  and  safe  for  a  farmer  to 
borrow  money  to  buy  or  improve  his  land  or  equipment  to  operate  same. 

Second.  Long-time  credit  at  the  lowest  possible  interest  for  the  farmer  who 
desires  it. 

Third.  A  rural  credit  system  that  is  suited  to  the  needs  of  the  peasant  condi- 
tions existing  in  many  parts  of  Europe  must  necessarily  fail  in  our  free,  inde- 
pendent United  States. 

Fourth.  The  so-called  rural  credit  commission  that  went  to  Europe  had  but 
very  few  real  representatives  of  agriculture;  consequently  we  can  expect  but 
little,  if  any,  benefit  from  its  report. 

Fifth.  Any  credit  system  to  be  safe  for  the  people  must  be  either  directly 
controlled  or  operated  by  the  Government. 

Sixth.  Any  system  under  private  control,  operated  as  a  special  privilege, 
would  ultimately  prove  a  detriment  to  agriculture. 

Now,  I  realize  that  this  statement  has  left  unsaid  a  great  many 
things  that  might  have  been  said.  It  is  almost  an  endless  subject. 
Possibly  it  has  said  many  things  that  might  have  better  been  left 
unsaid.  But  this  is  a  free  country,  and  we  have  been  frank  and 
good-natured  in  what  we  have  said,  and  there  has  been  but  one 
thought  in  all  I  have  said — one  paramount  thought ;  one  central 
thought — that  is.  that  the  people  who  inhabit  the  farms  of  this 
country  are  not  asleep.  They  said  these  thing  that  I  quote  from 
them  last  November.  They  said  things  as  far  back  as  1909  in  the 
action  taken  after  listening  to  Mr.  Aldrich's  speech  at  Des  Moines. 
I  have  been  saying  things  in  the  national  grange  practically  every 
session  since,  and  because  the  farmers  of  the  country  are  at  home 
trying  to  feed  the  Nation,  and  are  not  spending  much  time  at  Con- 
gress or  before  committees,  it  does  not  justify  the  conclusion  that 
the  farmers  are  not  vitally  interested  in  this  question.  And,  as  I 
talk  to  them  personally,  they  seem  to  be  possessed  with  one  fear  more 
than  any  hope.  That  is  the  fear  that  some  kind  of  a  job  will  be  put 
up  on  them  that  it  will  take  them  a  generation  or  two  to  get  rid  of. 
They  fear  more  the  ills  that  may  come  than  the  ills  they  have — 
many  of  them. 

So  we  feel  that  they  are  entitled  to  be  heard  and  to  be  given  every 
consideration. 


270  RUKAL    CREDITS. 

Mi.  Stone.  Have  they  been  denied  a  hearing? 

Mr.  Atkeson.  Not  at  all. 

Mr.  Stone.  Has  not  this  committee  requested  representatives  of 
all  of  the  farmers'  organizations  to  appear  before  it? 

Mr.  Atkeson.  Yes.  sir. 

Mr.  Stone.  Has  not  it  called  upon  the  different  agricultural 
schools  to  send  representatives?  Is  not  this  committee,  in  every  way, 
undertaking  to  be  fair  by  giving  to  the  farmers  the  best  opportunity 
to  be  heard? 

Mr.  Atkeson.  We  have  not  intimated  that  it  was  otherwise.  I  was 
accounting  for  their  not  being  here. 

Mr.  Stoke.  Your  remarks  would  tend  to  convey  the  impression 
that  some  job  was  likely  to  be  put  up  on  them;  but  just  because  they 
are  not  here  presenting  their  case  is  no  reason  for  concluding  that 
they  are  not  protected. 

Mr.  Atkeson.  That  is  right. 

Mr.  Stone.  And  they  are  here  presenting  their  case. 

Mr.  Platt.  By  how  much  of  a  majority  were  those  resolutions 
adopted? 

Mr.  Atkeson.  They  were  adopted  unanimously.  There  were  32  of 
the  States  represented. 

Mr.  Platt.  Did  all  of  the  New  England  representatives  vote  for  it? 

Mr.  Atkeson.  Yes;  all  of  the  New  England  representatives  voted 
for  it.     There  was  not  a  single  vote  against  it. 

Mr.  Seldomridge.  Did  New  York? 

Mr.  Atkeson.  New  York  and  every  State  north  of  the  Mason  and 
Dixon  line,  and  Virginia.  Kentucky,  and  Missouri,  west  to  the  Pacific. 
We  do  not  have  much  strength  in  the  cotton  States,  but  the  repre- 
sentatives of  the  Farmers'  Union  have  special  strength  in  those 
States;  and  so  far  as  I  have  been  able  to  interpret  their  acts,  they 
are  in  perfect  harmony  with  our  position. 

Mr.  Platt.  Who  appeared  before  the  national  grange  in  advocacy 
of  any  particular  plan  at  that  meeting? 

Mr.  Atkeson.  Of  this  proposition? 

Mr.  Platt.  Yes. 

Mr.  Atkeson.  I  will  say  this,  that  the  committee  that  had  that 
matter  under  consideration  was  a  committee  known  as  the  legislative 
committee.  At  that  particular  session  I  happened  to  be  chairman 
of  that  committee.  Mr.  Stetson,  of  Maine,  and  Mr.  Sherwood,  master 
of  the  Rhode  Island  State  grange :  Mr.  Stetson,  master  of  the  Maine 
State  grange:  Mr.  Sherwood,  master  of  the  Rhode  Island  State 
grange:  and  myself,  master  of  the  West  Virginia  State  grange,  were 
the  three  men  who  were  members  of  that  committee.  There  were 
also  three  ladles.  I  do  not  remember  who  the  ladies  were.  One  of 
them  was  the  wife  of  the  master  of  the  New  Jersey  State  grange. 

Mr.  Platt.  Did  any  outsider  appear  before  the  national  grange  in 
advocacv  of  any   particular  legislation? 

Mr.  Atkix  n.  Not  any  outsider.  Mr.  Bathrick  was  up  there. 
Senator  Bristow  and  Senator  Poindexter  were  both  invited  to  come 
there.  They  were  invited  but  could  not  come,  and  they  had  no  con- 
nection with  these  resolutions,  and  the  resolutions  were  written  be- 
fore Mr.  Bathrick  reached  Manchester.  So  there  was  no  advocacy 
in  support  of  these  resolutions  outside  of  the  grange  itself.  The 
report  of  the   committee  on  the  resolution  was  unanimous.     There 


RURAL    CREDITS.  271 

were  in  Manchester,  as  nearly  as  we  could  arrive  at  the  facts,  some- 
think  like  10,000  or  12,000  farmers — some  from  Washington,  Oregon, 
and  New  England.  There  was  pretty  near  every  one  in  New  Eng- 
land there.  Nowhere  was  there  expressed,  either  in  the  vote  of  the 
membership  or  about  the  hotel  lobbies  or  anywhere  else,  anything 
but  unanimous  approval  of  the  position  taken  by  the  national 
grange. 

Now,  the  national  grange  did  not  provide  specifically  for  the  carry- 
ing of  those  principles  into  operation.  The  farmers  are  not  skilled 
in  the  preparation  of  bills;  they  are  not  lawyers;  they  are  not 
bankers,  but  I  will  venture  to  say,  however,  they  would  get  together 
a  bill  after  a  fashion  if  they  were  asked  to  write  it.  But,  assuming 
our  Congressmen  are  capable  and  patriotic  and  with  the  common 
good  at  heart,  they  desired  only  to  impress  upon  them  their  senti- 
ments as  to  the  general  policy.  There  are  three  general  propositions, 
as  I  stated  in  the  paper,  and  they  are  concerned  about  the  proposi- 
tions more  than  the  detail  of  the  proposition.  One  is  a  profit-earn- 
ing banking  corporation ;  the  other  is  purely  cooperative,  and  Ave  are 
all  agreed  that  cooperative  self-help,  self-initiative,  is  a  good  thing. 
I  think  all  of  us,  no  difference  what  position  we  take  on  this  general 
proposition,  agree  that  cooperation  is  a  good  thing.  I  do  not  think 
there  is  any  question  about  that,  if  it  will  operate.  There  may  be 
differences  of  opinion  about  that. 

Our  conviction  is  that  a  cooperative  banking  association,  or  what- 
ever you  choose  to  call  it,  should  take  care  of  the  short-time  loans, 
and  that  the  Government  itself  should  take  care  of  the  long-time 
loans,  and  that  the  time  should  be  sufficiently  long  not  to  weight 
down  with  the  annual  or  semiannual  payments  the  industry  of  agri- 
culture beyond  the  burdens  that  it  can  bear. 

There  was  a  question  raised  this  morning  as  to  the  length  of  time 
that  this  amortization  feature  should  run.  Under  the  commission's 
bill  if  they  can  load  on  to  the  landowner  the  whole  amount  of  the 
principal  covering  a  period  of  six  years — if  it  is  for  more  than  five 
years  they  can  distribute  the  principal  over  the  number  of  years ;  we 
will  say  it  is  six — that  swamps  the  man  unquestionably.  There  is 
not  a  farmer  in  this  country,  barring  some  special  conditions  and 
some  special  men,  possibly  (there  are  exceptions  to  practically  all 
rules),  that  can  borrow  half  the  value  of  his  land  and  load  it  on  to 
him  plus  the  interest  and  the  cost  of  administration  and  pay  it  in 
six  years. 

The  question  is,  how  long  shall  it  run  to  enable  him  to  meet  these 
annual  charges?  As  I  have  studied  the  commission's  bill — I  like  to 
call  it  that— it  seems  to  me  that  the  probabilities  (and  I  waked 
up  last  night  and  this  thing  would  keep  coming  up  like  Bancho's 
ghost ;  it  would  not  down)  are  that  the  interest  rates  will  not  be  less 
than  6  per  cent. 

Mr.  Platt.  Right  there,  Mr.  Atkeson,  the  farmers  in  four  or  five 
States  of  the  Union  are  paying  less  than  6  per  cent  now  on  their 
mortgages,  as  shown  by  the  Department  of  Agriculture.  How  do 
those  banks  get  along  in  those  States? 

Mr.  Atkeson.  You  mean  the  legal  rate  of  interest? 

Mr.  Platt.  No;  I  mean  they  are  actually  paying  less  than  6  per 
cent  in  Pennsylvania,  New  York,  and  nearly  all  of  the  New  England 
States  to-day,  and  Ohio. 


272  RURAL    CREDITS. 

Mr.  Atkeson.  There  may  be  a  few  exceptions,  as  I  said  awhile 
ago.  We  will  say,  then,  it  has  been  figured  up  that  the  average  rate 
paid  by  farmers  now  is  8  per  cent — 8  and  a  fraction — you  have  all 
seen  those  figures.  Under  this  scheme  the  interest  rate  on  the 
average — there  may  be  some  Eastern  States  where  the  prevailing 
rate  will  be  6  per  cent;  in  my  State  the  legal  rate  is  6  per  cent,  and 
that  may  be  the  legal  rate  in  a  majority  of  the  States — we  will  assume, 
under  this  banking  scheme,  will  be  6  per  cent.  The  cost  of  admin- 
istration adds  another  1  per  cent,  and  then  when  you  add  a  half  per 
cent  or  a  whole  per  cent,  or  2  or  3  per  cent  for  the  length  of  time  the 
mortgage  runs,  covering  the  amortization  charges,  you  fix  an  annual 
payment  certainly  not  under  8  per  cent.  And  8  per  cent  loads  up 
any  agricultural  enterprise  in  this  country  until  it  is  absolutely 
hopeless. 

Now,  I  want  to  impress  upon  you  this  one  thought,  because  it  is 
abhorrent  to  the  farmers — any  question  of  special  privilege.  The 
question  has  been  raised  why  this  privilege  should  not  be  granted  to 
the  man  who  wants  to  establish  a  home  in  the  city.  The  cases  are 
not  at  all  parallel.  If  you  grant  this  privilege,  and  place  the  interest 
rate  with  the  amortization  feature  for  a  long  time  to  run,  not  above 
4  or  4£  per  cent — a  good  deal  has  been  said  about  trying  to  induce 
some  of  the  congested  population  of  the  cities  to  go  back  to  the 
country — would  you  interfere  with  Mr.  City  Blacksmith  or  Mr.  City 
Laborer,  or  anyone  else,  availing  himself  of  this  privilege,  if  you 
choose  to  call  it  a  special  privilege  ? 

Mr.  Bulkley.  Mr.  Atkeson,  in  that  connection:  Do  you  subscribe 
to  what  Mr.  Brooks  said,  that  the  loan  should  be  confined  to  prac- 
tical farmers  with  four  years'  experience? 

Mr.  Atkeson.  That  would  be  desirable;  but  I  do  not  believe  I 
would  undertake  to  limit  it  to  a  farmer  of  experience. 

Mr.  Bulkley.  Of  course,  if  you  made  that  limitation,  that  would 
answer  your  question. 

Mr.  Atkeson.  Yes.  I  would  not  do  it  for  this  reason:  It  leaves 
a  question  of  dispute  as  to  what  constitutes  a  sufficient  experience. 
If  a  man  who  is  running  a  blacksmith  shop  thinks  it  is  one  perpetual 
sweet  song  out  in  the  country  and  wants  to  try  it,  the  way  to  get  that 
notion  out  of  his  head  is  to  let  him  try  it  for  a  while.  I  have  been 
there.  If  he  chooses  to  go  out  in  the  country,  to  take  advantage  of 
this  so-called  special  privilege,  he  has  a  chance  to  go  out  and  try  it. 
If  he  fails  to  make  a  living  and  meet  those  charges  of  interest  and 
amortization,  all  he  has  to  do  is  to  sell  out  to  somebody  else  who 
can  meet  those  charges,  and  who  will  go  on  with  the  same  property. 

Xow,  there  is  one  important  thing:  If  I  were  undertaking  to  deal 
with  the  commission's  bill,  there  are  several  important  amendments. 
Some  of  them  were  pointed  out  this  morning.  But  I  want  to  call 
your  attention  to  this  one,  and  that  is  the  limitation  on  the  amount 
any  one  man  may  secure.  It  ought  to  be  limited,  otherwise  instead 
of  helping  the  independent  landowner,  who  is  to  live  on  it  and  farm 
it,  you  make  it  even  more  possible  for  the  speculator  who  invests  in 
the  land  with  the  hope  of  reward  in  what  Mr.  George  would  call  the 
unearned  increment.  Suppose  we  take  the  provision  in  this  bill, 
that  he  may  borrow  50  per  cent  of  the  value  of  his  land.  If  I  had 
$100,000  I  "could  borrow  another  $100,000  and  buy  $200,000  worth 


EUKAL    CREDITS.  273 

of  land  and  keep  everybody  else  off  of  it  except  an  irresponsible 
tenantry. 

Mr.  Bulkley.  Your  suggestion  is  that  the  total  amount  any  one 
man  should  be  permitted  to  borrow  should  be  limited  to  a  specific 
sum.    Is  that  right? 

Mr.  Atkeson.  My  own  theory  is  not  more  than  $10,000.  But  that 
is  a  matter  of  detail. 

Mr.  Bulkley.  In  any  event,  there  should  be  some  limit. 

Mr.  Atkeson.  There  should  be  some  limit. 

Mr.  Bulkley.  I  think  you  are  right  about  that.  Now,  how  did 
you  arrive  at  $10,000  ? 

Mr.  Atkeson.  My  own  conviction  is  it  ought  not  to  be  more  than 
$10,000.  and  that  would  make  it  possible  for  a  man  to  acquire  a 
$20,000  farm. 

Mr.  Bulkley.  Why  $20,000?     How  do  you  fix  it  at  that  amount? 

Mr.  Atkeson.  I  say  that  is  a  matter  of  detail,  a  matter  of  judg- 
ment, as  to  where  it  ought  to  be ;  but  $20,000  is  a  pretty  good  farm  for 
one  man  and  one  family  to  operate.  If  one  man  owns  a  farm  and 
another  man  operates  it,  that  land  is  expected  to  support  two  fami- 
lies— one  struggling  for  existence,  doing  all  of  the  work,  and  the 
other  existing,  doing  none  of  the  work. 

Mr.  Bulkley.  Is  it  your  idea  that  a  $20,000  farm  is  about  what 
one  family  can  take  care  of  properly? 

Mr.  Atkeson.  The  dollars  and  acres  do  not  always  fit  each  other. 
It  seems  to  me  that  160  acres  ought  to  be  the  maximum  acreage  of 
tillage. 

Mr.  Bulkley.  Acreage  does  not  exactly  fit  either.  It  takes  more 
acreage  in  one  part  of  the  country  than  in  another? 

Mr.  Atkeson.  I  understand.  That  is  why  I  say  that  any  limita- 
tion would  be  purely  arbitrary  and  would  be  a  matter  of  the  best 
judgment.  But  it  seems  to  me  there  ought  to  be  an  absolute  limita- 
tion put  upon  any  of  these  schemes  as  to  the  amount.  Under  any  one 
of  these  schemes  there  ought  to  be  a  limitation  on  the  amount  that 
any  one  individual  could  secure. 

Now,  under  a  direct-loan  scheme,  it  would  be  easy.  There  would 
be  some  complications  under  a  general  banking  scheme  as  proposed. 

Now.  I  have  occupied  perhaps  all  the  time  I  ought  to,  and,  good 
naturedly,  I  shall  do  my  best  to  answer  any  questions  anyone  may 
wish  to  ask. 

Mr.  Stone.  Can  you  give  the  reasons  why  farm  mortgages  are  not 
considered  the  best  security  now,  and  why  farmers,  for  that  reason, 
can  not  get  money  at  as  low  a  rate  of  interest  as  other  persons  ? 

Mr.  Atkeson.  That  is  a  little  questionable.  It  is  a  remarkable 
fact  that  it  is  a  fact  that  farmers  have  had  to  pay  more  for  the  money 
they  borrowed  than  other  people.  That  is  the  statistics,  and  the  best 
information  I  have  gained  from  any  source  supports  that  position. 
Undoubtedly  it  seems  to  me  farm  mortgages  are  the  best  possible 
security  that  anyone  can  offer.  Now,  why  it  should  pay  a  higher 
rate  of  interest  than  commercial  paper  demands  is  a  question  perhaps 
some  statesman  or  banker  can  answer.     I  am  sure  I  can  not. 

Mr.  Bulkley.  Mr.  Atkeson,  without  expressing  any  opinion  one 
way  or  the  other,  I  will  call  your  attention  to  the  fact  that  some  peo- 

37031—14 18 


274  RURAL    CREDITS. 

pie  think  it  would  not  be  constitutional  for  the  Federal  Government 
to  make  direct  loans  to  farmers. 

Now.  if  the  committee  should  be  persuaded  that  that  is  the  case, 
what  shall  we  do?  Shall  we  do  something  similar  to  what  Mr. 
Scudder  suggested  this  morning? 

Mr.  Atkeson.  Yes;  if  that  is  the  best  that  can  be  done;  perhaps 
that  would  be  some  amelioration  of  the  situation. 

Mr.  Bulkley.  Would  you  advocate  going  any  further  than  that? 
Would  you  advocate  the  Government  depositing  funds  with  the  agri- 
cultural banks? 

Mr.  Atkeson.  The  Government  how? 

Mr.  Bulkley.  Depositing  funds  with  the  agricultural  banks  ? 

Mr.  Atkeson.  What  is  to  become  of  those  funds  ? 

Mr.  Bulkley.  To  be  loaned  on  mortgages? 

Mr.  Atkeson.  That  is  a  suggested  compromise  among  some  of  us 
who  do  not  agree,  that  the  Government  deposit  money  in  these  banks, 
holding  the  banks  responsible,  and  that  the  Government  fix  the  rate 
of  interest. 

Mr.  Bulkley.  What  do  you  say  about  that  plan  ? 

Mr.  Atkeson.  Well,  if  that  can  be  considered  to  be  constitutional 
and  the  other  not,  why,  that  perhaps  is  a  desirable  compromise. 

Mr.  Bulkley.  I  think  it  is  conceivable  that  that  might  be  so.  I 
have  not  gotten  to  the  bottom  of  the  constitutional  argument  yet. 

Mr.  Atkeson.  I  am  a  little  curious,  though — if  I  may  ask  you  a 
question  back — to  know  on  what  theory  it  would  be  unconstitutional, 
when  the  Federal  Government  is  already  loaning  its  credit  and  loan- 
ing its  money  directly  to  the  banking  corporation. 

Mr.  Bulkley.  The  Government  has  not  made  any  loans  to  the 
banking  corporations.  The  Government  has  deposited  its  current 
funds,  the  same  as  you  and  I  might  deposit  our  current  funds  in  the 
bank,  for  the  Government's  convenience,  as  much  as  your  deposit 
with  your  bank  is  for  your  convenience.  You  are  not  doing  it  for  the 
benefit  of  the  bank. 

Mr.  Atkeson.  Then,  you  consider  it  is  not  loaning  the  bank  money 
when  the  postal  funds  of  the  postal  savings  bank  are  loaned  to  banks 
at  2i  per  cent  ? 

Mr.  Bulkley.  I  think  that  comes  pretty  near  loaning  it  to  them. 

Senator  Hollis.  That  is  an  investment. 

Mr.  Bulkley.  It  is  an  investment  of  money  the  Government  has 
to  take  care  of  and  is  done  for  the  conservation  of  the  funds  which 
the  Government  has,  and  not  for  the  benefit  of  the  bank. 

Mr.  Atkeson.  And  what  would  be  the  difference  if  they  loaned 
that  same  money  on  first  mortgage  bonds? 

Mr.  Butlkley.  Would  you  be  satisfied  if  the  Government  loaned 
the  postal-savings  funds  and  no  more? 

Mr.  Atkeson.  I  do  not  see  anything  constitutionally  the  matter 
with  it. 

Mr.  Bulkley.  I  say  would  that  satisfy  the  demands  of  your  or- 
ganization, if  the  Government  should  loan  what  happens  to  be  in 
the  postal-savings  fund? 

Mr.  Atkeson.  Yes:  if  it  goes  a  little  further.  I  did  not  state 
another  resolution  they  adopted  at  that  time,  and  that  was  that  all 
limitations  be  taken  off  deposits  in  postal  savings  and  that  the  de- 
positor be  given  3  or  3^  per  cent  and  then  loan  direct  to  the  farmers 
at  4  or  4-|.     This  county  would  be  astounded  at  the  amount  of 


KUEAL    CREDITS.  275 

money  that  would  pour  into  the  postal-savings  banks  in  this  country. 
You  could  pretty  nearly  buy  all  of  the  farms  in  a  few  years  with  it. 

Mr.  Bulkley.  That  would  be  satisfactory,  would  it? 

Mr.  Atkeson.  We  would  take  a  gamble  on  it.  Remove  all  re- 
strictions and  give  the  depositors  3|  per  cent  on  their  money  in  the 
savings  banks,  and  loan  to  the  farmer  at  4i,  and  give  the  Govern- 
ment the  1  per  cent  for  administration,  and  if  we  don't  favor  it  I  am 
going  to  surrender  on  the  whole  proposition. 

Mr.  Bulkley.  Coming  back  to  the  provisions  of  the  Moss  bill, 
do  you  believe  that  the  farmers  in  local  communities  would  want  to 
subscribe  to  the  stock  of  these  banks? 

Mr.  Atkeson.  I  do  not  think  so. 

Mr.  Bulkley.  You  do  not  think  they  would  at  all  ? 

Mr.  Atkeson.  No;  I  would  not  say  at  all;  because  in  certain 
localities,  under  certain  conditions,  it  might  be  a  successful  scheme. 
Whether  it  would  operate  generally  or  not  is  very  questionable. 

Mr.  Platt.  Mr.  Atkeson,  you  objected  to  the  exemption  from  taxa- 
tion in  the  Moss  bill  of  the  mortgages  and  bonds.  Suppose  the 
Government  should  loan  directly,  would  not  the  Government  bonds 
be  exempted  from  taxation  and  also  the  mortgages  they  took? 

Mr.  Atkeson.  Undoubtedly.  That  is,  if  you  support  the  general 
proposition,  and  not  for  the  benefit  of  a  corporation,  if  the  Govern- 
ment put  it  on  with  one  hand  and  took  it  off  with  another  it  would 
amount  to  the  same  thing;  but  exempting  a  private  corporation, 
which  is  a  money-making  scheme  with  all  of  the  human  elements  to 
deal  with,  why  it  should  be  exempt  from  taxation  is  quite  hard  to 
demonstrate. 

Mr.  Platt.  If  bonds  and  mortgages  were  not  exempted  from  taxa- 
tion under  the  Moss  bill  would  not  the  tax  simply  be  added  to  what 
the  farmer  would  have  to  pay? 

Mr.  Atkeson.  We  object  to  it  on  the  broad  ground  that  it  repeals 
the  income  tax  proposition,  which  we  have  favored  for  40  years — I 
mean  the  grange. 

Mr.  Platt.  You  believe  farm  mortgages  ought  to  be  exempted 
from  taxation,  anyhow? 

Mr.  Atkeson.  Any  mortgages  or  income  from  private  banking 
corporations  I  do  not  think  ought  to  be  exempted  from  taxation. 

Mr.  Platt.  Where  mortgages  are  taxed  at  the  local  tax  rates  does 
the  farmer  pay  the  tax,  or  the  borrower  pay  the  tax,  or  who  does 
pay  it? 

Mr.  Atkeson.  That  applies  to  all  evidences  of  debt — notes  and 
mortgages. 

Mr.  Platt.  Yes. 

Mr.  Atkeson.  I  am  a  money  lender,  we  will  say.  This  bill  takes 
the  money  out  of  my  pocket — I  mean  the  mortgage  proposition  takes 
the  money  out  of  my  pocket — and  I  will  manage  somehow  or  other 
to  load  the  tax  onto  the  other  fellow.  If  any  of  you  are  money  lend- 
ers, I  guarantee  you  do,  too. 

Mr.  Platt.  In  other  words,  if  those  mortgages  and  bonds  were  not 
exempted  in  the  Moss  bill,  the  farmer  would  pay  the  tax? 

Mr.  Atkeson.  If  they  were  taxed,  the  farmer  would  pay  the  tax, 
unquestionably. 

Mr.  Platt.  Then  it  is  not  for  the  benefit  of  the  corporations;  it  is 
for  the  benefit  of  the  borrowers? 


276  RURAL    CREDITS. 

Mr.  Atkeson.  That  may  be  true  of  the  whole  income-tax  proposi- 
tion. The  fellow  at  the  bottom,  the  man  of  last  resort,  is  the  man 
that  bears  the  burden. 

I  believe  the  consumer  pays  the  tariff,  and  always  did,  and  I  pre- 
sume at  least  a  part  of  this  committee  believes  that  yet  Part  of  them 
may  not.  It  is  practical^  impossible  to  eliminate  that  element.  The 
ultimate  consumer  pays  all  the  charges.  And  if  you  remove  the  in- 
come tax,  you  would  remove  the  tax  from  the  people  higher  up,  and 
then  you  get  down  to  the  Henry  George  theory  of  putting  all  the  tax 
on  the  ground  upon  which  we  all  stand. 

Mr.  Moss.  May  I  ask  you  a  question,  Mr.  Atkeson? 
Mr.  Atkeson.  Certainly. 

Mr.  Moss.  The  provision  exempting  this  income  on  capital  stock, 
etc.,  was  taken  out  of  the  Federal  reserve  act.     The  regional  banks 
have  also  their  income  on  capital  stock  exempted  from  taxation.     I 
believe  you  stated  you  approved  that  act? 
Mr.  Atkeson.  How  is  that? 

Mr.  Moss.  I  understood  you  to  say  you  approved  the  Federal 
reserve  act? 

Mr.  Atkeson.  You  mean  the  general  banking  act? 
Mr.  Moss.  Yes,  sir. 
Mr.  Atkeson.  Yes,  sir. 

Mr.  Moss.  I  say  this  provision  exempting  incomes  on  capital  stock, 
etc.,  was  taken  word  for  word  from  that  act. 

Mr.  Atkeson.  Do  they  exempt  farm  mortgages? 
Mr.  Moss.  No;  I  am  speaking  about  the  exemption  of  the  income 
on  the  capital  stock  of  those  banks  from  taxation  being  taken  word 
for  word  from  the  Federal  reserve  act.  and  the  fact  that  the  regional 
banks  under  the  Federal  reserve  act  are  exempted  precisely  to  the 
same  degree  that  the  farm  banks  are. 

Mr.  Atkeson.  You  remember  I  said  in  our  universal  approval  of 
the  general  banking  act  we  did  so  not  because  it  was  perfectly 
equitable. 

Mr.  Bulkley.  Of  course.  Mr.  Moss,  there  is  another  consideration 
there — the  dividends.    Their  dividends  are  limited. 
Mr.  Moss.  Oh,  yes. 

I  want  to  say  one  thing.  I  fully  agree  with  Mr.  Atkeson :  I  am 
not  in  favor  of  exempting  incomes. 

Senator  Hollis.  Mr.  Atkeson,  I  want  to  get  a  little  information, 
and  I  am  asking  these  questions  for  no  other  reason.  At  Man- 
chester, N.  H..  did  you  find  among  the  members  of  the  grange  gener- 
ally a  pretty  strong  suspicion  that  Congress  was  not  going  to  try  to 
pass  an  act  that  would  be  of  real  benefit  to  the  farmers  ? 

Mr.  Atkeson.  I  did  not.     There  was  no  suspicion  that  Congress 
had  any  such  purpose. 
Senator  Hollis.  That  is  what  I  want  to  get  at. 
Mi-.  Atkeson.  I  want  to  say  this  frankly,  Senator.  I  believe  the 
farmer  people  of  this  country  believe  that  this  committee,  this  Con- 
gress, and  this  administration   want   to  do  something  that  is  sub- 
stantially worth  while  for  the  agricultural  interests  of  this  country. 
Senator  Hollis.  T  am  very  glad  to  know  that,  because  I  thought 
from  some  remarks  you  made  you  felt  they  Avere  not  really  going  to 
try  to  help  you.  but  were  going:  to  try  to  favor  some  special  inter- 
ests ? 


RURAL    CREDITS.  277 

Mr.  Atkeson.  No;  they  are  not  suspicious  of  the  body  of  the 
Congress,  and  the  intent  of  the  Congress  and  the  Senate  and  the 
House,  or  these  committees.  But  we  think  we  know,  from  genera- 
tions of  experience,  that  the  man  with  money  is  always  on  the  job. 
There  are  two  classes  in  this  country  that  never  quit,  and  that  is  the 
fellow  who  is  behind  the  saloon  and  the  fellow  who  is  behind  the 
dollar.     They  stay  up  at  nights. 

Senator  Hollis.  Was  the  fear  that  the  money  lenders,  the  bank- 
ing interests,  might  hoodwink  the  committee? 

Mr.  Atkeson.  Now,  Mr.  Chairman,  just  as  we  realized  in  the  fight 
for  a  parcel  post,  there  was  a  great  cooperative  interest  behind  it. 
That  does  not  mean  any  reflection  on  the  Congress.  If  I  were  a 
Member  of  Congress,  I  would  be  confronted  with  this  same  propo- 
sition. Take  the  investigations  of  the  Money  Trust  and  the  Mul- 
hall  investigation:  we  people  read  the  newspapers  more  than  you 
think.  I  think  there  has  never  been  a  time  in  the  history  of  the 
country  when  the  country  felt  more  implicit  in  the  honesty  of  pur- 
pose of  the  men  in  Congress  than  they  do  to-day. 

Senator  Hollis.  I  am  very  glad  to  hear  you  say  that. 

Mr.  Atkeson.  But  it  means  the  other  fellow,  that  knows  the  in- 
sidious use  of  the  accumulated  millions  of  this  country,  is  on  the  job, 
and  he  is  not  going  to  quit  until  he  is  compelled  to  quit. 

Mr.  Seldomridge.  Mr.  Atkeson.  did  you  state  the  farmers  were 
without  representation  on  the  commission  that  went  abroad? 

Mr.  Atkeson.  Not  wholly.  It  was  not  my  statement,  it  was  Mr. 
Wilson's  statement  in  the  reprint  I  read  from  the  paper.  We  know, 
however,  that  so  far  as  the  bona  fide  farmer  is  concerned — the  man 
whose  primary  and  substantial  support  comes  from  the  farm — they 
had  very  little  representation  on  the  commission.  Perhaps  the 
farmers  were  themselves  to  blame  for  it,  but  it  is  the  fact. 

Mr.  Seldomridge.  What  commission  do  you  refer  to? 

Mr.  Atkeson.  I  take  the  thing  in  its  aggregate,  or  take  the  con- 
gressional part  of  it.  or  take  the  general  commission  of  the  South- 
ern Commercial  Congress. 

Mr.  Seldomridge.  In  other  words,  you  think  the  commission  was 
really  not  familiar  with  the  desires  and  was  not  representative  of  the 
farmers? 

Mr.  Atkeson.  Not  in  its  entirety.  As  a  commission,  I  do  not  think 
anything  about:  I  know  that  I  know,  if  you  will  excuse  that  ex- 
pression. 

Mr.  Seldomridge.  Have  you  analyzed  its  report? 

Mr.  Atkeson.  I  sat  up  with  it  night  after  night. 

Mr.  Seldomridge.  In  what  essential  purpose  is  the  report  antago- 
nistic to  the  idea 

Mr.  Atkeson.  We  did  not  say  it  was  antagonistic. 

Mr.  Seldomridge.  You  said  it  was  not  representative  of  the  agri- 
cultural interests? 

Mr.  Atkeson.  The  men  as  individuals,  in  their  personality, 
although  they  may  be  of  the  highest  order  of  American  statesman- 
ship, and  I  think 'they  are — I  am  willing  to  concede  that — they  can 
not  possibly  appreciate  the  purport  of  those  things  as  the  man  who 
must  meet  the  conditions  of  the  farm,  who  eats  and  sleeps  and  sweats 
in  the  open  country.  It  is  an  impossibility;  just  as  much  as  it  is  for 
me  to  appreciate  how  somebody  in  Wall  Street  or  Fifth  Avenue  in 


278  RURAL    CREDITS. 

New  York  lives  and  spends  his  time.  I  have  absolutely  no  concep- 
tion of  how  a  man  representing  a  million  or  a  billion  of  money  gets 
away  with  his  income;  I  would  not  know  how  to  get  away  with  a 
million.  And  he  knows  just  as  little,  possibly  a  good  deal  less,  about 
how  1  have  to  scrape  ends  and  sit  up  early  and  late  on  an  average 
gross  income,  according  to  the  latest  statistics,  of  less  than  $900  for 
the  average  farmer  in  America.  Out  of  that  average  income  he  has 
to  support  a  family  of  9  or  10  children  and  all  of  the  dogs  incident 
to  the  family;  he  must  pay  all  his  hired  labor,  buy  all  his  machinery, 
and  include  the  incidents  of  the  production  of  his  crop  on  an  average 
gross  income  of  about  $900  a  year. 

Mr.  Stone.  Are  you  actively  engaged  in  farming? 

Mr.  Atkeson.  Yes,  sir;  and  have  been  for  62  years  last  Sunday 
week. 

Mr.  Stone.  That  is  your  sole  occupation? 

Mr.  Atkeson.  It  has  been  excepting  during  the  last  17  years.  I 
have  been  dean  of  the  college  of  agriculture  in  my  State.  Nine 
months  in  the  year  I  live  in  a  little  town  and  the  other  three  months 
I  am  on  the  farm.  And,  in  association  with  my  son,  during  those  1 7 
years  I  have  been  continuously  farming  a  farm  I  own. 

I  do  not  like  to  go  into  personal  history,  but  I  think  the  committee 
will  excuse  me  for  making  this  statement  as  an  evidence  that  I  know 
what  I  am  talking  about  when  it  comes  to  farm  property:  When  I 
was  married  I  had  more  good  intentions  than  any  man  in  the  United 
States  Senate  or  Congress,  and  that  was  my  capital  stock — the  good 
intentions  and  the  woman.  I  wTorked  as  a  farm  hand  in  West  Vir- 
ginia for  five  years,  with  a  young  wife  on  my  hands,  and,  incidentally, 
some  babies  in  the  meantime,  at  a  munificent  salary  of  75  cents  a  day. 
At  the  end  of  that  five  years  I  rented  a  farm  and  paid  cash  rent  for  it, 
and  at  the  end  of  10  years  I  bought  a  farm  and  paid  taxes  for  a  good 
many  years  on  about  $15,000  of  my  debts. 

And  so  I  have  been  up  against  the  varied  sides  of  this  farm  propo- 
sition. 

I  have  two  sons,  both  of  them  graduates  of  an  agricultural  college. 
One  of  them,  up  until  the  last  3rear,  has  been  on  a  500-acre  farm  in 
the  southwest  corner  of  Alabama.  So  we  know  the  negro  and  the  cot- 
ton proposition  down  there.  Just  now  he  is  a  farm  demonstrator  in 
Alabama.  Both  of  the  boys  are  graduates  of  an  agricultural  college 
and  know  how  to  farm,  and  they  are  doing  what  I  tried  to  teach  them. 

I  had  expected  somebody  to  ask  me  what  I  did  in  the  first  two 
years. 

Mr.  Alexander.  You  wore  in  the  dairy  business  the  first  two 
years? 

Mr.  Atkeson.  That  is  right. 

Mr.  Stone.  You  say,  Mr.  Atkeson,  in  concluding  this  statement, 
that  j^ou  sent  out  to  the  grange  that  "  prompt  action  is  imperatively 
demanded  if  any  substantial  benefit  is  to  be  secured  to  the  farmers  by 
the  pending  farm-credit  legislation."  What  was  the  situation  that 
made  it  appear  to  you  that  such  a  sentence  was  necessary  1 

Mr.  Atkeson.  Well,  there  are  two  or  three  reasons  why  that  state- 
ment was  made.  In  the  fifr-t  place,  the  farmers  can  not  come  here. 
We  assume,  and  I  think  it  is  a  fair  assumption,  that  the  Members  of 
Congress  like  to  hear  from  their  constituents  and  like  to  know  what 
their  constituents  are  thinking  about  and  their  position  on  the  spe- 


RURAL    CREDITS.  279 

cial  interests  and  contentions  at  a  particular  time;  and  so  that  is  an 
invitation  to  the  members  of  the  grange  to  let  their  Members  in 
Congress  know  where  they  stand.    You  will  notice  there  is  no  sug- 
gestion as  to  the  character  of  letter  they  shall  write. 
Mr.  Stoke.  Merely  indorsing  H.  R.  11897? 
Mr.  Atkeson.  That  is  all. 

Mr.  Platt.  Mr.  Atkeson,  I  suppose  from  what  Mr.  Stone  asked 
you  he  meant  to  bring  out  whether  you  thought  conditions  in  agri- 
culture are  not  worse  now  then  they  were,  for  instance,  when  you 
grew  up  through  the  stages  of  earning  a  salary  as  a  farm  hand,  then 
as  a  renter,  and  then  as  a  purchaser.  Do  you  mean  to  say  that  it  is 
harder  now  than  when  you  did  it  ? 
Mr.  Atkeson.  A  great  deal  harder. 
Mr.  Platt.  Why? 

Mr.  Atkeson.  His  land  has  been  depleted  in  productiveness,  on 
the  average,  the  country  over.  Through  speculative  influences,  land 
has  increased  far  beyond  its  productive  value  at  the  present  prices. 
There  was  a  time  when  a  man  could  secure  land  by  going  through 
the  process  of  settling  on  it  and  getting  it  as  a  free  gift  from  the  Gov- 
ernment; and  as  time  goes  on  land  in  Illinois — to  give  you  an  illus- 
tration of  what  I  mean— settled  two  generations  ago,  acquired  for 
$1.25  or  no  money  consideration  under  the  Government  alienation 
of  the  public  land,  if  the  men  stayed  on  the  land — if  they  stayed  there, 
it  does  not  make  any  difference  how  difficult  it  was  to  stay  there,  if 
he  could  live  and  get  enough  to  eat  and  stay  there  for  two  or  three 
generations — that  land  has  become  under  his  feet  worth  about  $200 
to  $250  an  acre. 

Mr.  Platt.  Yes;  but  that  was  not  what  you  did? 
Mr.  Atkeson.  No ;  that  was  not  what  I  did ;  but  I  tackled  this 
proposition  nearly  10  years  ago.  That  thing  has  not  happened  that 
way.  I  will  say  this,  that  I  have  been  offered  for  the  property  I 
bought — that  I  began  with  just  about  40  years  ago;  not  quite  that — 
125  per  cent  more  than  I  paid  for  it.  And  it  is  less  productive  now 
than  it  was  then,  because  I  taxed  it  pretty  heavily  in  trying  to  pay 
for  it.  And  there  you  are  now  with  an  increased  valuation  of  a  125 
per  cent  increase.  And  in  some  cases  it  has  been  1,000  per  cent.  And 
a  man  who  tackles  that  job  under  present  conditions — I  know  now, 
with  my  experience  of  62  years,  I  would  be  a  fool  to  tackle  now  what 
I  tackled  then. 

Mr.  Platt.  Now,  if  you  in  the  country  think  land  has  gone  down 
because  everybody  has  gone  to  the  cities,  what  has  been  the  cause 
of  that  tremendous  increase  in  the  value  of  farm  lands? 

Mr.  Atkeson.  Speculation.  I  would  like  to  answer  that  question, 
which  has  been  asked  by  the  farm  people  themselves,  by  saying  it 
somebody  will  tell  me  who  is  buying  the  coal  lands  in  West  Virginia 
that  will  probably  not  pay  a  cent  of  income  for  probably  100  years, 
then  I  will  answer  the  other  question. 

Mr.  Platt.  Is  not  the  increased  value  of  the  farm  lands  to  be 
taken  into  consideration  as  an  increased  compensation  for  his  labor? 
Mr.  Atkeson.  No. 

Mr.  Platt.  You  have  doubled  your  money  on  your  land. 
Mr.  Atkeson.  If  he  undertakes  to  pay  interest  on  the  mortgage, 
it  is  not  a  question  of  waiting  for  the  unearned  increment,  but  it  is 


280  RURAL    CREDITS. 

a  question  of  paying  the  debt  due  in  this  year,  that  he  must  be  able 
to  carry  the  obligation  or  it  swamps  him. 

Mr.  Pi.att.  If  he  does  carry  it  than  the  increased  value  of  the 
land  is  increased  compensation  for  his  work? 

Mr.  Atkeson.  That  is,  if  he  can  hold  on.  This  125  per  cent  that 
has  come  to  the  land  I  struggled  through  with.  I  possess  now.  But 
suppose  I  had  been  swamped  with  the  debt,  paying  taxes  on  thou- 
sands of  dollars,  and  the  other  taxes.  We  had  all  these  taxes.  We 
always  holloed,  as  I  say,  a  little  about  that;  but  we  had  it  to  do 
just  the  same. 

Mr.  Bi  lklev.  Mi-.  Atkeson,  do  you  agree  with  Mr.  Brooks  about 
the  limit  on  the  purpose  for  which  the  loans  shall  be  made? 

Mr.  Atkeson.  I  would  limit  that.  I  would  put  in  a  limitation  of 
the  loans  to  purchase  money  and  operating  machinery  and  improve- 
ment of  the  property  itself.  That  is,  I  would  not  lend  a  man 
money,  or  permit  him,  if  I  could  prevent  it,  from  using  the  money  to 
buy  an  automobile. 

Mr.  Bulkley.  Would  you  permit  him  to  use  it  to  refund  an 
existing  debt? 

Mr.  Atkeson.  Unquestionably.  I  see  no  reason  why  he  should  not. 
It  is  the  same  thing.  Providing  the  existing  debt  is  not  beyond  the 
limit  that  is  allowed  to  be  placed  on  the  property. 

Mr.  Bulkley.  Yes;  exactly. 

Mr.  Atkeson.  I  see  no  season  why  he  should  not  exchange  one 
debt  for  the  other. 

Mr.  Bulkley.  Do  you  think  it  is  proper  to  go  into  a  mortgage 
indebtedness  for  a  long  term  of  years  for  the  purpose  of  buying 
equipment  and  stock? 

Mr.  Atkeson.  Oh,  well,  he  probably  would  not  want  that  kind 
of  a  mortgage  for  that  kind  of  property.  Perhaps  the  limitation 
ought  to  be  narrowed  down  to  purchase  money  and  substantial  im- 
provement. 

Mr.  Bulkley.  Those  are  the  lines  we  have  been  thinking  along, 
and  I  am  glad  to  know  you  think  the  same  way. 

Mr.  Atkeson.  The  question  of  securing  money  for  operating  equip- 
ment ought  to  be  considered  in  some  short-time  loan,  if  it  is  necessary. 

(Thereupon,  at  4.10  o'clock  p.  m.,  the  subcommittee  adjourned  until 
to-morrow.  Wednesday,  February  25,  1914,  at  10.30  o'clock  a.  m.) 


WEDNESDAY,   FEBRUARY   25,    1914. 

United  States  Senate, 

Washington,  D.  G. 
The  committees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Senator  Henry  F.  Hollis  presiding. 

Present:  Representatives  Bulkley,  Stone,  Seldomridge,  Weaver, 
Hayes,  Woods,  and  Piatt. 

STATEMENT  OF  H.  Q.  ALEXANDER,  OF  MATTHEWS,  N.  C. 

Senator  Hollis.  Mr.  Alexander,  will  you  state  your  name,  resi- 
dence, and  occupation,  for  the  benefit  of  the  record  ? 

Dr.  Alexander.  My  name  is  H.  Q.  Alexander,  and  my  residence 
is  Matthews,  N.  C.  By  profession  I  am  a  country  physician  and 
farmer.  I  appear  before  the  committee  in  a  representative  capacity, 
representing  the  North  Carolina  Farmers'  Union,  of  which  I  have 
had  the  honor  of  being  president  for  six  years. 

Mr.  Bulkley.  Have  you  not  also  been  engaged  to  represent  the 
National  Farmers'  Union? 

Dr.  Alexander.  Yes.  President  Barrett  wired  me  Saturday  night 
to  be  here  yesterday.  And,  as  stated  by  the  gentleman  who  pre- 
ceded me,  representing  farmers'  organizations,  I  was  called  here  on 
very  short  notice  and  have  had  very  little  time  to  think  of  the  ques- 
tions before  the  committee ;  and,  as  you  will  probably  find  out  before 
I  get  through,  I  am  not  a  financier.  I  have  not  made  a  special 
study  of  the  proposition  that  is  engaging  the  attention  of  this 
committee. 

I  think,  however,  that  I  do  know  somewhat  the  needs  of  the 
farmers,  because  I  have  been  working  with  the  farmers  for  the  last 
six  years  in  their  organized  capacity  in  my  State.  And  lest  you 
may  think  I  am  not  directly  connected  with  the  farm,  since  I  am  a 
physician,  permit  me  to  say  that  I  live  on  a  farm  and  superintend 
my  own  farm,  and  have  never  lived  anywhere  else  than  on  the  farm. 
Therefore,  I  am  a  farmer.  I  ceased  practicing  medicine  four  years 
ago. 

In  taking  up  this  question,  I  do  not  think  there  is  any  necessity 
for  us  to  argue  as  to  the  importance  of  agriculture.  Everybody 
admits  that  agriculture  is  a  fundamental  calling,  on  which  rests  the 
prosperity  of  every  other  industry.  We  can  not  have  the  most 
highly  developed  civilization  in  our  country  without  manufactur- 
ing and  commerce,  which  includes  transportation  and  banking;  we 
can  not  have  any  kind  of  civilization  without  agriculture. 

It  is  that  calling  which  God  himself  made.  All  the  others  are 
man  made.  It  is  that  calling  which  all  of  our  people  belonged  to 
about  a  century  ago.  All  of  the  people  of  this  country  were  farmers 
at  one  time.     It  was  the  farmers  who  developed  this  country,  who 

281 


282  RURAL    CREDITS. 

cleared  the  forests,  and  who  have  brought  into  existence  the  wealth 
of  this  Nation.  It  is  the  farming  class  that  continues  to  create 
wealth.  Nearly  95  per  cent  of  all  the  wealth  created  from  year  to 
year  in  the  United  States  comes  from  the  farms. 

Therefore,  the  importance  of  agriculture  is  not  disputed,  but  is 
admitted  by  everyone;  though  until  recent  years,  if  we  may  judge  by 
what  Congress  has  done  for  agriculture,  we  would  be  forced  to  con- 
clude that,  in  actual  practice,  our  Government  has  not  recognized 
the  importance  of  agriculture.  Our  Government  is  not  to-day  recog- 
nizing the  importance  of  agriculture,  as  compared  with  the  other 
industries  of  our  country,  if  we  may  judge  by  what  the  Government 
has  done  and  is  doing  for  agriculture,  as  compared  with  the  other 
industries. 

In  the  matter  of  appropriations  alone,  of  the  $1,000,000,000  ap- 
propriated by  each  Congress  only  $19,000,000  goes  to  agriculture,  a 
small  pittance,  and  of  that,  I  believe,  $3,500,000  goes  to  meat  in- 
spection, $3,500,000  to  the  Weather  Bureau,  and  about  $7,000,000 
to  the  Division  of  Forestry;  and  that  leaves  only  the  small  pittance 
of  $5,000,000  that  actually  goes  to  agriculture.  And  yet  that  is  the 
fundamental  calling  upon  which  the  whole  superstructure  of  our 
Government  is  based;  and  without  it  we  would  have  no  manufac- 
tures; without  it  we  would  have  no  transportation  industries;  with- 
out it  we  would  have  no  commerce,  and  without  it  we  would  have  no 
Government. 

Now,  as  I  said,  a  few  years  ago  all  of  our  people  were  farmers. 
To-day  we  find,  according  to  the  last  census,  only  20  per  cent,  not 
quite  21  per  cent,  of  the  population  are  actually  living  on  the  farm 
and  engaged  in  tilling  the  soil. 

A  generation  ago  nine-tenths  of  the  wealth  of  this  Nation  was 
owned  by  the  farming  class.  To-day  less  than  four-tenths  of  it  is 
owned  by  the  farming  class.  To-day  we  find  15  per  cent  of  the 
population  of  the  United  States  are  homeless ;  like  our  Master  of  old, 
they  have  no  place  of  their  own  whereon  to  lay  their  head. 

That  condition  is  growing  worse  year  by  year.  The  small  home- 
owning  farmers  are  losing  their  farms  at  the  rate  of  something  like 
60,000  every  year.  I  mean  the  small  farms  are  passing  out  of  the 
ownership  of  the  small  farmer  at  the  rate  of  60,000  a  year  and  going 
into  the  ownership  of  corporate  wealth.  And  that  explains  to  my 
mind  why  it  is  that  land  is  so  high  to-day.  That  question  was  asked 
yesterday,  Why  is  it  that  land  is  so  high?     That  is  one  reason  for  it. 

Everybody  recognizes  the  fact  that  the  land  is  the  primitive  source 
of  all  wealth.  Everybody  knows  also  that  the  creation  of  land 
stopped  some  thousands  of  years  ago,  Avhereas  the  production  of  pop- 
ulation is  going  on  all  the  time.  That  means  that  land  is  bound  to 
become  more  valuable.  The  moneyed  interests  of  this  country,  recog- 
nizing that  fact,  having  monopolized  all  the  manufacturing  indus- 
tries, transportation  industries,  and  the  control  of  the  banking  busi- 
ness of  the  country,  are  now  going  out  and  monopolizing  the  owner- 
ship of  the  lands  of  the  country,  which,  as  I  said,  are  the  original 
source  of  all  wealth.     And  there  is  where  the  land  is  going. 

And  for  that  reason  the  price  of  land  is  higher  to-day  by  far  than 
it  ever  was  before  in  the  history  of  our  country.  The  market  value 
of  lands  has  not  gone  up  because  of  the  intrinsic  value  of  the  land 


KURAL    CREDITS.  283 

or  because  of  the  productive  value  of  it.  As  one  of  the  speakers  said 
here  yesterday,  the  productive  value  of  land  is  not  what  it  was  25 
years  ago.  I  know  whereof  T  speak,  because  I  am  on  the  farm  and 
among  the  farmers  all  the  time,  and  I  know  there  are  not  10  per  cent 
of  the  farms  in  my  country  that  are  producing  as  much  to-day  as 
they  did  20  or  25  years  ago.  The  statistics,  the  census  records,  show 
that,  while  as  a  whole  the  products  have  increased  10  per  cent  in  the 
last  10  years  the  population  lias  increased  21  per  cent.  So  you  can 
see  from  that  that  the  increase  in  farm  products  is  not  keeping  pace 
with  the  increase  of  population. 

What  does  that  mean?  We  are  seeing  the  effect  already  of  it  in 
the  high  cost  of  living;  and  unless  there  is  something  done  to  pro- 
mote agriculture  and  to  keep  more  people  engaged  in  agriculture — 
and  in  order  to  do  that  you  have  got  to  keep  agriculture  more 
profitable;  you  can  not  keep  men  there  unless  you  do — unless  some- 
thing is  done  to  support  agriculture  and  promote  it,  you  are  going 
to  hear  more  of  the  high  cost  of  living  in  the  next  10  years  than  we 
have  in  the  past  10  years,  and  more  than  we  hear  now. 

The  only  solution  of  this  difficulty  is  to  come  to  the  aid  and  sup- 
port and  promotion  of  the  agricultural  industries  in  this  country, 
in  order  that  Ave  may  keep  the  bright,  ambitious  boys  and  girls  on 
the  farms  instead  of  have  them  leave  the  farm  and  go  to  the  cities 
and  build  up  the  city  population  of  our  country  at  the  expense  of  the 
rural  districts. 

That  has  gone  on  to  an  alarming  extent.  I  see  it  in  North  Caro- 
lina— that  the  small  towns  are  springing  up  like  mushrooms;  the 
people  are  going  to  town  and  going  into  other  enterprises  and  leav- 
ing the  country  largely  in  the  hands  of  negroes  in  my  section,  and  of 
ignorant  tenants  in  most  of  the  States. 

The  tenant  farming  class  has  increased  largely  over  the  home- 
owning  farming  class.  In  my  own  State,  the  percentage  of  tenant 
farmers  20  years  ago  was  32.  To-day  it  is  43.  Forty-three  per  cent 
of  the  farmers  of  North  Carolina  are  tenants,  an  increase  of  11  per 
cent  in  20  years. 

Mr.  Platt.  May  I  interrupt  you  right  there? 

Dr.  Alexander.  Yes;  certainly. 

Mr.  Platt.  Is  that  due  to  the  breaking  up  of  large  farms,  or  do 
you  mean  to  say  that  small  owners  have  moved  away  and  leased 
their  farms?  Have  not  the  large  farms  been  divided  up  into  tenant 
farms  ? 

Dr.  Alexander.  No  ;  I  think  there  is  a  tendency  in  a  great  many 
sections  to  increase  the  large  farms.  As  a  matter  of  fact,  I  think 
the  census  shows  that  in  all  the  States  the  percentage  of  increase 
of  farms  over  500  acres  has  been  much  greater  than  the  small  farms 
under  that  size.    I  mean  the  percentage. 

Mr.  Platt.  Is  that  true  in  your  State? 

Dr.  Alexander.  That  is  true  in  my  State,  too — that  a  great  many 
of  the  people  have  lost  their  little  farms.  I  think  the  census  also 
shows  that  these  small  farms  in  the  United  States  as  a  whole  are 
passing  out  of  the  ownership  of  the  men  living  on  them  at  the  rate 
of  60,000  a  year.  I  know  those  were  the  figures  10  years  ago ;  I  have 
not  seen  the  last  figures,  but  those  were  the  figures  10  years  ago,  that 
the  small  home-owning  farmer  was  losing  his  farm  at  the  rate  of 
60,000  a  year. 


284  RURAL    CREDITS. 

Mr.  Platt.  What  is  he  doing,  leasing  it  and  living  on  the  money  ? 

Dr.  Alexander.  Yes;  he  is  leasing  it  and  becoming  a  renter. 
You  take  the  United  States  as  a  whole,  and  the  increase  of  home- 
owning  farmers  is  only  4  per  cent,  I  believe,  while  the  increase  of 
tenant  farming  is  17  per  cent. 

Mr.  Platt.  That  is  all  the  South  and  Southwest,  is  it  not  ? 

Dr.  Alexander.  I  do  not  know  just  where,  but  that  is  the  report. 
Now,  there  is  a  reason  why  the  people  have  left  the  farm  and  gone  to 
the  cities;  that  is,  the  industries  in  the  city  are  more  profitable  than 
farming.  The  reports  of  the  Secretary  of  Agriculture  show  that 
the  annual  average  profits  of  the  farm  are  less  than  5  per  cent  in  the 
United  States.  You  may  take  my  own  State  and  examine  it,  and  I 
happen  to  know  more  about  it.  Our  State  is  an  agricultural  State. 
Eighty-three  per  cent  of  the  people  of  North  Carolina  live  on  the 
farms.  And  yet  the  manufactured  products  from  the  cities  of  North 
Carolina  are  $100,000,000  more  than  the  agricultural  products.  That 
means  that  18  per  cent  of  the  population  from  the  towns  are  sending 
out  $100,000,000  more  in  value  than  the  82  per  cent  of  the  population 
from  the  farms.  That  will  give  you  a  lesson  and  an  idea  of  the 
comparative  prosperity  and  profitableness  of  agriculture,  as  com- 
pared with  manufacturing. 

Now.  consider  this  question  from  the  standpoint  of  justice  as  com- 
pared with  what  has  been  done  by  the  Government  for  other  clashes. 
Our  Government,  as  you  all  know,  has  favored  manufactures  with 
special  privileges,  under  a  high  protective  tariff — which  I  do  not 
mean  to  do  more  than  refer  to  here.  It  has  given  special  privileges 
to  transportation  industries.  I  believe  that  the  railroads  of  our 
country  have  been  given  something  like  250,000,000  acres  of  the  public 
domain. 

Mr.  Platt.  Is  that  a  special  privilege? 

Dr.  Alexander.  It  is  a  special  gift.  I  think. 

Mr.  Platt.  Is  not  the  Government  giving  land  free  to  the  farmers 
at  the  same  time? 

Dr.  Alexander.  Yes;  but  it  made  no  provision  to  keep  them  in 
possession  of  it.  There  is  where  the  Government  failed.  I  think 
the  Government  did  right  to  give  the  land  to  the  farmers  to  pro- 
mote home  ownership,  but,  unfortunately,  it  made  no  provision  to 
protect  farmers  in  possession  of  their  farms,  and  they  are  losing 
them.  You  know,  as  a  matter  of  fact,  the  land  all  went  out  from  the 
Government  to  settlers,  except  what  was  given  to  corporations.  It 
all  went  out:  but.  as  a  matter  of  fact,  we  find  to-day  that  two-thirds 
of  the  population  have  not  got  any.  and  so  it  got  away  from  them. 

Mr.  Platt.  They  have  left  the  land  voluntarily,  apparently. 

Dr.  Alexander.  Well.  I  do  not  know  about  that.  I  do  not  think 
.a  man  ever  gave  up  his  title  voluntarily.  He  may  have  sold — of 
course,  he  did  sell  it  voluntarily;  but  I  suspect  there  was  some  coer- 
cion, a  coercion  of  circumstances,  that  led  him  to  sell  it. 

Mr.  Stone.  Do  you  mean  to  infer,  Dr.  Alexander,  that  Congress 
did  protect  the  railroads  in  the  ownership  of  the  land  that  was  given 
them,  so  that  it  was  not  disposed  of? 

Dr.  Alexander.  Oh.  no. 

Mr.  Stone.  Is  it  not  true  that  the  railroads  disposed  of  it  to  set- 
tlers at  a  small  price? 


RURAL    CREDITS.  285 

Dr.  Alexander.  Yes. 

Mr.  Stone.  In  order  to  fill  up  the  country? 

Dr.  Alexander.  Surely. 

Mr.  Stone.  And  that  they  made  their  returns  from  the  products  of 
those  farms  that  they  sold? 

Dr.  Alexander.  Yes. 

Mr.  Stone.  Is  it  not  also  true  that  the  railroads  gave  the  value  to 
the  land  ?  If  they  had  not  been  there,  there  would  not  have  been  any 
value  to  the  land? 

Dr.  Alexander.  Certainly  the  railroads  have  helped  to  build  up 
the  country.  The  only  point  I  am  making  there  is  that  the  Govern- 
ment has  not  enabled  the  people  to  hold  what  it  gave  the  people  to 
start  with. 

Mr.  Platt.  How  could  it  do  that  ? 

Dr.  Alexander.  Because  conditions  have  not  been  just  and  equita- 
ble for  the  farming  class. 

Mr.  Platt.  Do  you  think  the  Government  has  discriminated 
against  the  farmer? 

Dr.  Alexander.  Yes;  it  has. 

Mr.  Platt.  In  what  way? 

Dr.  Alexander.  By  granting  special  privileges  to  the  other 
classes. 

Mr.  Platt.  Privileges  which  have  not  also  been  granted  to  the 
farmers? 

Dr.  Alexander.  Certainly;  the  farmers  have  never  received  any. 

Mr.  Platt.  What  special  privileges  have  been  given  to  other  people 
that  have  not  been  given  to  the  farmers? 

Dr.  Alexander.  I  referred  also  to  the  protection  given  the  manu- 
facturing class. 

Mr.  Platt.  Has  it  not  also  been  given  to  the  farmers  ? 

Dr.  Alexander.  No;  no  intelligent  man  believes  now  that  the  pro- 
tective tariff  helped  the  farmer. 

Mr.  Platt.  Well,  just  now  there  is  an  enormous  amount  of  butter 
and  eggs  being  imported  into  this  country;  is  that  an  advantage  to 
the  farmer? 

Dr.  Alexander.  But  they  never  did  concede  that  until  the  high 
cost  of  living  was  hitting  the  city  foods,  and  they  are  now  trying 
to  bring  in  an  increase  of  food  products  in  another  way.  when  they 
ought  to  have  promoted  agriculture,  and  we  would  not  have  had 
this  necessity  for  opening  our  gates  to  other  countries  to  import  food 
products  which  our  own  people  could  and  should  produce.  There 
is  where  the  Government  has  failed  to  do  its  duty — by  promoting  and 
building  up  this  fundamental  calling  which  would  supply  the  food 
products  of  this  country. 

Now.  since  we  are  no  longer  an  exporting  nation  of  food  products, 
they  have  got  to  open  our  doors  to  feed  our  own  people,  when  we 
have  got  hundreds  of  millions  of  acres  lying  here  idle  and  the  people 
are  congregating  in  the  cities. 

Mr.  Platt.  Well,  the  Government  supports  the  Department  of 
Agriculture  at  an  expense  of  some  millions  of  dollars  every  year, 
and  it  gives  the  people  free  information  of  all  kinds  on  the  subject 
of  agriculture. 

Dr.  Alexander.  It  is  only  a  pittance  of  $5,000,000  that  actually 
goes  to  farming. 


286  RURAL    CREDITS. 

Mr.  Platt.  lias  the  work  of  the  Department  of  Agriculture  re- 
sulted in  decreasing  the  high  cost  of  living? 

Dr.  Alexander.  Not  yet. 

Mr.  Platt.  We  do  not  maintain  a  department  of  railroads  to  tell 
the  railroads  how  to  run  their  business,  do  we? 

Dr.  Alexander.  No. 

Mr.  Platt.  Are  not  the  farmers  given  special  privileges  in  the 
Department  of  Agirculture.  in  the  shape  of  the  information  they 
get  there,  or  can  get  if  they  want  tc  avail  themselves  of  it? 

Dr.  Alexander.  Well,  that  has  helped  agriculture  somewhat,  of 
course.  But  the  only  tendency  and  teaching  of  the  Government 
in  that  direction  has  been  to  try  to  increase  production,  while  the 
benefits  of  the  increase  in  production  have  gone  largely  to  the  other 
classes.  The  raw  materials  that  the  farmers  are  creating  to-day  are 
bringing  but  little  more  money  to  the  farmers  themselves  than  the 
raw  materials  which  they  created  25  years  ago.  As  a  matter  of  fact, 
I  think  the  reports  will  show  that  of  every  dollar  paid  by  the  con- 
sumer for  the  products  of  the  farm  only  40  cents  of  it  goes  to  the 
farmer.  The  Government  has  helped  him  to  produce  more,  but  has 
not  helped  him  to  get  more  for  what  he  produces.  It  has  accrued 
to  the  benefit  of  the  people  as  a  whole,  but  not  specially  to  the 
farmer  himself.  In  that  particular,  "  he  that  maketh  two  blades  of 
grass  grow  where  only  one  grew  before  "  is  not  a  benefactor  to  his 
own  class,  but  only  a  benefactor  to  mankind  at  large.  You  know 
the  cotton  crop  of  the  South  last  year  brought  $300,000,000  more 
than  the  cotton  crop  of  the  year  before,  although  it  figured  2,000,000 
bales  less  in  quantity,  so  that  gives  an  idea 

Mr.  Stone  (interposing).  Are  you  familiar  with  the  prices  of 
corn  and  wheat  and  cattle,  and  can  you  tell  how  they  compare  now 
with  the  prices  of  10  years  ago? 

Dr.  Alexander.  Oh.  they  are  a  great  deal  higher. 

Mr.  Platt.  Is  that  an  advantage  to  the  farmers,  or  a  disadvantage? 

Dr.  Alexander.  Yes. 

Mr.  Platt.  I  say,  is  the  high  cost  of  living  in  the  city  generally 
an  advantage  or  disadvantage  to  the  farmers? 

Dr.  Alexander.  But  take  the  matter  of  wheat,  and  I  will  tell  you 
that  the  increased  price  of  wheat  is  largely  due  to  the  fact  that  the 
farmers  of  the  Middle  West  organized  a  fight  against  the  Millers' 
Trust  and  built  something  over  2,000  cooperative  elevators  in  that 
section,  in  which  they  stored  their  own  grain  and  held  it,  and  in  that 
way  forced  the  price  up.  That  is  due  largely  to  their  own  efforts, 
the  increased  price  of  wheat. 

When  I  first  began  practicing  medicine  I  bought  my  wheat  and 
corn,  too,  and  I  bought  good  flour  then  for  $1.50  a  hundred ;  and  at 
that  time  these  very  wheat  farms  of  the  Middle  West  were  covered 
by  blanket  mortgages.  But  by  organizing  and  doing  just  what  the 
farmers  are  doing  to-day,  fighting  against  the  organized  power  of 
the  other  classes,  the  purchasing  classes,  they  have  succeeded  in  forc- 
ing the  price  of  wheat  up. 

Another  reason  is  that  the  production  of  wheat  has  not  kept  pace 
with  the  increase  of  population.  It  is  not  because  of  anything  that 
the  Government  has  done  for  the  wheat-growing  and  corn-growing 
farmers  that  those  products  are  higher  to-day  than  they  were  25 
years  ago.    It  is  really  in  spite  of  all  that  the  Government  has  done. 


RURAL    CREDITS.  287 

Mr.  Platt.  Suppose,  through  some  action  of  Congress,  the  cost  of 
living  should  come  down  in  the  way  of  food  products,  would  that  be 
an  advantage  to  the  farmers? 

Dr.  Alexander.  No;  I  do  not  think  it  would.  I  am  not  contend- 
ing  

Mr.  Platt  (interposing).  Well,  just  because  the  cost  of  living  is 

high,  would  you  say  that  that  is  the  chief  reason  why  agriculture 
should  be  helped  from  the  standpoint  of  the  farmers  ? 

Dr-  Alexander.  That  is  a  good  reason  from  the  standpoint  of 
everybod}'  else;  and  it  is  a  good  reason  from  the  standpoint  of  the 
farmer,  since  this  high  cost  of  living  does  not  go  into  his  pocket.  If  it 
went  into  the  farmer's  pocket,  we  would  say  let  conditions  alone ;  but 
it  does  not  go  into  the  farmer's  pocket.  As  I  said  awhile  ago,  of  the 
price  paid  by  the  consumer  there  is  only  40  cents  out  of  $1  that  goes 
to. the  farmer.  The  report  of  the  Secretary  of  Agriculture  shows 
that  of  the  other  60  cents  a  small  part  goes  to  transportation  and  the 
greater  part  of  it  to  the  unnecessary  middlemen.  I  say  "  unneces- 
sary" advisedly,  because  the  majority  of  them  are  unnecessary  mid- 
dlemen. 

Now,  that  is  largely  due  to  the  fact  that  the  farmer's  business  has 
not  been  financed.  That  brings  us  right  down  to  the  question  before 
us  to-day. 

Mr.  Chairman,  there  is  an  article  that  I  wrote  on  this  subject  for 
the  National  Field,  the  official  organ  of  the  National  Farmers'  Union. 
I  do  not  want  to  impose  upon  the  patience  of  the  committee  by  read- 
ing the  whole  article.  I  wrote  it  a  few  days  ago  on  the  subject  of 
"  Rural  credits  legislation."  But  I  will  just  come  to  the  point  and 
give  you  what  I  conceive  to  be  the  need  of  the  farming  class  as  to 
rural  credits. 

The  Chairman.  Mr.  Alexander,  this  article  does  not  appear  to 
be  very  long,  and  I  wish  you  would  read  any  parts  of  it  that  you 
desire,  and  make  such  comments  upon  it  as  you  think  should  be  made. 
The  committee  would  like  to  have  a  full  discussion  of  this  subject. 

Dr.  Alexander.  All  right.  By  request  of  Mr.  Clarence  Poe,  who 
is  editor  of  the  Progressive  Farmer  of  Raleigh,  N.  C.,  one  of  the 
largest  farm  papers  in  the  South,  having  100,000  subscribers,  I  think, 
I  wrote  this  article  on  rural  credits,  and  I  will  now  state  the  sub- 
stance of  it  and  make  a  few  general  comments  on  the  subject. 
(Reading:) 

The  economic  crime  of  the  century  was  perpetrated  against  the  American 
people  50  years  ago.  when  Congress  delegated  to  private  individuals  and  cor- 
porations (the  national  banks)  the  power  to  contract  and  expand  at  will  the 
volume  of  the  circulating  money  of  the  country. 

Through  combinations  resulting  in  trust  formation,  this  power  was  gradually 
merged  into  a  comparatively  small  number  of  the  7,500  national  banks. 

And  thus  it  has  been  for  many  years  that  a  few  men  have  been  able,  by  con- 
tracting the  volume  of  the  circulating  value-measuring  medium,  to  send  prices  of 
all  commodities  downward,  only  to  be  raised  again  by  expansion  of  the  currency 
afterwards. 

Mr.  Platt.  Do  you  agree  with  that? 

Dr.  Alexander.  Yes;  I  do.  They  sent  values  downward  in  1907 
until  they  got  the  Tennessee  Coal  &  Iron  Co.  in  their  possession,  and 
then  they  put  values  up  again. 

Mr.  Platt.  Do  you  think  that  was  done  by  the  power  of  the  na- 
tional banks  to  contract  the  currency? 


288  RURAL    CREDITS. 

Dr.  Alexander.  It  was  done  by  the  money  powers  of  our  country. 
The  same  thing  would  have  been  done  last  fall  if  it  had  not  been  for 
Secretary  McAdoo  coming  to  the  rescue  of  the  agricultural  classes 
and  putting  $50,000,000  in  the  banks  of  the  South  and  West.  I  do 
not  believe  there  is  a  man  who  read  the  newspapers  and  the  reports 
published  at  that  time  who  does  not  believe  that.     (Eeading:) 

Thus  it  was  possible  to  buy  the  products  of  the  people's  labor  at  a  low  price 
:nnl  sell  (hem  at  a  high  price. 

Pardon  me,  but  is  it  not  possible  to  do  that?  Is  it  not  possible  to 
contract  the  currency  if  men  have  that  power?  And  whenever  you 
contract  the  currency  you  make  money  dear,  and  that  means  that 
those  commodities  of  which  money  is  the  measuring  value — the  value- 
measuring  medium — it  sends  prices  downward  whenever  money  gets 
scarce  and  high.  When  money  becomes  plentiful  and  cheap,  prices 
go  up  again.  So  that,  if  any  individuals  or  corporations  have  the 
power,  they  can  do  that.  And  human  nature  is  greedy  and  selfish ; 
and  if  you  concede  to  them  the  power,  they  will  do  it. 

Mr.  Platt.  I  do  not  believe  they  have  the  power. 

Mr.  Woods.  Dr.  Alexander,  in  your  article  here,  you  suggest  that 
national  banks  had  too  much  power  given  them  some  50  years  ago  to 
contract  and  expand  the  currency.  The  real  reason  for  the  need  of 
a  new  banking  and  currency  act  was  that  they  did  not  have  that 
power.  That  was  the  real  reason  given,  not  only  by  Congressmen 
but  throughout  the  Nation,  that  they  did  not  have  sufficient  power 
to  expand  and  contract  currency.  Therefore,  a  new  currency  law 
was  needed. 

Senator  Hollis.  I  think.  Dr.  Alexander,  that  you  will  really  agree 
with  members  of  the  committee.  You  are  using  the  word  "  currency  " 
in  the  broadest  sense,  which  includes  credits? 

Dr.  Alexander.  Certainly. 

Senator  Hollis.  And  credits  will  fill  the  function  of  currency,  the 
same  as  bank  checks  do;  and  when  credits  are  contracted  it  has  the 
same  effect 

Dr.  Alexander.  Certainly. 

Senator  Hollis  (continuing).  The  same  effect,  a  good  many  of  us 
think,  as  when  currency  is  contracted.  And  it  was  in  order  to  prevent 
that  very  thing  and  take  away  one  of  the  causes  that  was  assigned 
by  the  banks  for  contracting  credit — that  is,  that  there  was  a  lack 
of  currency — that  we  did  pass  the  currency  act,  to  make  more  cur- 
rency available  in  times  of  stress. 

Dr.  Alexander.  Yes. 

Senator  Hollis.  So  that  there  would  not  be  that  excuse.  That  is 
the  theory  of  it;  and  I  think  we  are  pretty  fairly  well  agreed  on  that 
theory;  but  if  you  limit  it  to  currency  in  the  sense  of  what  is  ordi- 
narily known  as  "cash,"  that  has  been  the  trouble  with  our  national 
banking  system,  that  the  currency  did  not  expand  and  contract  with 
the  demands  of  business.    I  think  we  agree  pretty  well  on  that. 

Dr.  Alexander  (reading)  : 

The  national  bank  act  was  a  war  measure  conceived  by  Secretary  Chase  for 
the  purpose  of  creating  a  compulsory  market  for  national  bonds  during  the 
Civil  War.  AM  national  banks  of  issue  were  required  to  deposit  with  the  Na- 
tional Treasury  bonds  of  the  Governmenl  ;  and  then  hank  notes  to  the  value  of 
94 i-  cent  of  tne  value  of  the  bonds  would  be  issued  to  tlie  bank.     These  hank 


RURAL    CREDITS.  289 

notes  were  taxed  only  1  per  cent,  while  the  bonds  were  nontaxable  and  paid  the 
banks  4  per  cent  interest.     This  meant  double  interest  to  the  banks. 

All  subsequent  legislation  for  many  years  tended  only  to  increase  the  power  by 
extending  and  enlarging  the  privileges  of  the  national  banks.  For  instance,  the 
limit  originally  imposed  upon  the  circulation  of  the  national  banks  was  $300,- 
000,000;  all  limit  was  removed  in  1875. 

This  compulsory  market  for  United  States  bonds  naturally  raised  the  price 
until,  in  1889,  4  per  cent  bonds  sold  as  high  as  129.  This  called  for  more  bonds 
for  the  benefit  of  the  bankers  and  resulted  in  new  issues  of  bonds  in  1894,  1895, 
1896,  and  1898. 

Next  followed  the  gold-standard  law  of  1900.  This  law  permitted  national 
banks  to  issue  circulation  to  the  full  par  value  of  the  bonds  deposited  and  re- 
duced the  tax  on  the  circulation  based  on  the  new  refunding  2  per  cent  bonds 
to  one-half  of  1  per  cent.  The  purchase  of  silver  for  coinage  purposes  had  been 
suspended  in  1893,  and  this  metal  was  now  demonetized  by  the  adoption  of  the 
single  standard,  thus  again  tending  to  make  money  dear  and  making  it  easier 
for  the  national  banks  to  control  the  volume  of  legal  noney. 

Mr.  Platt.  I  am  afraid,  Mr.  Chairman,  that  your  remarks  about 
the  currency  including  credits  do  not  apply  to  the  author  of  that1 
article,  anyway. 

Senator  Hollis.  This  is  Dr.  Alexander's  own  article  that  he  is 
reading. 

Dr.  Alexander.  Yes.     [Reading:] 

There  now  remained  substantially  only  two  methods  of  increasing  the  volume 
of  money  in  the  country  to  meet  the  growth  of  business — the  increase  of  gold 
currency,  by  importation  and  production  of  gold,  and  the  increase  of  bank  notes 
in  circulation.  This  made  possible  the  formation  of  the  greatest  and  most 
powerful  of  all  trusts — the  Money  Trust. 

Aside  from  the  payment  of  salaries  of  Government  employees,  there  is  only 
one  way  for  money  to  pass  from  the  source  of  money  (the  Government  mint 
and  printing  press)  into  the  channels  of  trade,  and  that  is  the  banks.  And 
thus  we  see  that  the  people  are  taxed  with  a  double  interest  for  all  moneys — 
indirectly  to  pay  interest  on  the  bonds  on  which  bank  notes  are  issued  and 
directly  to  the  banks  for  the  money  when  it  passes  into  the  channels  of  busi- 
ness.    This  applies  to  all  classes  and  all  businesses. 

This  was  discrimination  against  all  the  people  in  favor  of  a  small  class  that 
was  able  to  purchase  Government  bonds.  Let  us  now  consider  how,  in  the 
administration  of  the  national  banks,  the  farming  and  laboring  classes  have 
been  discriminated  against,  while  the  stock  corporations  and  bondholding 
classes,  bankers,  manufacturers,  transportation  industries,  and  mercantile  con- 
cerns have  been  favored. 

The  stocks  and  bonds  of  those  favored  classes  are  negotiable  collateral  at 
the  banks  and  can  be  used  by  the  holder  to  obtain  needed  money.  But  the  land 
and  personal  chattels  of  the  farming  and  laboring  classes  will  not  secure  for 
them  the  funds  necessary  to  pay  running  expenses  until  they  can  realize  on  the 
fruits  of  their  labor. 

This  discrimination  has  resulted  in  the  exploitation  of  the  farmer  by  the 
more  favored  classes.  He  is  forced  to  run  his  business  "  on  time"  and  pay  high 
prices  for  supplies.  Then  when  marketing  time  comes  he  must  sell,  regardless 
of  prices,  to  satisfy  his  creditors. 

Now,  that  is  true.  That  is  the  actual  condition  in  the  country 
to-day,  that  because  farmers  can  not  get  money  they  are  compelled 
to  go  and  trade  with  time  merchants,  who  are  getting  the  money  from 
the  banks  to  carry  these  farmers,  when  the  Government  itself  ought 
to  provide  a  way,  so  that  any  farmer  who  can  put  up  any  land  of 
security  that  is  good  can  go  to  the  bank  and  get  the  money  to  run 
his  own  business,  just  as  other  classes  do. 

Mr.  Stone.  Why  is  it  that  farmers  can  not  now,  if  they  have  the 
security,  go  to  the  banks  and  get  the  money  the  way  other  people 
get  it? 

37031—14 19 


290  RURAL    CREDITS. 

Dr.  Alexander.  Because  the  national  banks  would  not  take  their 
security. 

Mr.  Weaver.  Do  you  not  think  that  the  reason  is  that  other  people 
borrow  from  the  bank  on  commercial  paper,  on  short-time  loans,  and 
that  the  farmer  is  obliged  to  borrow  it  on  long  time? 

Dr.  Alexander.  That  is  one  reason. 

Mr.  Weaver.  And  the  farmer  can  not  get  his  loans  on  a  long  time 
without  being  charged  usurious  interest  for  it,  as  a  business  proposi- 
tion? 

Dr.  Alexander.  Well,  the  bank  could  loan  it  out  at  a  lower  rate 
of  interest,  as  they  do  to  the  merchant;  they  could  do  that. 

Mr.  Platt.  Well,  is  it  not,  after  all,  a  question  of  security?  Has 
the  farmer  got  the  same  grade  and  character  of  security  as  the 
merchant  ? 

Dr.  Alexander.  Well,  the  merchant  loans  him  the  money. 

Mr.  Stone.  Well,  is  it  not  a  fact  that  the  banks  do  not  consider 
the  farmer's  security  as  good  as  other  security  ? 

Dr.  Alexander.  It  is  more  trouble  to  handle  it,  of  course. 

Mr.  Hayes.  Is  not  the  reason  for  that,  that  it  is  not  a  liquid  se- 
curity ? 

Dr.  Alexander.  Not  liquid  ? 

Mr.  Hayes.  Yes;  and  therefore  the  commercial  banks  can  not 
handle  it  ? 

Dr.  Alexander.  It  requires  a  longer  time  limit,  of  course. 

Mr.  Hayes.  But  it  is  not  liquid. 

Mr.  Platt.  If  a  farmer  owns  a  United  States  Government  bond,  he 
can  go  to  the  bank  and  borrow  money  as  cheaply  as  any  other  man 
who  has  a  Government  bond.  He  is  not  discriminated  against  be- 
cause he  is  a  farmer. 

Dr.  Alexander.  I  do  not  mean  that  he  is  discriminated  against  in 
that  way. 

Mr.  Weaver.  You  do  not  know  any  farmers  that  do  own  Govern- 
ment bonds,  do  you? 

Dr.  Alexander.  No  ;  I  do  not  know  of  any. 

Senator  Hollis.  It  seems  to  be  that  the  farmers  are  not  likely  to 
know  the  bankers  so  well  and  what  the  current  rates  are  on  loans, 
etc.,  and  I  imagine  that  if  a  good,  active  business  man  went  to  the 
bank  with  a  Government  bond  he  would  be  able  to  get  better  rates 
from  the  banks  than  a  farmer  who  owned  precisely  the  same  kind 
of  bond. 

Dr.  Alexander.  Surely.  I  happened  to  know  that  a  poor  farmer 
in  the  community  where  I  live  went  to  a  bank  in  Charlotte  not  three 
months  ago  and  they  charged  him  10  per  cent,  although  the  legal  rate 
in  my  State  is  6  per  cent.  They  charged  that  poor  fellow  10  per  cent 
interest  at  that  national  bank  in  Charlotte. 

Mr.  Weaver.  He  ought  to  have  been  in  Oklahoma,  where  they 
would  have  charged  him  15  per  cent. 

Dr.  Alexander.  He  ran  not  sustain  that;  agriculture  can  not  sus- 
tain that  burden.  You  know  the  average  mortgage  indebtedness  of 
the  farmers  of  the  United  States  was  over  $1,700  each  at  the  last 
census.  The  average  rate  of  interest  paid  by  farmers,  according  to 
Government  statistics,  is  nearly  9  per  cent,  and  yet  the  average  profits 
of  agriculture  are  less  than  5  per  cent,  so  you  can  see  there  the  burden 
the  farmer  does  carry. 


RURAL    CREDITS.  291 

Mr.  Stone.  My  question  was  calculated  to  bring  out  the  thought 
that  there  were  other  reasons  for  the  failure  to  supply  the  farmers 
with  the  money  than  the  desire  to  discriminate  against  them. 

Dr.  Alexander.  Surely;  I  do  not  want  that  impression  to  out.  It 
is  not  a  desire  to  discriminate  against  or  antagonize  agriculture.  It 
is  due  to  commercial  reasons.    You  are  right  about  that. 

But  I  think  it  is  the  duty  of  our  great  Government  to  provide  a 
banking  system — since  the  Government  alone  has  the  right  to  do 
that — that  will  meet  the  needs  of  this  great  class,  whose  work  is  the 
basis  of  all  the  great  prosperity  of  our  country.  That  is  my  conten- 
tion. I  do  not  attribute  it  to  any  animosity  or  any  prejudice  against 
the  farming  class,  or  any  desire  to  prey  upon  that  class,  that  they 
do  not  get  accommodations  through  the  banks,  but  it  is  because  of 
commercial  reasons. 

Now,  it  is  up  to  our  Government  to  change  our  banking  system 
or  to  provide  a  banking  system  that  will  meet  the  needs  of  the  agri- 
cultural class,  and  we  believe  you  can  do  it,  and  I  believe  you  are 
going  to  do  it,  because  public  sentiment  is  getting  more  aroused  over 
this  question  than  it  ever  has  been  before. 

Mr.  Hayes.  Let  me  ask  you  a  question :  You  were  saying  a  few 
moments  ago  something  about  the  national  banks  issuing  currency 
on  the  bonds.  You  are  not  here  to  ask  us  to  retire  the  national-bank 
currency  and  take  that  privilege  of  issuing  currency  away  from  the 
banks,  are  you? 

Dr.  Alexander.  Oh,  no. 

Mr.  Hayes.  You  do  not  find  any  fault  with  that,  do  you? 

Dr.  Alexander.  Oh,  no;  I  am  just  saying  that  I  want  you  to  do 
the  same  thing  for  the  farmer;  I  want  you  to  treat  him  just  as  well 
as  you  have  treated  the  other  classes. 

Senator  Hollis.  You  are  hoping  that  we  will  find  some  way  in 
which  the  Government  may  loan  funds  direct  to  the  farmer,  are  you 
not?  Now,  one  of  the  difficulties  raised  against  that  system  in  prac- 
tice, leaving  out  the  constitutional  end  of  it  for  the  present,  is  that, 
with  private  bankers,  whose  interest  it  is  to  make  money  for  the 
stockholders  and  therefore  to  make  only  safe  loans,  they  will  have 
a  greater  knowledge  of  the  men  that  they  loan  money  to  than  Gov- 
ernment agents  would  be  likely  to  acquire.  You  can  see  that  diffi- 
culty, can  you  not  ? 

Dr.  Alexander.  Yes. 

Senator  Hollis.  I  would  like  to  hear  you  discuss  that  point  a 
little. 

Dr.  Alexander.  If  you  will  pardon  me,  I  should  like  to  finish  this 
statement  first. 

Senator  Hollis.  All  right,  certainly. 

Dr.  Alexander.  Then  I  will  take  your  question  up,  Senator  Hol- 
lis.    [Reading:] 

Progressive,  broad-roinded  men  of  all  classes  have  come  to  realize  that 
something  must  be  done  for  the  promotion  of  agriculture  and  to  make  this 
business  of  farming  more  profitable.  Agitation  and  education  have  resulted  in 
a  demand  for  a  system  of  rural  credits,  or  farmers'  banks,  that  will  enable  a 
farmer  to  get  money  at  a  reasonable  rate  of  interest  for  short-time  loans  on 
any  kind  of  safe  collateral  that  can  be  put  up. 

He  can  do  that  now.     [Reading :] 

And  whereby  he  can  obtain  money  at  a  low  rate  of  interest  on  long-time 
loans  on  real  estate.    Any  system  of  rural  credits  that  fails  to  provide  money  at 


292  RURAL    CREDITS. 

6  per  cent  interest  or  less  for  the  small  farmer,  secured  by  a  mortgage  on  his 
stock,  fixtures,  and  crop,  and  to  be  used  only  in  the  production  and  harvesting 
of  ihc  crop1,  will  fail  completely  to  meet  the  needs  of  a  large  per  cent  of  our 
farming  people. 

The  time  for  these  loans  should  not  exceed  6,'  9,  or  1:2  months. 

And  here  is  a  point  that  I  would  like  to  impress  upon  you — if 
you  get  this  far  along  in  the  formation  of  a  bill — that  the  money 
should  be  held  by  the  rural  banks  and  paid  to  the  borrower  monthly, 
as  needed,  to  pay  running  expenses  in  making  and  gathering  the 
crop.  I  think  it  would  be  unwise  for  the  Government  to  provide  a 
banking  system  whereby  that  class  of  farmers — Tom,  Dick,  and 
Harry — whom  perhaps  do  not  get  to  handle  $10  a  year,  who  do  not 
have  $10  left  after  they  pay  their  bills — I  think  it  would  be  unwise 
if  they  could  go  to  the  bank  and  put  up  security  and  get  $250  or 
$300  in  the  spring  of  the  year  and  get  that  into  their  hands  to 
handle  as  they  pleased.    That  would  not  be  wise. 

Mr.  Weaver.  But  would  not  the  plan  you  suggest  make  the  bank 
the  guardian  of  all  the  farmers? 

Dr.  Alexander.  Yes ;  in  a  sense  it  is  paternalism. 

Mr.  Weaver.  Do  you  think  that  the  farmer  who  is  worthy  of  ob- 
taining credit — and  unless  he  is  worthy  of  credit  he  ought  not  to 
have  the  money — needs  espionage? 

Dr.  Alexander.  I  believe  they  do. 

Mr.  Weaver.  Well,  you  have  not  as  good  an  opinion  of  them  as 
I  have,  although  you  may  represent  them. 

Dr.  Alexander.  Well,  in  that  commercial  sense,  I  believe  they 
do.  The  class  that  have  been  run  by  the  time  merchants,  if  you  turn 
over  to  them  $200  or  $300  to  make  their  crop  on — if  it  was  a  one- 
horse  or  a  two-horse  farmer — that  money  would  probably  get  away 
before  the  crop  was  made.  But  he  can  very  easily  put  up  his  se- 
curity, and  the  bank  could  give  him  so  much  in  March,  so  much  in 
April,  and  so  much  in  May  and  June,  until  he  can  get  the  necessary 
money  to  make  his  crop. 

Mr.  Seldomridge.  Would  you  allow  him  to  pay  it  back  in  the  same 
way? 

Dr.  Alexander.  No;   when  due. 

Mr.  Seldomridge.  In  one  lump  sum? 

Dr.  Alexander.  Well,  according  to  when  it  was  due  under  the 
contract. 

Senator  Hollis.  That  is  not  a  revolutionary  method  of  making 
loans. 

Dr.   Alexander.  No. 

Senator  Hollis.  I  understand  that  the  building  and  loan  associa- 
tion, where  they  loan  money  on  a  building  being  constructed,  ad- 
vance the  money  as  fast  as  it  is  needed  to  make  the  payments  as  the 
building  goes  up. 

Dr.  Alexander.  Yes;  and  the  payments  come  back  in  the  same 
way. 

Mr.  Seldomridge.  Let  me  ask  you  this  question:  Have  the  build- 
ing and  loan  associations  the  right  to  stop  the  payments  if  they  find 
the  contract  is  not  being  carried  out? 

Senator  Hollis.  I  can  not  state  that  that  is  so :  I  have  never  been 
closely  connected  with  one  of  those  building  and  loan  associations; 
but  I  think  that  is  the  usual  arrangement,  and  I  should  not  be  sur- 


RURAL   CREDITS.  293 

prised  if  the  building  and  loan  association  took  that  into  their  own 
hands  by  some  provision  of  their  by-laws,  or  the  contract,  so  that 
they  could  stop  payments  if  necessary. 

Mr.  Hayes.  Yes.  I  think  the  usual  method  is  to  send  out  an  in- 
spector and  to  pay  only  when  and  as  value  has  been  put  into  the 
property.   • 

Senator  Hollis.  I  think  that  is  about  what  is  done ;  but  I  can  not 
state  positively. 

Mr.  Platt.  I  think  that  is  the  general  practice. 

Dr.  Alexander.  The  long-time  loans  should  be  made  on  real  estate 
and  for  specific  purposes  only,  and  should  be  at  a  rate  of  interest  not 
exceeding  4  per  cent.  I  say  4  per  cent  for  the  reason  indicated 
awhile  ago,  that  the  average  profits  of  agriculture  are  less  than  5 
per  cent. 

These  would  be  for  permanent  improvements  on  the  farm,  possibly 
for  improvements  that  would  not  increase  the  revenue  from  the  farm 
at  all;  for  instance,  for  building  a  dwelling  or  building  a  barn,  or 
such  things  as  that;  and  therefore  it  would  be  necessary  that  these 
loans  should  be  made  at  a  rate  not  exceeding  4  per  cent. 

These  loans  should  be  made  for  paying  off  a  debt  on  the  farm  or 
home — and  you  will  notice  that  I  use  both  of  those  terms,  "  farm  "  or 
"  home,"  because  I  do  not  believe  that  the  laboring  class  should  be 
excluded  from  the  benefits  of  long-time  loans,  no  matter  whether 
they  are  farmers  or  not,  for  the  purchase  in  part  of  a  farm  or  home. 
I  say  "  in  part  "  because  the  Government  does  not  propose  to  fur- 
nish all  the  money  necessary  for  a  home.  I  think  it  ought  to  furnish 
75  per  cent  of  it. 

These  loans  should  also  be  made  for  the  equipment  of  the  farm  and 
for  the  education  of  the  children. 

That  brings  up  a  question  that  is  dear  to  the  heart  of  every  father 
that  is  really  the  kind  of  father  that  he  ought  to  be.  I  know  from 
personal  observation  that  not  10  per  cent  of  the  agricultural  class  are 
able  to  give  their  children  educations  under  present  conditions. 

Mr.  Weaver.  You  think  that  the  public-school  system,  however 
efficient  it  may  be,  does  not  help  the  class,  for  instance,  of  tenant 
farmers,  who  need  their  children  to  work  in  the  fields — they  are 
almost  compelled  to  have  them  at  times? 

Dr.  Alexander.  Well,  the  public  school  is  the  only  means  of  edu- 
cation they  have.  They  can  not  go  beyond  that,  and  the  public 
schools  as  they  are  in  most  of  the  States,  especially  in  the  South,  I 
regret  to  say,  are  not  efficient  enough  to  give  them  the  education  they 
ought  to  have. 

Mr.  Hayes.  Dr.  Alexander  evidently  has  not  in  mind,  for  instance, 
the  State  of  California,  in  which  we  have  two  great  universities 
where  the  tuition  is  absolutely  free  and  where  we  have  five  normal 
schools,  and  anybody  can  get  an  education  there  that  wants  it. 

Dr.  Alexander.  Yes;  we  have  only  one  agricultural  university 
in  our  State.  North  Carolina  did  stand  at  the  foot  of  the  ladder  in 
educational  facilities  until  the  Farmers'  Union  got  in  behind  our 
last  general  assembly  and  forced  them  to  enlarge  the  public  school 
term  from  four  months  to  six  months. 

Mr.  Seldomridge.  Do  you  know  the  average  salary  that  is  paid  to 
white  teachers  in  North  Carolina? 

Dr.  Alexander.  It  is  less  than  the  negroes  get. 


294  RURAL    CREDITS. 

Mr.  Seldomridge.  What  do  they  get? 

Dr.  Alexander.  It  is  less  than  $200  a  year. 

Mr.  Seldomridge.  And  what  is  the  average  term  of  the  public 
school  ? 

Dr.  Alexander.  It  is  now  six  months;  it  was  recently  increased 
from  four  months.  We  also  secured  the  adoption  of  the  compulsory 
attendance  law ;  that  was  done  by  the  farmers'  organizations. 

Only  bona  fide  residents  should  have  the  benefit  of  these  loans. 
Real  estate  speculators  should  be  rigidly  excluded.  They  ought  to  be 
taxed  out  of  business,  anyway. 

The  long-time  loans  should  be  on  the  amortization  plan,  whereby 
the  farmer  could  pay  the  4  per  cent  interest  plus  a  small  part  of  the 
principal  every  year  until  the  whole  was  paid.  The  time  should 
run  from  5  to  perhaps  30  years,  with  the  privilege  of  paying  in  part 
or  in  full  at  any  interest-bearing  period  without  penalty. 

Several  bills  on  rural  credits  have  been  introduced  in  Congress. 
I  have  carefully  read  six  or  eight  of  these  bills.  Not  a  single  one 
of  them  has  all  of  the  good  features  or  all  of  the  provisions  necessary 
to  meet  the  demands  and  do  justice  to  the  American  farmer.  But 
all  the  features  and  provisions  necessary  to  make  a  perfect  bill  are 
found  in  the  many  bills  before  Congress. 

The  question  that  naturally  comes  up  in  our  mind  is  whether  or  not 
Congress  will  take  the  good  and  necessary  features  of  these  various 
bills  and  combine  them  into  one,  or  will  our  demand  for  bread  be 
answered  by  giving  us  a  stone.  I  believe  Congress  will  grant  the 
demands  of  the  farmers  and  will  give  us  what  we  need. 

In  a  general  way  the  bill  presented  in  the  Senate  by  Mr.  Fletcher 
and  in  the  House  by  Mr.  Moss  is  a  good  one.  as  it  provides  for  the 
establishment  of  "  national  farm-land  banks  "  and  incorporates  the 
cooperative  plan  (which,  however,  is  optional,  whereas  it  should  be 
compulsory).  But  this  bill  lacks  two  provisions  that  are  absolutely 
essential  to  any  law  that  will  give  the  farmer  the  relief  he  needs,  and 
is  justly  entitled  to,  namely,  short-time  loans  on  any  kind  of  safe 
collateral  that  he  can  furnish,  as  already  explained,  and  long-time 
loans  at  not  exceeding  4  per  cent  interest.  This  bill  does  not  provide 
for  loans  secured  by  personal  chattels,  nor  does  it  provide  for  cheap 
money,  since  the  bulk  of  the  money  must  be  obtained  by  the  sale  in 
the  open  market  of  bonds  of  the  farm-land  banks,  which  bonds  are 
backed  by  the  mortgages  or  deeds  of  trust  on  lands.  This  is  a  fatal 
weakness  in  this  bill,  because  it  makes  the  land  banks  dependent  on 
the  commercial  banks  for  money  to  be  loaned. 

A  bill  by  Mr.  Thompson  includes  the  provision  for  making  loans 
on  first  mortgage  on  crops,  stock,  etc.,  for  the  purpose  of  making  and 
harvesting  crops. 

A  bill  by  Mr.  Doolittle  provides  for  cheap  money  by  making  the 
National  Government  issue  Treasury  certificates  to  be  designated  as 
Government  currency,  the  same  to  be  retired  when  the  land  mort- 
gages have  been  paid  off. 

And  that  is  what  I  think  the  Government  ought  to  do. 

Now.  then,  if  Congress  really  wants  to  help  the  farmers,  regard- 
less of  how  it  may  affect  the  profits  of  national  banks,  it  can  be  done 
and  all  the  provisions  necessary  for  the  law  needed  can  be  found  in 
the  various  bills  before  Congress. 


RURAL    CREDITS.  295 

In  my  judgment  a  land-loan  bank  dependent  on  the  commercial 
banks  for  the  money  to  be  loaned  would  be  a  dangerous  expedient. 
It  could  not  provide  cheap  money.  And  many  loans  would  be  made 
for  farm  and  home  improvements  that  would  not  increase  the  rev- 
enue from  the  farm,  such  as  a  residence  or  barn,  etc.  Moreover,  the 
average  annual  profits  of  agriculture  are  less  than  5  per  cent.  There- 
fore the  farmer  should  be  able  to  get  money  at  less  than  5  per  cent 
if  it  is  to  be  used  in  buying  a  home  or  in  making  permanent  im- 
provements on  the  farm. 

In  the  matter  of  short-time  loans  for  making  and  harvesting  crops 
he  could  afford  to  pay  6  per  cent  interest  and  thereby  make  a  great 
saving  over  the  present  "  on  time  "  method  of  doing  business.  And, 
then,  too,  it  would  stimulate  a  spirit  of  manly  independence  in  the 
small  farmer  if  he  could  go  to  the  bank  and  put  up  his  own  col- 
lateral and  get  money  to  run  on  a  cash  basis.  Then,  when  his  crops 
are  harvested,  if  prices  are  low  he  should  be  enabled  to  continue  the 
loan  by  storing  his  crops  and  putting  up  warehouse  receipts  with 
the  bank. 

Now,  Mr.  Chairman,  I  am  ready  to  answer  your  question. 

Senator  Hollis.  Yes ;  it  is,  whether  the  Government  could  exer- 
cise that  supervision  over  the  solvency  of  borrowers  that  has  to  be 
exercised  by  private  bankers  or  by  a  national  bank  in  order  to  make 
the  system  a  success? 

Dr.  Alexander.  I  doubt  the  expediency  of  the  Government  doing 
it.  I  believe  it  would  have  to  be  done  by  the  banking  institution  in 
the  locality. 

Senator  Hollis.  Yes. 

Dr.  Alexander.  And  I  regret  that  a  system  designed  to  meet 
rural  conditions  was  not  included  in  the  general  currency  law  re- 
cently enacted.  I  believe  there  is  where  it  ought  to  have  been  put. 
I  believe  it  could  have  been  done  without  jeopardizing  the  bill.  Of 
course,  I  do  not  know  positively  as  to  that,  but  I  believe  that  the 
present  banks  that  we  have  all  over  the  country  could  have  done  the 
work.  There  is  the  machinery  already  established.  If  the  bill  had 
made  provision  for  the  national  banks  to  loan  money  on  short  time, 
on  personal  chattels,  on  chattel  mortgages,  there  could  have  been  an 
agent  of  the  bank  appointed  to  handle  that  particular  kind  of 
business. 

And  then  the  long-time  loans  could  have  been  provided  for  through 
that  national  currency  bill. 

Mr.  Bulkley.  Dr.  Alexander,  what  provision  would  you  suggest 
should  have  been  added  to  the  currency  bill  to  provide  for  short- 
time  loans  on  chattels? 

Dr.  Alexander.  Well,  I  do  not  know  whether  you  could  have 
made  it  compulsory  for  the  banks  to  loan  that  way  or  not,  but  I 
think  that  the  Government  should  have  stated  that  the  banks — it 
should  have  made  whatever  legal  provision  it  could,  or  whatever  was 
necessary. 

Mr.  Bulkley.  Well,  do  you  understand  that  there  is  anything  to 
prevent  the  banks  from  making  any  such  loans  now  ? 

Dr.  Alexander.  I  think  there  are  commercial  reasons;  I  do  not 
know  whether  there  are  any  legal  reasons  or  not.     Were  there  any 


296  RURAL   CREDITS. 

legal  reasons  in  the  old  administration  of  the  national  banks?  Were 
they  allowed  to  take  that  kind  of  security  ? 

Mr.  Bulkley.  Yes;  anything  except  real  estate- 
Mr.  Hayes.  Yes;  they  could  accept  any  security  except  real  estate. 

Dr.  Alexander.  They  could  accept  chattel  mortgages? 

Senator  Hollis.  Chattel  security  is  nothing  but  collateral  security ; 
but  the  trouble  with  chattel  security  is  that  it  usually  has  to  remain 
in  the  possession  of  the  owner;  and  it  is  likely  to  be  destroyed  or 
stolen  or  to  disappear,  whereas  the  ordinary  collateral  securities  are 
locked  up  in  the  vaults  of  the  banks  in  the  form  of  certificates. 

Dr.  Alexander.  I  see. 

Senator  Hollis.  That  would  be  a  pretty  difficult  thing  for  an 
ordinary  bank  to  engage  in.  I  doubt  if  they  would  find  it  profit- 
able ;  and  no  private  bank,  as  distinguished  from  a  public  bank, 
which  might  be  regarded  as  a  sort  of  department  of  the  Government, 
will  do  anything  that  is  not  profitable. 

Dr.  Alexander.  No;  we  do  not  expect  them  to  do  so. 

Senator  Hollis.  I  will  say  that  the  original  banking  and  currency 
act  was  not  intended,  so  far  as  I  know,  to  do  anything  except  to  make 
safe  commercial  banks ;  and  it  was  the  object  of  those  who  had  charge 
of  it  to  follow  that  up  with  a  rural-credit  bill,  to  take  care  of  the 
farmers. 

Dr.  Alexander.  Yes;  I  know  that. 

Senator  Hollis.  It  seemed  necessary  to  put  the  general  banking 
and  currency  bill  through  first,  to  keep  us  from  going  into  hard  times 
again;  and  now  we  hope  to  do  the  best  we  can  for  the  farmers. 

Dr.  Alexander.  Yes;  I  indorse  the  currency  bill. 

Now,  as  to  cheap  money,  we  can  not  get  that  except  directly  from 
the  Government.  If  we  have  got  to  go  into  the  commercial  centers 
for  money,  we  have  got  to  pay  for  it  what  the  money  will  bring  there. 

Mr.  Bulkley.  Now,  in  the  light  of  what  you  have  said,  you  do  not 
mean  that  the  Government  should  make  that  loan  direct  to  the 
farmer;  you  mean  that  the  Government  should  furnish  the  funds 
which  should  be  loaned  to  the  farmer  through  the  local  banking 
institution,  do  you  not? 

Dr.  Alexander.  That  is  right. 

Mr.  Weaver.  Where,  in  your  opinion,  ought  the  Government  to 
get  the  money  ?  We  have  had  different  propositions  about  the  Gov- 
ernment getting  the  money.  I  believe  one  gentleman,  whom  I  will 
not  name,  but  who  addressed  the  committee,  suggested  a  very  ancient 
and  very  simple  means  of  getting  it,  to  wit,  printing  it  on  a  printing 
machine. 

Dr.  Alexander.  Well,  where  is  the  Government  going  to  get  the 
money  that  it  is  going  to  issue  on  the  commercial  paper  through 
these  reserve  banks  under  the  new  currency  law?  As  I  understand 
that,  the  member  banks  or  the  reserve  banks  can  get  money  from 
the  Government  on  this  commercial  paper.  Is  there  not  a  provision 
of  that  kind  in  that  law? 

Mr.  Weaver.  Yes;  they  issue  gold-reserve  notes  on  certain  ap- 
proved securities.  And  I  will  not  go  into  a  discussion  of  that,  be- 
cause the  reserve  act  shows  that  itself;  and  without  criticising  a 
suggestion  of  yours  in  any  way,  what  I  am  trying  to  get  at  is  your 
suggestion,  and  I  think  that  is  what  the  committee  wants. 


RURAL    CREDITS.  297 

Dr.  Alexander.  Well,  my  idea  is  that  the  Government  should 
issue  Government  currency,  or  notes,  whatever  you  may  term  them, 
and  carry  the  bonds  of  these  land  banks,  those  bonds  to  be  secured  by 
mortgages  on  real  estate.  That  would  enable  these  land  banks  to 
carry  the  mortgages  and  deeds  of  trust,  make  loans  to  the  farmers 
secured  by  mortgages  and  deeds  of  trust,  at  a  low  rate  of  interest, 
if  the  Government  would  furnish  the  currency;  instead  of  selling 
land-bank  bonds  that  your  bill  provides  for  on  the  open  market, 
let  the  Government  carry  those  and  issue  Government  currency. 

Mr.  Seldomridge.  Realizing  the  fact,  Dr.  Alexander,  that  the 
Government  to-day  has  to  carry  a  reserve  of  $150,000,000  in  gold  as 
against  the  $346,000,000  in  greenbacks  that  are .  outstanding ;  and 
realizing  the  still  further  fact  that  it  must  put  aside  40  per  cent  of 
the  new  Treasury  notes,  in  addition  to  the  security  back  of  those 
notes,  where  would  the  Government  get  the  necessary  amount  of  gold 
to  protect  the  issue  of,  say  from  three  to  ten  billions  of  dollars  that 
would  be  necessary  to  take  care  of  the  farm  mortgages  in  the  country  ? 
Because  you  know  that  when  we  issue  money  we  have  got  to  issue 
money  to  our  people  that  will  pass  current  throughout  the  world. 
We  can  not  afford  to  issue  currency  that  will  depreciate  and  lower 
the  value  of  all  classes  of  property  which  an  issue  of  that  kind  or 
class  of  notes  would  produce.  Now,  where  can  we  get  the  necessary 
gold  to  create  a  reserve  against  such  an  issue  as  that? 

Mr.  Weaver.  How  would  you  guard  against  inflation?  That  is  the 
idea. 

Dr.  Alexander.  Can  you  not  issue  any  Government  currency  with- 
out gold  back  of  it — none  at  all  ? 

Mr.  Seldomridge.  We  have  tried  to  do  that,  and  have  found  it  a 
very  dangerous  and  difficult  thing  to  do. 

Mr.  Hayes.  Under  the  reserve  act  or  the  present  laws  we  can  not 
do  that. 

Dr.  Alexander.  I  beg  your  pardon,  I  did  not  understand. 

Mr.  Hayes.  Under  the  reserve  act,  or  under  the  laws  that  were  in 
force  before  that  act,  we  could  not  do  that. 

Mr.  Seldomridge.  We  provided  in  the  reserve  act  that  nothing  in 
that  act  should  in  any  way  affect  the  parity  or  the  gold-standard 
theory  of  the  Government. 

Mr.  Hayes.  As  you  stated,  Mr.  Seldomridge,  that  act  provides  for 
a  40  per  cent  reserve  behind  the  new  Treasury  notes. 

Mr.  Bulkley.  I  think  we  can  clear  the  question  up  in  this  way, 
Mr.  Alexander,  that  if  we  assume  that  the  Government  by  printing 
currency  creates  any  value,  we  are  going  off  in  the  air. 

All  that  is  assumed  to  be  done  in  the  currency  law  that  has  just 
been  enacted  is  to  pass  out  notes  which  shall  be  representative  of 
value  that  is  deposited  with  the  Government  and  to  adequately  secure 
them  by  a  gold  reserve,  redeemable  in  gold  on  demand,  and  the 
balance  of  the  security  being  of  such  a  short-time  character  that  it 
may  command  gold  within  as  short  a  time  as  it  may  reasonably  be 
expected  to  be  called. 

Now,  of  course,  if  we  are  going  to  issue  notes  against  land  banks, 
we  have  no  such  possibility  of  that  prompt  redemption  that  exists 
with  respect  to  the  security  which  is  provided  to  be  placed  behind 
the  notes  which  will  be  issued  under  the  new  currency  act.    So  that 


298  RURAL    CREDITS. 

we  would  have  to  make  a  somewhat  different  arrangement  if  any 
such  notes  were  issued. 

Mr.  Hayes.  And  if  you  will  permit  me  to  follow  up  your  suggestion, 
Mr.  Bulkley,  the  security  which  the  farmer  offers  in  the  land  has  the 
additional  disadvantage  that  there  is  no  way  of  liquidating  it,  except 
by  a  sale.  It  is  not  in  the  natural  course  of  business  liquid  in  itself, 
like  the  assets  which  the  reserve  law  provides  for. 

Mr.  Bulkley.  Yes ;  that  is  the  proposition  exactly. 

Mr.  !  Iai  i:s.  It  has  got  to  be  sold  in  order  to  be  realized.  There  is 
no  gold  behind  it :  there  are  no  liquid  assets  behind  it  that  will,  in  the 
natural  course  of  things,  liquidate  themselves. 

Dr.  Alexander.  But  it  has  intrinsic  value  that  will  always  bring 
the  money. 

Mr.  Hayes.  No;  you  would  have  to  have  a  market  for  it  in  order 
to  get  the  money  promptly.  • 

Dr.  Alexander.  It  will  always  command  the  money,  I  think. 

Mr.  Bulkley.  But  you  can  not  tell  how  soon,  Dr.  Alexander,  you 
will  find  a  market  for  any  particular  piece  of  land  if  you  are  forced 
to  sell  it. 

Dr.  Alexander.  As  a  matter  of  fact,  the  value  of  gold  is  a  ficti- 
tious value  conferred  on  it  by  the  coinage  laws  of  various  countries. 

Mr.  Bulkley.  Well,  is  it  a  fictitious  value? 

Mr.  Hayes.  No  ;  we  can  not  do  that  in  the  case  of  silver. 

Dr.  Alexander.  Well,  silver  is  demonetized.  ___ 

Mr.  Hayes.  But  it  has  a  value  just  the  same. 

Mr.-  Weaver.  Is  not  the  value  of  the  gold  the  amount  of  work  it 
takes  to  get  it? 

Mr.  Hayes.  The  value  is  what  it  will  bring  in  the  markets  of  the 
world. 

Mr.  Weaver.  You  have  to  go  into  the  mines  and  endure  hardships 
and  spend  money  and  die  it  out  of  the  earth ;  and  that  labor  is  the 
measure  of  the  value  of  the  gold. 

Dr.  Alexander.  Surely ;  but  there  are  a  whole  lot  of  other  things 
that  cost  more  than  gold  to  get.  But  you  take  away  the  coinage 
value  of  gold  and  it  will  not  be  worth  much  more  than  copper  or 
aluminum. 

Mr.  Hayes.  Do  you  think  so  ?  I  do  not  think  you  are  right.  The 
histor}7  of  the  world  will  disprove  that. 

Dr.  Alexander.  Well,  nearly  all  countries  of  the  world,  you  see, 
have  conferred  that  value  on  gold  by  legislation.  If  I  had  gold  bul- 
lion, I  would  be  foolish  to  sell  it  for  less  than  I  can  coin  it  into  money 
for,  because  I  can  get  it  coined  for  so  much.  Therefore,  it  is  an  arti- 
ficial value  that  the  Governments  of  the  world  have  conferred  on  gold 
by  giving  it  its  coinage  value. 

Mr.  Hayes.  Well,  silver  has  no  coinage  value  now;  and  is  it  not 
true  that  in  the  last  20  years  it  has  increased  in  value  25  per  cent  not- 
withstanding that  fact? 

Dr.  Alexander.  Yes;  that  is  regulated  by  the  law  of  supply  and 
demand. 

Mr.  Hayes.  Yes ;  not  by  coinage  value. 

Mr.  Seldomridge.  The  universal  value  of  all  classes  of  property 
is  measured  in  gold. 

Dr.  Alexander.  Surely. 


RURAL    CREDITS.  299 

Mr.  Bulkley.  I  think  Dr.  Alexander  will  concede  that  the  law  of 
supply  and  demand  regulates  the  value.  If  there  was  additional 
gold,  it  would  still  be  good  money,  but  it  would  not  buy  as  much. 

Mr.  Hayes.  Certainly. 

Dr.  Alexander.  As  a  matter  of  fact,  the  output  of  gold  and  the 
great  increase  in  the  supply  has  been  of  great  value  to  the  country. 
And  when  silver  was  demonetized  there  would  have  been  very  hard 
times  if  the  increase  in  the  supply  of  gold  had  not  taken  place. 

Mr.  Bulkley.  It  is  precisely  the  effect  that  I  have  outlined,  that 
the  increased  supply  of  gold  does  not  decrease  the  value  of  it,  but  the 
price 

Dr.  Alexander  (interposing).  The  prices  of  the  products  have 
gone  up. 

Mr.  Bulkley.  Exactly. 

Dr.  Alexander.  But  a  pennyweight  of  gold  is  worth  the  same  in 
gold  as  it  always  was. 

Mr.  Bulkley.  Yes ;  because  it  is  the  standard  of  value. 

Dr.  Alexander.  Surely. 

Mr.  Scudder.  Mr.  Chairman,  may  I  say  a  word  at  this  point? 

Senator  Hollis.  Yes. 

Mr.  Scudder.  I  think  Dr.  Alexander  is  entirely  right  when  he  re- 
fers to  the  fact  that  the  nations  of  the  world  have  all  made  gold  the 
standard  of  value,  and  that  is  the  thing  you  have  got  to  face.  That 
is  the  condition,  not  the  theory. 

Now,  all  the  nations  of  the  earth,  if  they  should  get  together  and 
change  the  standard  of  value  and  make  it  labor,  the  product  of  a 
man's  hands  instead  of  gold,  that  would  change  it.  But  we  have  the 
present  situation  to  face. 

Dr.  Alexander.  Certainly :  I  understand  that. 

Mr.  Scudder.  Every  nation  in  the  world  makes  gold  the  standard. 
And  I  was  on  the  point  yesterday 

Mr.  Hayes  (interposing).  Will  you  let  me  ask  you  a  question  when 
you  finish? 

Mr.  Scudder.  Yes ;  I  should  be  glad  to  have  you  ask  it  now. 

Mr.  Hayes.  You  were  talking  about  making  labor  the  standard  of 
value.  Of  course,  the  value  of  one  man's  labor  differs  from  that  of 
another  ? 

Mr.  Scudder.  Yes. 

Mr.  Hayes.  There  are  no  two  men  alike  in  that  respect,  and  there 
could  be  no  standard  of  value  based  upon  that. 

Mr,  Scudder.  You  could  arbitrarily  put  a  value  on  everything  if 
everyone  in  the  world  could  be  gotten  to  agree  to  it. 

Mr.  Hayes.  No  ;  you  could  not ;  it  would  be  impossible. 

Mr.  Scudder.  Would  it  not  be  possible  to  put  a  value  on  every- 
thing in  the  world  if  every  nation  could  be  gotten  to  agree  to  it? 

Mr.  Weaver.  You  can  put  a  fiat  value  on  it. 

Mr.  Scudder.  But  you  can  put  a  "  comparative  value  "  on  every- 
thing, provided  everybody  agrees  to  such  a  rule. 

Mr.  Hayes.  No;  you  could  not;  because  you  could  legislate  all 
you  please,  but  you  could  not  change  natural  commercial  laws.  You 
may  violate  them,  but  you  can  not  change  them. 

Mr.  Scudder.  I  want  to  ask  you  if  the  world  could  not  get  to- 
gether and  put  a  value  on  diamonds? 


300  RURAL    CREDITS. 

Mr.  Hayes.  No;  nobody  would  pay  any  attention  to  that.  People- 
would  pay  whatever  they  thought  they  were  worth  to  them  in  spite 
of  all  the  laws  you  could  make. 

Mr.  Scudder.  I  mean,  if  the  nations  of  the  world  could  agree  on 
a  standard  of  value  on  anything? 

Mr.  Hayes.  In  the  first  place,  they  could  not  agree;  you  are  some- 
what theoretical. 

Mr.  Scuddkk.  Well,  assuming  that  they  could  agree.  That  is  just 
what  1  wanted  to  call  Dr.  Alexander's  attention  to.  Yesterday  I 
was  on  the  point  of  saying,  when  the  session  closed,  that  the  friends 
of  the  proposition  who  wanted  the  Government  to  guarantee  these 
bonds  could  only  have  it  done  in  one  way,  and  that  is  in  the  way 
that  Dr.  Alexander  has  suggested,  that  these  bonds  should  be  de- 
posited with  the  Government,  and  the  currency  issued  against  those 
bonds — we  will  say  on  a  10  per  cent  margin,  just  as  the  national  banks 
were  allowed  to  put  bonds  with  the  Government  and  have  the  Gov- 
ernment issue  the  currency  on  10  per  cent  margin.  But  the  trouble 
with  that  wrould  be  that  it  would  drive  every  dollar  of  gold  out  of 
our  country.  And  as  long  as  the  standard  is  "  gold  "  we  have  got 
to  recognize  that  fact.  If  you  issue  3  billions  of  dollars — that  is 
what  the  farm  mortgages  now  represent — in  order  to  take  up  the  farm 
indebtedness  of  this  country,  the  Government  would  have  to  issue  3 
billions  of  dollars  of  indebtedness.  Why,  you  would  drive  every 
dollar  of  gold  out  of  this  country. 

Mr.  Hayes.  And  be  on  an  inflation  basis  right  away. 

Mr.  Scudder.  Right  away.  That  is  the  condition  you  have  got  to 
face.  It  is  a  condition  and  not  a  theory,  as  President  Cleveland 
said. 

Mr.  Bulkley.  To  put  the  same  thing  more  briefly,  if  your  notes 
are  redeemable  in  gold,  you  must  have  them  backed  by  a  gold  reserve 
and  by  such  securities  as  will  immediately  command  gold  for  re- 
demption. If  they  are  not  redeemable  in  gold,  then  they  must  be 
redeemable  in  something  else,  and  they  will  depreciate  in  the  value 
of  whatever  that  other  thing  is. 

Mr.  Hayes.  Not  only  that,  but  if  your  reserve  is  a  thing  that  can 
not  be  easily  realized  on,  a  man  does  not  want  it  for  currency,  that 
is  all;  it  will  have  no  value  at  all  for  that  purpose. 

Mr.  Platt.  It  seems  to  me  that  the  upshot  of  all  this  is,  that  the 
farmer  has  not  as  good  a  security  as  anybody  else,  and  that  is  why 
he  is  discriminated  against. 

Mr.  Hayes.  He  has  not  as  liquid  a  security  as  others. 

Senator  Hollis.  Let  us  get  back  to  the  point.  We  all  agree  that 
there  should  be  some  way  to  provide  funds  for  loaning  to  the  farmer 
at  a  less  rate  than  he  is  paying  now. 

And  there  has  been  various  suggestions.  One  was  specifically  that 
the  postal-savings  funds  which  are  held  on  deposit  might  be  available 
under  proper  conditions. 

It  has  also  been  very  seriously  urged  that  the  Government  ought 
to  issue  currency  to  take  care  of  it;  and  that  was  also  urged  before 
the  Committee  on  Banking  and  Currencv  of  the  Senate,  when  the 
bill  was  before  that  committee — that  that  was  all  that  was  needed, 
to  send  the  money  out  with  the  Government  back  of  it,  and  it  would 
be  good. 


RURAL    CREDITS.  301 

Now,  then,  when  Senator  Bourne,  who  was  getting  up  a  very  com- 
prehensive plan  for  national  good  roads,  tried  to  figure  out  some 
way,  he  hit  on  this  plan:  That  the  Government  should  loan  its 
credit  to  the  different  States;  the  National  Government  being  able 
to  borrow  on  better  terms  than  most  of  the  States. 

And  that  is  probably  as  far  as  we  could  go,  to  have  the  Govern- 
ment loan  its  credit  in  some  way  to  the  banks  which  are  to  help  the 
farmer;  and  if  you  have  any  ideas  along  that  line,  Dr.  Alexander, 
I  would  be  glad  to  hear  them. 

Dr.  Alexander.  If  that  will  enable  the  system  of  rural-credit 
banks  to  obtain  cheaper  money  than  now  obtained,  it  will  be  all 
right,  but  in  my  judgment,  whatever  system  you  provide  for  long- 
time loans  they  should  be  at  a  lower  rate  of  interest  than  now  ob- 
tains, otherwise  I  believe  it  will  result  disastrously. 

Senator  Hollis.  Well,  of  course,  unless  they  could  do  that  the 
present  loans  would  be  still  outstanding,  and  it  would  not  have  any 
effect.  The  only  way  the  Government  can  mix  in  it  at  all  would  be 
by  making  it  possible  to  get  lower  rates;  otherwise  the  Government 
can  not  help  the  situation. 

And  that  is  what  we  are  all  bending  our  energies  toward  doing, 
getting  the  lowest  rates  that  are  possible  with  safety  if  we  go  ahead 
and  build  up  a  system  that  is  going  to  break  down  and  cause  failure, 
which  would  not  only  be  useless  but  would  set  the  movement  back  a 
generation.  People  would  not  have  the  courage  to  take  it  up  again. 
So  that  you  can  see  that  we  must  be  careful. 

Dr.  Alexander.  It  is  going  to  take  ma.ny  years  to  get  the  system 
established,  even  if  it  is  satisfactory,  because  these  institutions  have 
got  to  be  organized  and  built  up.  That  is  why  I  said  that  I  re- 
gretted that  a  provision  could  not  be  made  through  the  national 
banks  in  the  currency  act,  because  you  have  alread}^  got  the  machin- 
ery there. 

But  under  the  Moss-Fletcher  bill,  which  you  are  considering, 
which  seems  to  be  the  leading  one  before  the  committee,  it  is  going 
to  take  years  and  years  to  get  those  banks  established. 

As  I  stated  in  my  article,  my  impression  was  that  the  cooperative 
feature  instead  of  being  optional,  should  be  compulsory.  But  Prof. 
Brooks  makes  the  point  that,  if  it  was  found  that  the  cooperative 
banks  were  more  prosperous,  they  would  supersede  the  other  banks. 
But  the  question  is,  whether  they  would  be  more  profitable  for  the 
lender  or  more  profitable  for  the  borrower. 

Mr.  Seldomridge.  Dr.  Alexander,  I  want  to  ask  you  a  question 
that  relates  somewhat  to  your  knowledge  of  conditions  in  your  sec- 
tion and  your  State. 

Dr.  Alexander.  I  shall  be  glad  to  answer  it. 

Mr.  Seldomridge.  Are  your  farmers  responsive  to  the  cooperative 
idea? 

Dr.  Alexander.  Not  very  largely.  They  have  to  learn  to  coop- 
erate. You  know  that  the  American  farmer  is  the  most  independent 
individualistic  creature  in  the  world,  and  it  is  a  hard  matter  to  or- 
ganize the  American  farmer;  he  is  unlike  the  city  man;  in  the  city 
the  community  like  takes  precedence  over  the  individual  life.  The 
reverse  is  true  of  the  country.  It  is  going  to  take  a  long  time  to 
get  the  farmers  to  cooperate  on  any  line. 


302  RURAL    CREDITS. 

Mr.  Seldomridce.  The  success  of  the  European  systems  of  rural 
credits  seems  to  have  been  largely  due  to  that  spirit  of  cooperation. 

Dr.  Alexander.  Yes;  but  it  has  taken  60  years  to  build  it  up 
there ;  and  it  has  not  reached  all  the  countries  of  Europe  yet,  nor  all 
classes  of  farmers. 

Mr.  Seldomeidge.  Do  you  believe  that  if  these  cooperative  Ameri- 
can institutions  could  be  established  and  demonstrate  their  effective- 
ness, the  idea  would  spread?  Do  you  think  it  would  be  possible 
here  ? 

Dr.  Alexander.  It  would  have  to  be  a  growth  just  like  it  was 
there;  and  the  conditions  are  such  that  we  need  relief,  now.  We 
do  not  want  to  wait  a  generation  to  develop  a  spirit  of  cooperation. 
Mr.  Seldomridge.  Suppose  the  Government  sent  out  in  this  section 
there  two  or  three  men  of  ability  and  knowledge  and  experience,  who 
could  organize  these  cooperative  plans  and  put  them  into  practical 
shape ;  do  you  think  the  farmers  would  respond  ? 

Dr.  Alexander.  In  some  localities  they  would;  it  would  do  good, 
there  is  no  doubt  about  that. 

Mr.  Hayes.  Let  me  ask  you,  would  it  not  take  a  generation,  or  at 
least  several  years  anyhow — we  do  not  know  how  long — to  put  into 
operation  in  this  country  any  plan  that  might  be  developed  ? 

Dr.  Alexander.  Certainly;  any  plan  that  provides  for  the  organ- 
ization of  new  institutions  would  take  years  to  put  into  operation. 

Mr.  Hayes.  So  that  that  is  nothing  to  be  said  against  the  coop- 
erative idea,  is  it? 

Dr.  Alexander.  No;  but  cooperation  is  a  growth;  it  is  not  a 
spasmodic  action. 

Mr.  Seldomridge.  Well,  I  have  a  very  distinct  impression  that  the 
Government  should  set  itself  definitely  to  the  practical  demonstra- 
tion of  this  matter  of  rural  finance;  that  we  can  just  as  well  educate 
the  farmer  on  that  line  as  we  can  educate  him  along  the  line  of  con- 
serving the  soil  and  increasing  its  productiveness. 

Dr.  Alexander.  I  would  be  glad  to  see  the  Government  do  that; 
I  would  be  glad  to  see  the  Government  put  itself  on  record,  or  take 
up  that  work  to  teach  cooperation;  adopt  that  as  a  policy,  to  coop- 
erate. I  believe  it  will  eventually  have  to  take  the  place  of  compe- 
tition which  we  have  tried  to  establish  in  the  place  of  monopoly.  I 
do  not  believe  that  we  will  ever  establish  competition  again  as  it  was 
once. 

I  do  not  agree  with  the  general  statement  that  competition  is 
the  life  of  trade.  I  think  that  competition  is  destructive.  Coopera- 
tion is  life-giving,  upbuilding,  and  just  the  reverse  of  competition. 
I  do  not  believe  that  we  will  ever  be  able  to  break  up  all  the  com- 
binations of  capital  in  the  different  industries  of  our  country  and 
reestablish  independent  competition  again.  There  will  always  be 
a  "gentlemen's  agreement"  or  something  that  is  going  to  keep  them 
from  cutting  prices  against  one  another.  You  will  never  have  com- 
petition to  that  extent,  that  you  will  have  price  cutting,  because  that 
is  destructive. 

So,  cooperation  ought  to  come  in  to  take  the  place  of  competition. 
And  I  believe  the  Government  would  do  well  to  take  the  initiative 
in  advocating  a  policy  of  that  kind — to  establish  cooperation  not 
only  in  the  banking  business,  but  in  other  industries  wherever  pos- 
sible.    I  believe  the  day  will  come  when  manufacturing  enterprises 


RURAL    CREDITS.  303 

will  be  conducted  on  the  cooperative  basis,  where  earnings  of  capital 
are  limited  and  all  the  profits  above  a  fixed  rate  of  interest  to  capi- 
tal will  go  to  the  purchasers. 

Mr.  Hayes.  Of  course,  that  is  a  long  way  in  the  future. 

Dr.  Alexander.  Yes ;  it  is  a  long  way  in  the  future,  of  course. 

Mr.  Hayes.  But  have  you  considered  this  proposition?  I  would 
like  to  hear  some  suggestions  from  you — for  I  see  you  are  a  man 
who  has  thought  along  this  line  a  long  time — as  to  the  effect  of  the 
Government  of  the  United  States  actually  lending  money  to  the 
farmer.  What  effect  is  that  going  to  have  on  his  character  and 
independence?  I  would  like  to  have  you  suggest  how  we  are  to 
prevent  the  usual  results  that  come  from  hothouse  methods  of  that 
kind. 

Dr.  Alexander.  Well,  I  do  not  advocate  hothouse  methods.  I 
do  not  believe  the  farmers  are  asking  for  them.  I  believe  they  are 
simply  asking  for  the  Government  to  provide  some  channel  through 
which  they  can  finance  their  business  with  the  security  that  is  avail- 
able to  them. 

Mr.  Hayes  No  ;  but  if  you  are  going  to  have  the  Government  fur- 
nish him  money  when  commercial  men  who  are  in  the  business  would 
not  do  it  and  commercial  laws  would  not  warrant  it,  then  I  want 
to  have  you  show  to  me  what  the  effect  of  that  is  going  to  be  on 
the  farmer  himself  and  on  the  general  situation. 

Dr.  Alexander.  Well,  I  hope  there  is  some  way  in  which  the 
Government  can  provide  him  the  relief  under  present  commercial 
conditions,  because  he  will  not  be  able  to  get  cheaper  money  unless 
the  Government  does  come  to  his  support. 

Senator  Hollis.  Are  there  any  other  questions  to  be  asked  of  Dr. 
Alexander? 

Mr.  Bulkley.  I  wanted  to  ask  him  one  or  two  more  questions. 
Have  you  intended  to  advocate  a  system  which  will  be  a  strictly 
business  system  and  which  will  facilitate  the  granting  of  credit  to 
the  farmer  on  the  basis  of  competition  and  the  money  market ;  or  do 
you  agree  with  what  Prof.  Brooks  said  yesterday,  that  we  have  got 
to  give  governmental  aid  and  bring  farm  loans  down  below  the 
regular  market  rate  of  interest  for  the  sake  of  building  up  an  agri- 
cultural community? 

Dr.  Alexander.  I  think  that  is  so  in  the  long-time  loans. 

Mr.  Bulkley.  Do  you  mean  you  think  the  latter  is  the  case  ? 

Dr.  Alexander.  Yes ;  I  think  you  have  got  to  bring  the  long-time 
loans  to  a  rate  of  interest  that  is  below  the  prevailing  commercial 
rate. 

Mr.  Hayes.  Well,  can  you  suggest  to  us  how  we  are  going  to  do 
that? 

Dr.  Alexander.  I  do  not  know  any  way  at  all,  unless  the  Govern- 
ment can  carry  the  bonds  of  those  loaning  institutions,  because  if 
they  have  got  to  be  sold  on  the  market,  would  that  provide  the  funds? 

Mr.  Hayes.  That  is  what  I  was  going  to  ask  you. 

Dr.  Alexander.  I  do  not  believe  it  would. 

Mr.  Hayes.  Do  you  have  an  idea  that  the  Government  could  bor- 
row more  cheaply  ? 

Dr.  Alexander.  Yes. 

Mr.  Hayes.  I  do  not  see  how.  It  has  no  way  of  paying  its  bonds, 
except  by  taxation,  and  if  it  went  to  the  extent  that  the  public  and 


304  RURAL    CREDITS. 

the  world  generally  doubted  its  ability  to  pay  on  demand,  or  when- 
ever the  bonds  were  due.  it  follows  that  the  Government  rate  would 
go  up,  would  it  not? 

Dr.  Alexander.  Well,  it  might. 

Mr.  Hayes.  Well,  would  it  not,  as  a  matter  of  fact? 

Dr.  Alexander.  My  idea  was  that  the  Government  would  issue 
currency — Government  notes  to  carry  these  land  bonds,  the  same  to 
be  retired  as  soon  as  the  bonds  were  paid  off. 

Mr,  Uulklky.  In  that  connection,  Dr.  Alexander.  I  suppose  you 
realize  that  there  is  a  limit  to  the  amount  of  currency  that  we  have 
any  use  for  ? 

Dr.  Ajuexandek.  Surely. 

Mr.  Bulkley.  In  other  words,  you  do  not  carry  currency  in  your 
pocket  just  because  you  can  get  it;  you  carry  just  the  amount  you 
need. 

Dr.  Alexander.  Surely.  I  think  that  brings  up  another  point, 
that  the  Government  very  likely  would  be  able  to  meet  this  demand, 
because  this  demand  would  come  gradually;  there  would  not  be  a 
demand  for  the  $3,000,000,000  that  Mr.  Sciidder  speaks  of— perhaps 
not  in  two  generations.  Before  there  would  be  a  demand  for  such 
an  immense  sum  of  money  the  money  would  begin  to  come  back,  es- 
pecially if  you  made  the  period  of  long-time  loans  not  exceeding  20 
years,  which,  I  think,  would  be  long  enough.  I  think  the  Govern- 
ment possibly  would  be  able  to  take  care  of  these  long-time  loans  as 
the  demand  would  be  made  on  the  Government,  because  that  demand 
would  come  gradually. 

Mr.  Bulkley.  Do  you  believe  that  we  ought  to  limit  the  amount 
to  be  loaned  to  any  one  man  ? 

Dr.  Alexander.  Oh,  yes,  sir. 

Mr.  Bulkley.  At  what  point? 

Dr.  Alexander.  I  would  not  go  over  $5,000  to  any  one  man. 

Mr.  Bulkley.  How  do  you  arrive  at  the  figure  $5,000? 

Dr.  Alexander.  Well.  I  am  estimating  that  100  acres  could  be 
bought  almost  anywhere  for  $5,000,  usually  for  less  than  that,  and 
100  acres  of  land  is  a  good  farm. 

Mr.  Hayes.  It  would  cost  $25,000  where  I  live,  if  it  was  any  good. 

Dr.  Alexander.  Yes;  I  suppose  it  would.  Yes;  around  the  city 
of  Charlotte  it  would  cost  $800  or  $100  an  acre  to  buy  it  on  long  time. 
But  what  is  making  it  bring  that  price?  It  is  nothing  in  the  world 
but  the  moneyed  men  of  Charlotte  going  out  there  speculating  in 
that  land. 

Mr.  Hayes.  No;  I  mean  the  land  in  my  section  will  make  a  good 
return  on  that  amount. 

Dr.  Alexander.  It  is  not  worth  it  in  my  State.  I  know  two  farms 
that  sold  at  $350  an  acre  to  speculators  pure  and  simple;  the  land 
was  located  about  3  miles  from  Charlotte. 

Mr.  Hayes.  Five  thousand  dollars  in  my  State,  for  instance,  would 
be  very  little. 

Dr.  Alexander.  Possibly  so. 

Mr.  Hayes.  You  would  have  to  vary  the  limit  according  to  condi- 
tions. 

Dr.  Alexander.  You  may  do  that — vary  it  according  to  conditions. 
My  idea  would  be  that  if  you  let  that  be  three-fourths  of  the  value  of 


RURAL    CREDITS.  305 

the  farm,  $5,000  would  give  the  farmer  something  like  $7,000  to  in- 
vest in  a  farm. 

Mr.  Bulkley.  Suppose  we  pass  the  Fletcher-Moss  bill,  how  readily 
would  the  people  in  your  community  subscribe  to  stock  in  those  little 
banks  ? 

Dr.  Alexander.  I  do  not  believe  that  the  farmers  would  take  it  up 
very  readily.  The  truth  of  the  matter  is  that  a  large  part  of  the 
farming  class  have  not  got  any  money. 

Mr.  Bulkley.  "Would  any  other  class  in  your  community  take  it 
up? 

Dr.  Alexander.  I  do  not  know,  but  it  might  be  taken  up  by  some 
of  the  moneyed  class,  possibly  the  commercial  banks;  the  national 
banks  might  establish  those  as  branch  banks,  because,  as  I  under- 
stand, they  can  loan  money  at  1  per  cent  in  addition  to  the  legal  rate 
of  interest.     Does  not  the  bill  provide  that? 

Mr.  Bulkley.  No;  1  per  cent  above  the  rate  at  which  they  sell 
their  bonds. 

Dr.  Alexander.  Oh,  yes;  1  per  cent  above  that.  Well,  that  would 
possibly  give  them  a  good  profit  for  administration. 

Mr.  Bulkley.  How  much  do  you  think  it  would  cost  to  run  one  of 
those  banks  a  year? 

Dr.  Alexander.  That  was  discussed  here  yesterday  by  men  who 
know  more  about  it  than  I  do.  But  I  think  the  cost  of  running  one 
of  them  would  be  out  of  proportion  to  the  business  done,  unless  you 
make  them  banks  of  deposit  and  let  them  handle  short-time  loans  also. 
My  idea  would  be,  if  possible,  to  have  a  banking  system  whereby  these 
short-time  loans  for  farmers  and  long-time  loans  for  farmers,  the  one 
on  personal  chattels  and  the  other  on  real  estate,  could  all  be  handled 
through  the  same  institution. 

Mr.  Bulkley.  Does  that  go  sc  .ar  as  to  say  that  the  Moss  bill  as 
written  would  not  work  at  all? 

Dr.  Alexander.  No;  I  do  not  say  that;  it  might  do  a  great  deal 
of  good;  I  see  nothing  wrong  with  that  except  the  rate  of  interest. 
If  it  can  provide  cheaper  money  it  will  do  good;  but  if  it  means  that 
we  are  going  to  have  the  farms  covered  up  with  mortgages  at  7  or  8 
per  cent  interest,  perhaps  more,  it  is  not  going  to  give  the  relief  that 
we  need. 

Mr.  Bulkley.  Well,  it  will  not  work  at  all  unless  these  little  banks 
are  incorporated,  and  the  stock  in  them  will  not  be  subscribed  unless 
somebody  thinks  it  is  a  good  investment,  and  they  can  not  think  it  is 
a  good  investment  unless  the  expenses  are  kept  down  to  such  a  point 
that  a  profit  can  be  made. 

Dr.  Alexander.  Surely. 

Mr.  Bulkley.  Do  3^011  not  think  they  could  make  a  profit  without 
going  into  the  deposit  and  short-time  loan  business  ? 

Dr.  Alexander.  They  might  do  it.  I  do  not  know  just  what  would 
be  the  cost  of  running  it.  I  know  very  little  of  the  cost  of  banking. 
If  the  Government  could  send  men  out  to  advocate  it,  and  to  educate 
the  people  along  that  line  of  cooperation,  you  might  be  able  to  get 
the  farmers  to  take  it  up.  I  do  not  know  but  what  they  would.  We 
are  teaching  that  in  North  Carolina ;  our  lecturers  are  going  all  over 
North  Carolina  all  the  time  teaching  cooperation. 
37031—14 20 


306  RURAL    CREDITS. 

STATEMENT  OF  JOHN  LENNOX,  OF  COLORADO  SPRINGS,  COLO. 

Mr.  Lennox.  Mr.  Chairman  and  gentlemen  of  the  subcommittee, 
before  starting  upon  the  matters  which  I  am  here  to  take  up,  permit 
me  in  a  word  to  say  that  I  esteem  it  a  distinct  honor  to  have  been 
selected  by  this  committee  for  the  purpose  of  presenting  something 
of  the  conditions  and  financial  needs  of  the  farmers  of  Colorado. 

Perhaps  I  should  make  it  clear  that  my  knowledge  is  of  dry-farm- 
ing sections  especially.  While  I  have  a  general  knowledge  of  the 
entire  State,  having  lived  there  something  like  42  years  and  been 
perhaps  a  rather  close  observer  of  rural  conditions  during  that  entire 
period,  and  having  acted  as  chairman  of  the  local  board  of  control 
of  the  Sixth  International  Dry  Farming  Congress  four  years  ago, 
and  having  for  the  last  three  years  acted  as  chairman  of  the  agri- 
cultural committee  of  our  Colorado  Springs  Chamber  of  Commerce; 
having  also  acted  as  chairman  of  the  trustees  of  what  is  known  in 
our  section  as  the  seed  and  feed  fund,  of  which  mention  will  be  made 
later;  and  being  also  manager  of  the  Farm  Loan  Co.,  I  have  been 
brought  in  rather  close  touch  with  these  problems  in  that  particular 
section  of  Colorado,  which  section  I  should  say  is  the  central-eastern 
section,  the  plains  section,  and  is  generally  designated  as  "  eastern 
Colorado." 

I  would  like  to  say  also  that  while  I  am  fairly  familiar  with  these 
conditions  and  feel  somewhat  at  home  in  speaking  of  them,  and  am 
here  for  the  purpose  of  giving  this  information  as  best  I  can  to  you 
gentlemen,  it  is  no  part  of  my  responsibility  to  suggest  a  plan  by 
which  you  shall  work  out  a  problem  which  is  so  great  and  of  such 
vital  interest  to  the  agriculture  and  the  rural  sections  of  our  entire 
Nation  as  the  problem  you  have  before  you  at  this  time. 

I  am  a  comparative  stranger  to  banking,  finance,  and  lawmaking. 

With  this  general  statement  I  would  like  to  give  you  a  little  view 
of  Colorado.  In  many  respects  it  is  unlike  the  other  parts  of  our 
country. 

The  State  of  Colorado  is  new  and  has  conditions  which  are  pe- 
culiar to  that  State,  and  perhaps  not  to  be  found  in  other  States. 
We  have  a  great  variety,  for  instance,  of  altitudes,  even  in  our 
farming  sections;  altitudes  varying  from  under  4,000  feet  to  upward 
of  10.000  feet.  We  have  also  a  great  variety  of  soils.  We  have  a 
great  variety  in  the  amount  of  moisture  that  is  given  to  us.  We 
have  a  great  variety  of  people,  who  have  been  gathered  there  from 
different  parts  of  the  country;  perhaps  we  are  more  heterogenous 
in  some  respects  than  other  sections  of  the  entire  country.  We  have 
great  variety  in  the  crops  that  we  are  undertaking  to  raise  in  the 
different  sections  of  State  by  reason  of  these  great  variations  in  alti- 
tude, moisture,  etc. 

Xow.  I  realize  the  difficulty  very  fully  of  getting  before  you  gen- 
tlemen the  things  that  you  should  know  and  that  I  would  like  to  con- 
vey to  you.  But  time  is  limited,  and  it  is  necessary  to  condense  as 
far  as  possible;  and  I  believe  that  for  this  purpose  I  could  not  do  bet- 
ter than  very  briefly  give  you  the  conditions  which  have  led  up  to 
what  we  are  now  trying  to  undertake  to  do. 

This  particular  section  known  as  eastern  Colorado  falls  into  three 
historical  periods.    We  had,  first,  the  Indian  and  the  buffalo.    Only 


RUEAL    CEEDITS.  307 

45  years  ago — we  are  very  close  to  the  beginning  of  things  in  Colo- 
rado. And  while  the  buffalo  disappeared  in  1870  to  1874 — when  they 
began  we  do  not  know ;  we  are  not  concerned  in  the  dates — the  thing 
of  interest  to  those  who  have  studied  conditions  there  is  that  the 
buffalo,  by  his  selection  of  that  particular  region  as  his  home,  marked 
and  classified  that  portion  of  Colorado  as  a  dairying  and  stock-raising 
country.    That  is  basic  with  us. 

Then,  when  the  buffalo  disappeared,  came  the  second  period,  the 
period  of  the  stock  raiser,  with  his  large  herds  and  flocks,  with 
practically  no  limit  to  the  boundary  of  his  pasture,  except  distance 
to  water  holes  and  the  ability  of  the  animals  to  travel.  My  friend, 
H.  H.  Seldomridge,  is  familiar  with  this  period  of  Colorado's  history 
from  having  herded  flocks  of  sheep  belonging  to  his  father  at  that 
time.  And,  by  the  way,  I  may  say  that  I  am  obliged  to  be  the  more 
accurate,  by  reason  of  the  fact  that  Mr.  Seldomridge  is  familiar  with 
conditions  there  and  he  can  check  me  if  I  make  a  mistake. 

Gradually,  however,  this  condition  changed.  And  the  third  period 
of  the  State's  history  is  the  haphazard-homesteader  period,  nine- 
tenths  of  whom  came  from  "  back  East,"  where  moisture  abounded 
and  small  grain  was  profitable.  They  knew  absolutely  nothing  of 
the  peculiar  conditions  that  confronted  them  as  they  came  into  that 
new  country,  and  every  man  followed  his  own  ideas.  As  a  result  9 
out  of  every  10  failed  absolutely. 

And  there  we  have  the  first  series  of  moving  pictures  that  we  have 
had  in  Colorado — in  the  form  of  two  or  three  sets  of  homesteaders, 
coming  and  going. 

With  such  conditions,  it  is  not  at  all  suprising  that  there  should 
grow  up  in  the  minds  of  otherwise  intelligent  men,  East  and  West, 
the  conviction  that  Colorado  was  not  adapted  to  maintaining  an 
agricultural  population. 

But  about  that  time  there  came  something  which  was  unfortunate, 
and  yet  in  the  end  very  fortunate.  The  summers  of  1910  and  1911 
were  extremely  dry  summers,  and  our  farmers  were  put  to  the  test, 
as  they  were  raising  largely  small  grain  and  failed  in  many  cases. 

As  a  result  a  report  become  current  that  farmers  were  destitute. 
Quite  a  representative  committee  was  appointed,  composed  of  officials 
of  the  Rock  Island  Railroad,  of  the  Denver  Chamber  of  Commerce, 
the  Colorado  Springs  Chamber  of  Commerce,  the  agricultural  col- 
lege, and  the  United  States  Department  of  Agriculture,  to  make  a  trip 
of  investigation,  and  report  as  many  as  5,000  people  were  met  on  one 
trip,  and  several  trips  were  made. 

On  those  trips  we  learned  some  fundamental  things:  First,  that 
the  men  who  were  in  the  worst  condition  were  the  men  who  had  been 
undertaking  to  raise  small  grain;  and  second,  that  those  who  had  been 
dairying  and  stock  raising  were  in  fairly  good  condition  and  needed 
no  assistance. 

But  our  attention  was  directed  to  another  section,  somewhat  remote 
from  a  railroad,  about  40  miles,  in  which  it  was  said  there  was  destitu- 
tion. We  made  a  trip  in  an  automobile  and  met  about  225  people 
who  had  been  waiting  for  us.  They  selected  four  or  five  of  their  own 
men  to  tell  their  story. 

It  developed  that  that  community  as  a  whole,  with  scarcely  an 
exception,  was  in  a  condition  of  distress.    They  were  without  money 


308  RURAL    CREDITS. 

and  credit.  They  were  without  seed  for  their  spring  cropping  and 
without  feed  for  their  horses.  They  were  in  some  cases  without 
clothing  and  food.    The  case  was  desperate. 

We  went  back  to  Colorado  Springs  and  advised  our  chamber  of 
commerce  that  it  would  be  necessary  to  raise  $8,000  or  $10,000  to  take 
care  of  those  people. 

The  chamber  of  commerce  responded  splendidly,  and  $8,000  was 
raised.  Trustees  were  appointed  to  administer  the  fund  as  best  they 
could,  taking  what  security  they  were  able  to  get,  and  doing  the  best 
they  could  under  the  conditions,  which  were  desperate. 

By  a  careful  tabulation  it  was  found  that  an  average  of  $40  would 
supply  each  farmer  with  the  necessary  seeds  and  feed,  and  the  loans 
were  made  upon  this  general  basis. 

The  following  article,  appearing  later  in  the  Colorado  Springs 
Gazette,  gives  the  results  of  the  work  of  that  committee  perhaps 
better  than  I  can  tell  you.  This  is  the  report  made  at  the  end  of  the 
year. 

The  best  citizens,  business  men  and  bankers,  said  to  the  committee. 
"  You  will  never  see  25  per  cent  of  this  money  back ;  this  is  a  gift, 
and  we  will  just  charge  it  off  our  books  and  be  content  with  that." 
As  chairman  of  that  committee,  having  investigated  conditions  and 
knowing  those  farmers  as  I  did,  I  ventured  to  say,  perhaps  with  a 
little  trembling,  "  You  will  get  75  per  cent  of  your  money  back." 
But  they  said  I  was  a  fool. 

Now.  I  want  to  read  the  report  of  that  work,  given  at  the  end  of 
the  year  [reading]  : 

Last  spring,  when  word  came  to  our  chamber  of  commerce  that,  owing 
to  the  unprecedented  drouth  of  the  previous  summer,  the  long,  severe  winter, 
and  the  newness  of  the  country  many  of  the  homesteaders  in  eastern  El  Paso, 
southern  Elbert,  and  western  Lincoln  Counties  were  without  seed  and  feed, 
money  or  i  redil  for  spring  cropping  there  were  those  in  Colorado  Springs 
not  familiar  with  wl  o  believed  that  our  so-called  dry-land  sections 

were  not  capable  of  maintaining  -in  agricultural  population,  and  that  possibly 
the  time  had  come  to  let  the  homesteaders  turn  the  best  of  the  land  back  to 
the  sheep  and  cattlemen  and  the  balance  to  the  coyotes,  and  go  elsewhere  for 
land  and  homes. 

Our  agricultural  committee,  however,  with  all  others  who  had  given  study 
to  the  problems  of  dry  farming  in  general  and  of  those  sections  lying  to  the 
east  of  us  in  particular,  was  convinced  otherwise  and  urged  the  raising  of  a 
fund  of  $10,000  to  be  loaned  to  these  homesteaders  to  enable  them  to  put  in 
a  crop  and  proceed  with  their  plans  to  prove  up  and  become  settlers.  A  mass 
meeting  was  called  by  the  chamber  of  commerce  and  the  facts  were  presented. 
Our  citizens  rose  to  the  occasion  and  provided  a  fund  of  more  than  $8,000, 
which  was  loaned  by  trustees  chosen  by  the  chamber  of  commerce  to  the  needy 
farmers  in  amounts  of  about  $40  each,  taking  their  notes  therefor,  due  on  or 
before  December  31,  1912,  at  <*>  per  cent  interest,  secured  by  individual  indorse- 
ments or  such  other  security  in  the  form  of  crops  or  chattels  as  they  were  able 
to  give.  This  small  assistance  not  only  pul  strength  in  their  starving  horses 
but  put  courage  in  the  failing  farmers,  and  they  went  to  work  to  make  a  crop. 

Providence  was  kind  and  sent  an  abundance  of  rain,  which  made  up  for  poor 
horses  and  consequent  shallow  plowing,  with  the  result  that  almost  every 
farmer  raised  a  p  <d  crop  ami  now  has  an  abundance  of  feed,  with  something 
to  sell  and  turn  into  groceries  and  clothing. 

It  would  be  hard  to  find  a  finer  illustraton  of  the  truth  of  the  words  of  the 
Old  Book,  "There  is  that  scattereth  and  yet  increaseth."  than  this  scatteration 
furnishes. 


RURAL    CREDITS.  309 

100.000    BUSHELS    OF    CORN. 

While  reports  are  incomplete  and  difficult  to  tabulate  with  accuracy,  espe- 
cially on  such  crops  sis  could  be  used  for  either  grain  or  hay  returns,  the  report 
on  corn  so  far  as  it  goes  seems  to  indicate  that  at  least  100,000  bushels  were 
raised  by  those  participating  in  the  fund  with  a  market  and  feeding  value  of 
more  than  $50,000.  All  other  crops  raised  would  no  doubt  outvalue  the  corn 
crop  alone,  but  placing  it  as  only  equal  we  would  have  $100,000,  which  seems  a 
conservative  estimate  of  results  in  dollar  values,  and  a  mightly  good  gathering 

But  add  to  this  the  fact  that  80  per  cent  of  the  fund  is  already  paid  back, 
for  large  quantities  of  these  crops  are  being  marketed  in  Colorado   Springs. 

But  add  to  this  the  fact  that  SO  per  cent  of  the  funds  is  already  paid  back, 
and  much  of  the  remainder  will  be  just  as  soon  as  farmers  can  get  their  crops 
to  market  or  turned  into  money  by  home  stock  feeding — and  the  showing  is  fine. 
******* 

These  are  some  of  the  results;  and,  coming  as  they  do  from  what  was  ad- 
mitted to  be  the  most  destitute  section  in  eastern  Colorado,  because  one  of  the 
newest,  and  from  those  in  the  most  pinchy  condition  of  this  worst  section,  give 
abundant  reason  for  believing  in  the  tremendous  possibilities  of  our  dry-land 
sections  under  favorable  conditions.  The  writer  is  well  aware  of  the  doubter's 
remark  at  this  point  that  "This  was  an  unusual  year;  just  wait."  But  it  is 
safe  to  say  that  when  proper  lines  of  industry  are  selected,  proper  methods  of 
farming  applied,  and  farmers  are  willing  to  use  their  brains  as  well  as  their 
hands,  the  doubter  will  have  a  long  time  to  wait,  even  if  the  rainfall  is  a  little 
under  the  average. 

AS   TO   THE  FARMERS. 

I  want  to  say  a  word  as  to  the  farmers  themselves.  There  are  a  few  who 
would  have  failed  "  because  of  drouth  "  in  the  historic  Garden  of  Eden,  with 
the  four  great  rivers  of  the  east  pouring  their  waters  through  its  marvelous 
soils;  and  no  obstruction  should  be  placed  on  the  railroad  tracks  when  these 
try  to  get  away.  Here  and  there  one  may  be  found  who  is  too  crooked  to  be 
straight,  but  these  are  the  rare  exceptions  and  might  easily  be  duplicated  in 
Colorado  Springs.  The  great  majority  of  the  farmers  are  industrious,  intelli- 
gent, and  honest  and  are  out  there  to  succeed  and  stay.  They  have,  however, 
great  needs,  wbich  may  be  classified  under  three  general  heads: 

First.  More  capital  at  a  reasonable  rate  of  interest  with  which  to  buy  stock, 
especially  cows  and  better  horses,  build  silos,  provide  stock  shelter  better  than 
a  barbed-wire  fence,  and  homes  for  themselves  and  families  better  than  shacks 
and  dugouts. 

Second.  Better  faciities  for  getting  their  products  to  market.  These  prod- 
ucts will  be  mainly  cream,  poultry,  and  eggs,  with  vegetabes  in  their  season. 
Their  perishable  nature  and  the  long  distance  to  a  desirable  market  prohibit  the 
individual  marketing.  An  auto-truck  line  operated  along  the  new  county  road 
for  50  miles  east,  there  to  connect  with  a  subine  operated  in  southern  Elbert 
and  western  Lincoln  Counties,  would  do  the  business  and  put  both  the  farmers 
and  Colorado  Springs  on  the  map  and  spell  out  business  for  our  merchants. 
To  this  might  also  be  added  the  parcel-post  feature. 

Third.  Education.  First,  as  to  selection  of  industries.  Dairying,  poultrying, 
and  diversified  stock  raising  never  have  failed  in  eastern  Colorado  when  given 
half  a  chance.  The  country  is  particularly  adapted  to  these  lines.  Second,  the 
raising  of  such  forage  crops  as  are  drouth-resistant  and  suitable  for  feeding 
the  stock  being  raised.  Along  these  lines  must  come  the  selection  of  cows  of 
the  dairy  type  and  milking  strain,  selection  of  seed,  preparation  of  the  soil  for 
the  accumulation  aud  conservation  of  moisture,  planting  and  care  of  crops. 

EXPERT  AGRICULTURALIST  ENGAGED. 

For  this  very  important  work  El  Paso  County,  through  its  board  of  county 
commissioners.*  in  cooperation  with  the  United  States  Department  of  Agricul- 
ture and  the  Colorado  Springs  Chamber  of  Commerce,  has  secured  the  services 
of  W.  H.  Lauck  as  county  agricultural  agent.  He  began  his  work  last  October 
and  already  has  accomplished  much.  Assistance  and  cooperation  will,  through 
him  be  given  direct  to  the  farmers  at  many  points.  Communities  will  be  organ- 
ized for  the  betterment  of  the  farms  and  homes.     Boys'  and  girls'  clubs  are  to 


310  RURAL    CREDITS. 

be  organized  for  competitive  farm  and  home  work.     Many  other  things  also 
are  planned  and  under  way. 

Let  me  say,  in  conclusion,  that  when  these  forces  and  agencies  get  to  work 
a  differenl  value  will  be  placed  upon  onr  633,852  acres  of  dry  farming  and 
grazing  land  in  El  Paso  County  than  now  exists,  and  when  the  products  of  these 
acres  are  poured  Into  Colorado  Springs  to  be  exchanged  for  our  merchandise, 
we  will  be  upon  a  basis  which  will  give  us  business  and  prosperity  not  only 
during  the  tourist  season  of  two  months  but  for  12  months  in  the  year  and 
every  year  we  have  a  history. 

Mr.  Weaver.  How  far  is  that  from  Colorado  Springs? 

Mr.  Lennox.  The  town  of  Rush  is  40  miles  from  Colorado  Springs 
and  then  it  is  another  25  miles  from  the  town.  They  are  from  25 
to  40  miles  from  a  railroad. 

Mr.  Weaver.  And  Colorado  Springs  is  the  only  and  nearest 
market? 

Mr.  Lennox.  Well,  it  is  the  nearest  and  best  market. 

Now.  I  have  another  newspaper  article  from  the  Colorado  Springs 
Gazette  of  March  19,  1913.    It  says : 

Remarkable  success  of  seed  and  feed  fund  is  shown ;  farmers  put  on  their 
feet ;  80  per  cent  available  for  repayment  now ;  95  per  cent  assured.  New  loan 
company  boosted. 

Results  of  seed  and  feed  fund. 

Total  fund  subscribed $8,000 

Total  fund  on  hand $6,250 

Percentage  to  be  returned  on  first  repayment SO 

Xow,  I  may  say  that  95  per  cent  return  is  sure.  I  may  say  that 
when  this  80  per  cent  was  repaid  and  the  people  had  a  chance  to 
take  it  back  they  said,  "  We  did  not  expect  anything  back  " ;  and  at 
the  same  time  they  prepared  the  articles  of  incorporation  of  a  loan 
company,  to  be  organized  for  the  purpose  of  furnishing  small 
amounts  of  money  to  farmers  for  the  promotion  of  the  industries 
which  we  knew  to  be  successful,  and  almost  all  of  the  contributors  at 
once  wanted  to  turn  their  contributions  over  to  this  loan  fund,  and 
that  loan  company  was  put  in  operation  because  of  the  fact  our 
farmers  were  absolutely  without  financial  aid  in  any  way  and  they 
could  not  get  it. 

Mr.  "Woods.  Mr.  Lennox,  did  you  use  that  money  to  loan,  on 
persona]  credit,  or  on  farm  mortgages? 

Mr.  Lennox.  We  used  the  first,  the  seed  and  feed  fund,  on  personal 
loans  altogether.  We  took  whatever  security  they  could  give,  and 
sometimes  they  signed  one  another's  notes.  It  was  a  desperate 
situation. 

The  point  I  want  to  make  is.  that  notwithstanding  the  desperate 
situation  which  confronted  us,  we  were  not  permitted  to  turn  down 
anybody.  We  could  not  do  that  when  a  man  was  without  food  and 
without  clothing;  and  notwithstanding  that  we  had  80  per  cent  of 
the  money  back  at  that  time,  and  we  have  another  10  per  cent  back 
now,  and  we  shall  have  another  5  per  cent,  if  not  more,  within  a  short 
time. 

Mr.  Hayes.  Did  you  charge  the  farmers  any  interest? 

Mr.  Lennox.  We  charged  the  farmers  6  per  cent  interest;  we  be- 
lieved that  was  a  fair,  just  proposition. 

Mr.  Weaver.  You  had  a  big  crop  and  remarkable  seasons  that  year, 
did  you  not  ? 


RURAL    CREDITS.  311 

Mr.  Lennox.  We  had  a  fair  crop. 

Mr.  Seldomridge.  The  point  is  that  if  these  men  had  not  been 
helped  when  they  were,  they  would  have  been  absolutely  driven  out 
of  the  country ;  there  would  have  been  no  production  at  all. 

Mr.  Weaver.  Yes. 
■  Mr.  Lennox.  Now,  with  the  permission  of  the  committee  I  would 
like  to  read  an  article  written  by  our  State  agriculturist.  Those  who 
understand  the  plan  out  there  know  that  there  is  a  county  man,  a 
State  man,  a  United  States  Department  of  Agriculture  man,  and 
then  there  is  a  district  man.  Mr.  Frear,  who  is  our  State  agricul- 
turist, wrote  an  article  which  we  think  is  disinterested.  He  is  a 
Government  man  and  will  not  write  anything  in  the  way  of  a  com- 
pliment unless  the  proposition  has  got  some  merit.    He  says : 

In  view  of  tlie  fact  that  the  whole  country  is  discussing  ways  and  means  of 
developing  agriculture  through  a  satisfactory  system  of  farm  credits,  it  may  be 
of  interest  to  call  attention  to  what  has  already  been  done  by  the  business  men 
of  Colorado  Springs  for  the  farmers  of  the  country  adjacent  to  that  city. 

Through  a  crop  failure  the  previous  year  many  farmers  faced,  in  the  spring 
of  1912,  a  financial  crisis,  and  were  without  means  for  buying  seed  for  planting 
their  crops  or  grain  for  feeding  their  work  horses. 

This  serious  condition  of  affairs  came  to  the  attention  of  the  Chamber  of 
Commerce  of  Colorado  Springs  and  was  made  a  subject  for  special  investigation 
by  the  agricultural  committee. 

Through  the  efforts  of  this  committee  the  Chamber  of  Commerce  was  able  to 
secure  from  local  bankers  and  business  men  over  $S,000,  which  was  placed  in  a 
seed  and  feed  fund,  administered  under  the  direction  of  John  Lennox  (chair- 
man), Irving  Howbert,  and  J.  G.  Dern  as  trustees. 

This  fund  was  made  available  to  farmers  in  small  amounts  for  one  year  only 
at  6  per  cent  interest,  upon  the  approval  of  their  applications  by  three  of  their 
neighbors.  Various  forms  of  security  were  accepted,  ranging  from  mortgages 
on  live  stock  and  the  year's  crop  to  notes  indorsed  by  responsible  parties. 

Leniency  in  the  matter  of  payments  was  followed  and  extensions  of  time 
were  made  in  cases  where  through  no  fault  of  their  own  the  borrowers  were 
unable  to  meet  their  obligations. 

The  average  amount  of  the  loans  was  $24  for  feed  and  $16  for  seed,  making  a 
total  of  $40  per  farmer. 

By  the  end  of  the  year  80  per  cent  of  the  loans  were  paid  back  with  interest, 
and  since  that  time  about  half  of  the  remainder  has  been  paid  with  additional 
amounts  still  coming  in.  While  the  G  per  cent  interest  charged  will  not  quite 
pay  the  cost  of  administration  and  the  small  possible  losses,  the  contributors 
will  nevertheless  receive  90  per  cent  or  over  of  their  original  contributions 
when  many  expected  50  per  cent  or  less. 

At  the  end  of  the  year  the  success  of  the  work  was  so  marked  and  the  value 
of  the  agricultural  development  of  the  community  so  great  that  the  agricultural 
committee  of  the  chamber  of  commerce  recommended  that  the  money  paid  in 
by  the  farmers  be  placed  in  a  more  permanent  fund,  where  it  would  be  available 
for  future  loans  for  development  purposes. 

The  donators  consented  to  this  plan,  and  as  a  result  the  Farm  Loan  Co.  was 
organized  and  incorporated  in  El  Paso,  Lincoln,  and  Elbert  Counties,  having 
for  its  object  the  loaning  to  worthy  farmers  of  money  at  reasonable  rates  for 
the  purpose  of  enabling  them  to  buy  a  few  dairy  cows,  erect  silos,  or  in  other 
ways  add  to  their  permanent  income-bearing  equipment,  or,  in  some  cases,  for 
the  purpose  of  freeing  them  from  the  clutches  of  loan  sharks,  who  seemed  to 
be  plentiful  and  who  were  getting  as  high  as  3  to  5  per  cent  per  month  for  their 
money. 

Loans  are  made  from  this  fund  to  farmers  for  three  years  at  8  per  cent  when 
secured  by  real  estate  and  at  10  per  cent  when  secured  by  chattels.  Security  of 
several  times  the  value  of  the  loan  is  required  in  all  cases. 

A  charge  of  $2  for  small  loans,  which  require  little  work,  up  to  $10  on  larger 
amounts,  where  titles  must  be  investigated,  is  paid  by  the  borrower.  This 
charge  goes  far  toward  meeting  the  cost  of  administering  the  affairs  of  the 
loan  company,  so  that  almost  all  the  interest  payments  go  to  the  owners  of 
money. 


312  RURAL   CREDITS. 

Loans  are  made  only  to  farmers  who  satisfy  the  committee  that  they  will 
use  the  money  for  dairy  stock  and  farm  development,  which  under  normal  con- 
ditions will  in  time  add  to  the  wealth  and  prosperity  of  the  community. 

All  notes  taken  by  the  company  are  written  to  be  paid  on  or  before  the  expira- 
tion of  three  years,  so  that  the  holders  may  pay  them  any  time  they  have  the 
money. 

The  loan  company  lias  met  with  the  greatest  success,  and  great  credit  is  due 
to  all  bankers  and  other  business  men  who  have  furnished  money  for  the  fund 
or  who  have  in  any  way  contributed  to  its  success. 

Mr.  John  Lennox  is  the  secretary-treasurer  of  the  company  and  is  charged 
with  the  active  administration  of  its  affairs.  To  him  is,  perhaps,  due  ttie 
greater  credit  for  making  it  a  success  in  promoting  the  agricultural  interests  of 
the  community  by  enabling  the  farmers  to  get  money  with  which  to  develop 
their  businesses. 

Little  opposition  to  the  company  has  developed  excepting  by  the  loan  sharks, 
wbo  have  been  deprived  of  their  opportunity  to  get  the  helpless  farmer  in 
their  clutches,  where  they  could  gradually  sap  him  dry  financially  by  their 
exorbitant  interest  rates. 

The  business  men  of  Colorado  Springs  believe  that  the  prosperity  of  their 
county  depends  on  the  agricultural  resources,  which  in  turn  depends  upon 
the  ability  of  the  farmer  to  get  capital  with  which  to  develop  his  land  and 
industries.  Consequently,  they  are  making  it  their  business  to  see  that  their 
farmers  get  the  money  at  reasonable  terms  and  rates. 

In  addition  to  this  direct  benefit,  the  organization  and  existence  of  the  com- 
pany, made  up  as  it  is  of  well-known  bankers  and  business  and  professional 
men  of  the  community,  has  served  to  establish  confidence  in  farm  loans,  and 
thousands  of  dollars  are  now  being  invested  in  land  loans  by  private  individuals 
who  before  the  organization  of  this  company  seriously  questioned  land  se- 
curities. 

There  is  little  question  but  that  the  securing  of  W.  H.  Lauck  as  agricultural 
agent  in  El  Paso  County  was  due  more  to  this  farm-loan  movement  than  to  any 
other  single  factor. 

The  backers  of  the  Farm  Loan  Co.  were  far-sighted  enough  to  see  that 
results  were  a  question  of  time  and  that  they  would  be  much  more  certain  if 
the  borrowers  of  this  money  could  have  the  help  of  a  competent  man  to  assist 
them  in  using  wisely  the  money  which  they  received.  The  county  agent  has  given 
these  farmers  all  possible  help  in  making  good  and  in  encouraging  them  to 
make  every  effort  to  meet  their  obligations.  He  keeps  in  touch  with  agricultural 
conditions  in  the  county,  and  is  in  a  position  to  know  the  men  who  need  and 
deserve  help  and  to  see  where  additional  money  may  be  wisely  placed. 

Pending  the  creation  of  an  ideal  and  national  system  of  farm  credits  per- 
haps other  communities  will  see  the  possibilities  which  are  within  their  reach 
for  accomplshing  what  we  are  ;old  is  an  impossibility  along  this  line,  but  which 
seems  to  be  very  successful  in  at  least  one  locality. 

With  regard  to  the  rate  of  interest  charged,  8  per  cent  on  real 
estate,  and  10  per  cent,  if  secured  by  chattels,  this  may  seem  very 
high.  But  when  yon  take  into  account  that  these  farmers  at  that 
time  had  no  means  of  securing  financial  aid  except  through  the  loan 
sharks,  and  that  they  were  paying  them  from  3  to  5  per  cent  a  month, 
with  all  sorts  of  additional  charges,  so  that  a  loan  doubled  itself 
sometimes  in  a  year  and  sometimes  in  six  months,  it  will  not  seem 
so  high.  That  was  the  condition  that  existed,  and  I  intended  to 
bring  along  with  me  an  envelop  which  we  have  full  of  canceled 
notes  which  I  have  taken  up  of  these  loan  sharks,  showing  this  rate 
of  interest,  3  and  5  per  cent  a  mouth,  but  I  forgot  it. 

Mr.  Weaver.  Have  you  a  usury  law  out  there? 

Mr.  Lennox.  We  have  a  usury  law;  it  provides  that  it  shall  be 
unlawful  to  charge  usury,  but  it  then  says  that  banking  institutions 
shall  not  be  included  in  that  provision  ;  and  our  loan  sharks  promptly 
upon  the  passage  of  this  act  proceeded  to  organize  themselves  into 
banks,  one  or  two  at  a  time,  and  they  go  right  along  and  charge 
3  per  cent  and  5  per  cent  a  month,  and  there  is  nothing  to  prevent  it. 


RURAL    CREDITS.  313 

Mr.  Weaver.  Your  usury  law  is  not  of  much  value,  then? 

Mr.  Lennox.  Absolutely  not. 

So  marked  was  the  success  of  this  organized  effort  that  Prof. 
Cottrell,  commissioner  of  immigration,  duly  appointed,  and  others 
associated  with  him,  thought  best  to  give  the  entire  issue  of  the 
Southwest  Trail — the  November  issue — to  El  Paso  County  and  dry 
farming. 

Now,  if  I  can  give  you  a  very  brief  and  hasty  mental  picture  of  a 
Colorado  farm  or  ranch,  I  will  do  so.  It  is,  say,  320  acres,  mostly 
prairie,  of  course,  in  the  eastern  part.  A  large  portion  of  the  soil  is 
usually  fairly  good  soil;  some  of  it  is  very  good;  some  of  it  is  poor. 
The  house  varies  from  the  poorest  sort  of  a  plain  shack  to  a  fairly 
good  six  or  eight  room  house.  The  stock  which  they  possess  varies 
from  nothing  up  to,  perhaps,  100  head  of  cattle ;  usually  from  2  to  4 
horses  are  to  be  found  on  the  place.  The  family  varies  from  none, 
except  husband  and  wife,  to  21  children.  There  is  no  race  suicide 
out  there;  they  are  growing  very  fast.  There  are  usually  40  or  50 
acres  in  cultivation,  with  some  sort  of  shelter  for  cattle,  although 
sometimes  it  is  only  a  barbed-wire  fence,  and  there  are  quite  a  number 
there  who  give  their  cattle  barbed-wire  fence  shelter  when  the  ther- 
mometer is  below  zero  and  the  wind  is  blowing  a  hurricane — and 
that  is  not  adequate. 

Now,  what  these  men  need  is  capital  .with  which  to  develop  the 
lines  of  industry  we  know  to  be  successful  in  that  particular  region, 
and  that  is  the  dairying  and  stock  raising  and  the  raising  of  such 
forage  crops  as  are  adapted  to  that  limited  rainfall  and  adapted  to 
feeding  the  animals  that  are  being  raised.  They  are  from  25  to  50 
miles  to  market,  and  their  market  product  must  be  cream,  poultry,  and 
the  stock  they  are  raising;  and  with  proper  methods  they  can  raise 
forage  crops  every  year.  There  is  no  reason  why  there  should  be  a 
failure  except  here  and  there  when  they  are  struck  by  hail.  Forage 
crops,  when  put  in  silos,  give  an  absolute  certainty  of  feed  through 
the  dry  season  and  the  winter. 

Senator  Hollis.  What  are  the  forage  crops? 

Mr.  Lennox.  For  silo  purposes,  corn,  cane,  English  milo  maize, 
kafir  corn.  Last  year  they  constructed  50  pit  silos.  Our  farmers 
were  too  poor  to  construct  regular  silos,  and  50  pit  silos  were  con- 
structed at  a  cost  of  $11  apiece,  the  farmers  helping  each  other  to  do 
the  digging. 

We  have  heard  here  of  farmers  who  are  hard  to  organize.  Our 
farmers  have  been  organized  through  the  efforts  of  our  county  agent 
into  a  farmers'  club  for  each  community,  and  they  meet  every  month 
or  two  in  the  schoolhouse  and  discuss  their  problems  and  get 
together  and  eat  yellow-legged  chickens  and  have  a  sociable  time; 
and  it  has  not  been  hard  to  get  our  people  together.  And  I  believe 
that  if  Mr.  Lauck,  our  agent,  was  to  tell  those  people  to  plant  their 
potato  vines  upside  down,  they  would  do  it,  because  they  have  such 
confidence  in  what  he  tells  them. 

(Thereupon,  at  12.50  o'clock  p.  m.,  the  committee  adjourned  until 
to-morrow,  Thursday,  February  26,  1914,  at  10.30  o'clock  a.  m.) 


THURSDAY,    FEBRUARY   26,    1914. 

United  States  Senate, 

Washington,  D.  C. 
The  subcommittee  met  in  joint  session  at  10.45  o'clock  a.  m.,  Hon. 
Henry  F.  Hollis  presiding. 

Present:  Senators  Hollis  and  Owen,  and  Representatives  Bulkley, 
Stone,  Seldomridge,  Weaver,  Ragsdale,  Woods,  and  Piatt. 
Senator  Hollis.  You  may  proceed,  Mr.  Lennox. 

STATEMENT  OF  JOHN  LENNOX,  OF  COLORADO  SPRINGS,  COLO.— 

Continued. 

Mr.  Lennox.  Mr.  Chairman  and  gentlemen,  just  to  summarize 
what  was  given  yesterday,  and  having  in  mind  the  fact  that  Colorado 
is  a  new  State  with  new  and  diversified  conditions  of  industry,  soil, 
and  altitude,  and  with  a  general  condition  of  limited  rainfall  and 
moisture,  and  that  unfortunately  its  large  rivers  flow  westward 
and  therefore  are  not  available  for  the  eastern  portion  of  the  State, 
which  is,  by  natural  conditions,  so  well  fitted  for  dairying,  poultry- 
ing,  and  diversified  stock  raising,  it  is  estimated  that  of  our  66.560,000 
acres  of  land  in  Colorado  not  more  than  4,000,000  can  be  brought 
under  irrigation  under  now  known  methods.  The  remaining  acreage 
is  generally  classified  as  44,160,000  acres  of  grazing  and  timber  land, 
leaving  18,400,000  acres  that  are  classified  as  dry  land.  Of  this  land 
perhaps '  12,000,000  acres  are  to  be  found  in  this  particular  section 
of  which  we  are  speaking,  in  eastern  Colorado,  so  that  it  becomes  a 
problem  to  successfully  people  this  great  area  and  induce  such  lines 
of  industries  as  will  enable  them  to  make  a  profitable  way  on  that 
land. 

We  believe  that  we  have  solved  the  problem  up  to  the  point  of 
financing  it;  that  the  lines  of  industry  selected  by  us  and  by  all  who 
have  studied  the  situation,  namely,  dairying,  poultrying,  and  diver- 
sified stock  raising,  and  the  raising  of  forage  crops,  especially  for 
our  limited  rainfall  and  adapted  to  the  feeding  of  stock  being  raised, 
is  the  program  which  will  work  successfully  every  year.  And  when 
the  silo  is  added  to  this,  we  have  almost  an  insurance  proposition 
that  the  farmers  shall  be  successful  and  always  have  their  feed. 

That  brings  us  practically  to  the  problem  that  you  gentlemen  are 
considering;  that  is,  the  problem  of  how  to  finance  the  farmer  to 
give  him  such  assistance  as  will  enable  him  to  make  use  of  the  oppor- 
tunities which  are  in  this  and  other  sections.  The  loan  plan  is  what 
I  shall  come  to.  And  for  our  people,  for  our  conditions,  it  seems  very 
certain  that  there  must  be  two  classes  of  loans,  namely,  the  land  loan 
or  the  mortgage  loan  and  the  chattel  loan. 

But,  dealing  first  with  the  land  loan  or  the  mortgage  loan,  in  the 
work  we  have  been  doing,  we  have  placed  restrictions  upon  those 
314 


RURAL    CREDITS.  315 

which  I  see  are  also  placed  upon  the  plans  elsewhere  in  European 
countries,  and  also  contemplated  in  this  bill  which  you  have  before 
you.  We  have  required,  and  I  believe  the  measure  is  a  wise  and 
necessary  one,  that  these  loans  shall  be  made  for  development  or 
creative  purposes,  that  this  is  fundamental;  that  they  should  be 
made  for  such  a  time  period  as  will  enable  the  farmers  to  meet  them. 
I  do  not  believe  that  any  such  time  as  is  provided  for  in  European 
countries  should  be  considered  in  this  country.  I  believe  that  it  is 
necessary,  and  perhaps  I  would  be  disposed  to  place  a  shorter  time 
than  what  has  been  contemplated  in  this  bill.  In  the  majority  of 
cases  I  believe  that  a  loan  should  be  made  for  not  to  exceed  20  years, 
and  I  am  not  quite  sure  but  10  years  would  answer  the  purpose.  Our 
possibilities  for  repayment  are  greater  when  the  opportunity  is  given 
for  the  farmers  to  carry  out  their  plans.  These  loans  should  be 
made  upon  a  conservative  basis.  There  is  a  certain  per  cent  of 
farmers  everywhere  who  are  willing  to  overburden  themselves  and 
would  do  so  if  they  had  an  opportunity,  but  the  industrious,  the 
honest  energetic  farmers  will  be  able  to  get  upon  their  feet  with  a 
limited  loan;  and  the  struggle  it  may  be  called,  which  may  be  re- 
quired for  them  to  do  this,  will  be  a  benefit  rather  than  a  detriment. 
We  rise  by  the  things  which  we  put  under  our  feet,  and  so  do  our 
farmers. 

The  chances  of  failure  would  be  greatly  eliminated  by  making 
small  loans.  In  our  section,  perhaps,  a  loan  in  many  cases  of  $1,000 
would  be  sufficient  to  get  the  farmer  on  his  feet,  and  if  the  fund  is 
in  any  way  limited 

Mr.  Woods  (interposing).  Mr.  Lennox,  what  size  farm  would 
that  be? 

Mr.  Lennox.  Three  hundred  and  twenty  acres. 

Mr.  Woods.  $1,000  on  3  acres? 

Mr.   Lennox.  Yes. 

Mr.  Woods.  What  would  be  the  value  of  the  farm — the  cash 
market  value? 

Mr  Lennox.  About  $3,000  at  present  prices.  Assuming  that  the 
money  available  might  be  somewhat  limited,  this  gives  the  oppor- 
tunity for  a  principle  which  we  believe  in  as  a  wise  one  for  all.  which 
we  have  been  doing,  namely,  a  wise  distribution  of  available  funds. 
In  other  words,  if  we  have  $10,000  to  loan  we  believe  it  is  better  to 
loan  it  to  20  farmers  at  $500  apiece  than  it  is  to  loan  it  to  10  farmers 
at  $1,000  apiece,  and  leave  the  remaining  10  with  absolutely  nothing. 

A  second  feature  which  would  be  essential  is  that  which  has  been 
emphasized  here  of  amortization  or  the  partial-payment  plan.  Our 
farm-loan  bank  has  adopted  that  plan  and  so  far  as  we  are  able  to  go 
it  has  worked  well,  and  the  need  of  a  fund  which  can  be  handled  in 
that  manner  is  all  the  more  apparent  when  we  come  to  consider 
that  all  private  loans  are  made  for  a  definite  time.  I  have  been 
endeavoring  to  secure  private  funds  to  supplement  our  farm-loan 
funds,  and  I  find  that  people  at  once  who  have  some  money 
to  loan  insist  it  shall  be  loaned  for  a  definite  period,  say  three  or  five 
years,  and  will  not  permit  the  privilege  of  repayment  at  any  time. 
That  disturbs  their  plans  and.  as  a  consequence,  the  farmer  goes  on 
forgetting  and  the  day  of  judgment  comes  too  suddenly,  and  he  is 
not  prepared  to  meet  it;  where,  with  a  partial  payment,  the  amorti- 


316  RURAL    CREDITS. 

zation  plan,  he  is  taking  care  of  it  as  he  goes  along.  And  our 
farmers  are  proud  to  be  doing  something,  accomplishing  something — 
the  best  of  them.  If  they  can  see  the  debt  decreasing  it  becomes  at 
once  a  sort  of  encouragement,  and  they  will  do  better  things,  because 
of  that  encouragement  which  is  coming.     I  believe  that  is  basic. 

Mr.  Woods.  Mr.  Lennox  could  this  farmer  who  owns  a  380-acre 
farm  worth  $3,000  secure  a  loan  at  the  present  time? 

Mr.   Lennox.  No,  sir. 

Mr.  Woods.  Not  at  any  reasonable  rate? 

Mr.  Lennox.  He  could  not  secure  a  loan  of  that  amount  at  any 
rate. 

Mr.  Woods.  For  $1,000? 

Mr.  Lennox.  For  $1,000.     He  is  asking  for  it. 

Mr.  Woods.  Are  these  farms  improved  and  lived  upon  by  the 
owners  ? 

Mr.  Lennox.  Every  farmer  will  improve  with  some  sort  of  a 
residence  and  usually  some  sort  of  a  shelter  for  a  barn.  In  many 
cases  they  have  a  well  and  a  windmill  and  a  pump,  and  they  are 
fairly  well  provided  for  living  in  a  fashion. 

Mr.  Woods.  You  have  few  tenants  out  there  ? 

Mr.  Lennox.  We  have  few  tenants  out  there;  they  are  almost  all 
landowners. 

Mr.  Woods.  How  much  could  a  farmer  borrow  on  a  farm  actually 
worth  $3,000  cash? 

Mr.  Lennox.  There  are  a  few  who  are  loaning  as  high  as  $600 
and  $700,  but  this  is  secured  with  great  difficulty,  however. 

Mr.  Woods.  At  what  rate  of  interest? 

Mr.  Lennox.  Usually  10  per  cent;  sometimes  8. 

Mr.  Woods.  Are  the  farms  very  well  stocked  out  there — that  is, 
do  the  farmers  have  ample  machinery,  wagons,  horses,  and  cattle? 

Mr.  Lennox.  No;  our  farmers  are  really  under  a  great  disadvan- 
tage and  have  to  make  use,  the  best  use  they  can,  of  machinery  which 
they  have.  It  is  very  limited  and  not  always  adequate.  The  con- 
ditions will  not  permit  them  to  do  what  they  would  like  to  do.  Yet 
with  what  they  have  on  hand  they  are  able  to  carry  on  their  in- 
dustries. 

Mr.  Seldomridge.  Mr.  Chairman,  in  this  connection  I  would  like 
to  have  the  privilege  of  inserting  in  the  hearings  a  statement  show- 
ing the  actual  production  in  this  area  Mr.  Lennox  has  been  speaking 
about.  He  will  get  that  when  he  returns  and  send  it  to  me.  I  would 
like  to  show  the  committee  the  actual  number  of  cars  of  grain  that 
have  been  shipped  and  what  has  been  raised  and  cultivated  in  that 
area  during  the  past  few  years  by  these  very  people  under  the  condi- 
tions which  he  has  mentioned. 

Mr.  Lennox.  And  the  cream. 

Senator  Hollis.  You  may  insert  that  in  the  record. 

Mr.  Lennox.  Passing  from  the  first  class  of  loans,  the  land-mort- 
gage loan,  to  what  I  have  designated  as  the  emergency  or  chattel 
loans,  these  loans  will  be  made  necessary  by  conditions  which  are 
constantly  arising.  Take,  for  example,  this  winter:  Our  farmers 
were  prepared  with  a  fair  supply  of  feed  for  their  stock,  as  they 
believed,  and  under  ordinary  conditions  perhaps  could  have  taken 
care  of  their  stock  until  grass  comes.     But  on  the  2d  day  of  Decern- 


RUEAL    CREDITS.  317 

ber  a  snow  came  which  was  general  all  over  our  State,  and  varied  in 
depth  from  2  to  5  feet.  A  portion  of  that  snow  is  on  the  ground  at 
the  present  time  in  eastern  Colorado,  and  it  has  been  necessary  for 
the  farmers  to  keep  their  stock  a  great  portion  of  that  time  in  the 
barnyard  and  feed  them.  As  a  result  their  feed  has  become  ex- 
hausted in  many  cases,  and  it  is  necessary  for  them  to  secure  some 
additional  feed.  They  have  not  the  money  to  buy  it;  they  can  not 
make  short- time  loans. 

Then  there  is  the  fattening  of  hogs.  They  get  them  up  almost  to  the 
point  where  they  are  ready  to  market  them,  perhaps  within  30  days 
of  the  time  they  are  ready  to  market  them,  and  the  feed  is  exhausted 
and  they  have  almost  as  yet  no  credit.  They  must  sell  those  hogs 
at  a  disadvantage,  weighing  perhaps  150  pounds,  when  they  could 
bring  them  up  to  200  pounds,  and  could  do  do  so  within  another 
month's  feeding,  or  about  that.  And  they  need  this  additional  feed 
to  continue  the  fattening  of  their  hogs.    It  is  very  necessary. 

Some  are  not  prepared  to  carry  through  the  entire  year's  work 
with  the  funds  on  hand,  and  will  need  a  little  assistance  in  the  crop- 
ping season,  and  will  be  able  to  repay  that  when  the  crops  are  raised. 
There  of  course  has  been  sickness  here  and  there,  requiring  an  ex- 
penditure that  they  had  not  provided  for,  and  there  is  no  way  in 
which  to  get  that  money  except  by  going  to  a  loan  shark  and  paying 
the  price  of  3  to  5  per  cent  a  month. 

So  that  we  believe  that  a  chattel  loan  to  take  care  of  conditions  of 
this  kind,  to  supplement  the  land  loan,  is  necessary. 

In  addition  to  what  I  have  stated,  they  are  all  anxious  to  buy 
cows,  and  when  a  farmer,  after  three  or  five  years'  residence  on  a 
homestead,  has  been  living  under  very  close  conditions  and  unable 
in  some  cases  to  meet  his  entire  obligations,  he  is  prepared  to  make 
a  loan  when  he  secures  title — this  land  loan — and  it  may  not  be 
sufficient  to  do  the  things  which  he  thinks  necessary  to  be  done. 
And  there  will  be  a  little  money,  perhaps,  still  due  after  he  has 
made  his  loan,  and  he  is  not  able  to  buy  the  number  of  cows  he  would 
like  to  have;  but  by  making  a  combination  plan  of  giving  him  what 
is  a  fair  and  just  amount  upon  his  land  and  supplementing  that 
with  a  chattel  loan,  for  which  he  shall  give  ample  security  on  the 
cows  bought  and  also  on  some  which  he  may  have  on  hand,  he  is 
able  to  get  the  necessary  amount  of  money  to  finance  him  and  put 
him  upon  his  feet  by  that  combination  plan,  which  he  would  not  be 
able  to  do  under  the  other.  These  loans  should  not  be  to  exceed  one 
year  in  time. 

One  other  point  in  reference  to  these  loans  it  seems  to  me  to  be 
necessary  is  that  these  two  loans,  the  farm-land  loan  and  the  chattel 
loan,  shall  constitute  and  embrace  the  farmer's  entire  indebtedness 
to  provide  the  current  expenses  which  he  maj7  have  to  meet.  The 
reason  for  that  is  this:  If  under  stress  of  circumstances  he  is  com- 
pelled to  go  to  a  loan  shark  or  some  outside  source,  he  will  have  to 
pay  a  very  high  rate  of  interest,  and  that  at  once  interferes  with 
and  jeopardizes  the  land  loan  and  also  the  chattel  loan;  so  that  by 
some  arrangement,  when  that  man  is  financed  under  this  plan,  it 
should  represent  all  the  indebtedness  which  he  has:  and  if  an  emer- 
gency arises  the  relationship  between  the  organization  furnishing 
this  money,  or  individuals,  and  the  farmer  should  be  such  that  the 


318  RURAL    CREDITS. 

farmer  could  go  and  state  his  case  frankly  and  secure  that  which 
was  necessary  to  take  care  of  the  emergency  which  had  arisen. 

Now,  I  believe,  gentlemen,  with  that  general  outline  I  have  placed 
before  you  the  plan  which  would  seem  to  me  to  give  the  best  results 
to  meet  the  necessities,  financial  necessities,  and  needs  of  our  farmers. 
How  this  shall  be  worked  out,  as  I  have  stated,  I  am  not  able  to 
say,  but  if  there  are  points  which  I  have  not  made  clear  I  will  be 
very  glad,  of  course,  to  give  further  light  as  far  as  I  can. 

Mr.  Platt.  Mr.  Lennox,  the  very  interesting  plan  you  told  us  of 
the  story  of  how  you  helped  these  farmers  through  the  cooperation 
of  the  chamber  of  commerce  is  practically  a  plan  of  cooperation  be- 
tween the  city  and  the  country.  Would  you  think  that  that  plan 
between  small  cities  and  the  surrounding  farms  would  be  better  than 
a  plan  of  personal  credit,  for  instance,  originating  with  the  farmers 
themselves,  or  would  you  say  that  perhaps  is  the  only  way  it  could 
be  done? 

Mr.  Lennox.  I  believe  in  our  particular  locality  the  matter  might 
be  handled  in  the  way  in  which  you  suggest,  namely,  that  Colorado 
Springs  should  cooperate  in  furnishing  the  necessary  credit  in  some 
plan  which  may  be  worked  out,  and  I  believe  our  people  would  look 
with  favor  upon  anything  of  that  kind.  And  our  farmers  would  also 
be  willing  to  cooperate,  because,  I  think,  by  this  time  we  have  per- 
haps gained  the  confidence  of  the  farmers. 

Mr.  Plait.  Wouldn't  you  say  it  would  be  a  necessary  and  proper 
thing  for  the  small  city  which  is  more  or  less  in  close  touch  with 
the  farming  community  to  do  something  such  as  you  have  outlined? 

Mr.  Lennox.  Yes:  if  you  can  eliminate  the  barbarous  selfishness 
which  has  been  eliminated  to  some  extent,  and  get  these  business  men 
and  bankers  to  look  broadly  upon  the  proposition  and  for  the  time 
being  to  lay  aside  their  selfishness  and  disposition  to  rob. 

Mr.  Seldomridge.  I  think  Mr.  Platt  means  there  would  be  an  in- 
direct benefit  to  the  community  from  the  development  of  the  country. 

Mr.  Platt.  That  is  the  idea. 

Mr.  Seldomridge.  Rather  than  the  mere  return  in  interest  on  any 
money  that  might  be  loaned. 

Mr.  Platt.  The  idea  is  the  chambers  of  commerce  or  the  boards  of 
trade,  of  whatever  you  call  them,  in  many  of  the  small  cities  will 
perhaps  be  willing  to  organize  such  a  scheme  as  this  for  the  sake  of 
the  benefit  which  it  might  be  to  their  towns  through  the  trade  they 
would  get  by  making  the  farmers  more  prosperous. 

Mr.  Lennox.  I  think  you  are  right.  Our  commerce  body  has  been 
willing  to  do  those  things  along  these  lines,  and  I  think  you  might 
be  able  to  do  it  everywhere. 

Mr.  Bulkley.  Are  you  assuming  now  an  organization  such  a3 
provided  for  in  the  Fletcher-Moss  bill?  Is  that  the  sort  of  organ- 
ization you  have  been  talking  about  ? 

Mr.  Lennox.  I  do  not  quite  understand  that. 

Mr.  Bulkley.  You  were  just  discussing  the  organization  your 
people  would  subscribe  to.  and  I  am  asking  you  now  what  sort  of 
an  organization  you  are  assuming. 

Mr.  Lennox.  In  the  past,  as  I  have  stated,  it  has  been  more  of  a 
seed-and-feed  fund  than  a  farm  loan.  It  has  been  temporary.  But 
that  same  spirit  might  prompt  cooperation  with  the  farmers  on  the 


RURAL   CREDITS.  319 

part  of  business  men  of  Colorado  Springs  in  carrying  out  such  a 
plan  as  you  are  contemplating  here. 

Mr.  Bulkley.  So  that  you  think  there  would  be  subscriptions  to 
the  capital  stock  of  such  banks  as  are  proposed  in  the  bill  ? 

Mr.  Lennox.  I  think  so. 

Senator  Hollis.  Of  course  the  moving  factor  in  the  situation  you 
described  to  us  yesterday  was  really  sympathy — the  desire  on  the 
part  of  those  men  to  aid  at  the  start. 

Mr.  Lennox.  Yes;  at  the  begnning,  the  seed  and  feed  fund  was 
philanthropic. 

Senator  Hollis.  And  unless  those  needs  were  so  acute  that  there 
was  actual  suffering,  a  man  might  not  be  prompted  to  subscribe  to 
the  capital  stock  of  a  farm  bank  but  might  be  prompted  to  subscribe 
to  a  relief  fund- 
Mr.  Lennox.  In  all,  this  success  of  the  seed  and  feed  movement 
and  also  the  farm  loan  has  been  so  great  that  our  business  men  are 
now  encouraged,  I  believe,  to  take  the  broadest  view  of  the  situation 
as  a  good  business  policy. 

Mr.  Bulkley.  What  you  mean  is  that  their  experience  in  that 
venture  would  pave  the  way  for  banks  such  as  are  here  proposed? 

Mr.  Lennox.  Yes. 

Mr.  Seldomkidge.  It  would  be  just  as  much  of  a  benefit  to  a  com- 
munity agriculturally  situated  to  develop  the  agricultural  possibil- 
ities surrounding  it  as  it  would  be  to  develop  the  manufacturing  pos- 
sibilities surrounding  some  other  community? 

Mr.  Platt.  I  should  thing  so. 

Mr.  Lennox.  Just  to  illustrate  that,  up  to  that  time  there  was  ab- 
solutely no  relationship,  nothing  in  common,  apparently,  between 
the  farmers  and  the  business  men,  and  farmers  came  in  on  that  seed- 
and-feed  occasion  who  had  never  been  to  Colorado  Springs  and  did 
not  know  the  streets,  and  floated  around  here  and  there.  And  they 
had  no  reason  to  be  drawn  to  Colorado  Springs  as  their  trading 
point,  while  now  the  farmers  are  coming  in  from  out  near  the 
eastern  portion  of  our  county,  from  away  out  in  Peyton  and  Elbert, 
a  distance  of  from  50  to  70  miles,  to  trade  in  Colorado  Springs.  And 
I  have  in  a  paper  here,  I  did  not  read  it,  the  testimony  of  one  of  our 
business  men,  for  instance,  a  grocer,  Mr.  Hemenway,  who  speaks  of  a 
large  increase  in  his  business  which  has  come  by  reason  of  those 
eastern  farmers  coming  in,  which  was  prompted  by  the  seed-and- 
feed  movement. 

Mr.  Seldomeidge.  I  would  like  to  ask  you  if  there  has  been  any 
loss  in  the  settlement  of  the  country  or  development  of  it  through 
lack  of  a  financial  agency — if  there  has  been  any  movement  away 
from  the  country  on  account  of  the  inabilitv  to  secure  financial  sup- 
ply? 

Mr.  Lennox.  The  movement  away  from  our  country  has  been 
marked  during  the  past,  especially  the  period  from,  we  will  say,  1890 
to  1910,  and  has  been  occasioned  by  two  reasons:  One  was  the  lack 
of  knowledge  of  the  country  into  which  they  had  come  and  the 
methods  necessary  to  be  employed  in  the  carrying  on  of  their  opera- 
tions; and  the  other  was  the  limited  amount  of  money  which  they 
had  when  they  came  there  and  the  fact  that  they  had  spent  all  they 
had  and  now  were  unable  to  secure  further  assistance.  That  may  be 
an  advantage  in  the  long  run,  because  it  has  emphasized  the  thing 


320  RURAL    CREDITS. 

they  had  overlooked,  that  they  must  reckon  with  the  conditions  in 
that  country;  and  money  possibly  put  in  there  in  the  past,  until  this 
educational  work  had  been  begun,  would  have  been  jeopardized. 
But  now,  under  this  program  we  will  develop  a  system  of  providing 
in  that  section,  by  insurance,  the  loans  that  are  made;  and  yet  many, 
in  the  meantime,  have  moved  away  because  of  lack  of  financial  aid. 

Mr.  Seldomridge.  Have  you  anything  to  suggest  along  the  line  of 
requiring  a  man  under  these  conditions  to  adopt  certain  methods  of 
development  that  have  been  tried?  That  is,  where  the  man  secured 
money  on  his  farm,  that  he  should  agree  to  pursue  a  certain  method 
of  farm  development  that  has  been  worked  out  successfully  by 
others  ? 

Mr.  Lennox.  Yes,  sir.  In  the  agricultural  work  which  is  being 
done  under  the  direction  of  the  county  agent  and  also  the  agricultural 
committee  of  our  chamber  of  commerce  it  has  been  required  that 
these  men  receiving  this  financial  assistance  shall  follow  those  lines 
of  industry  which  are  known  to  be  successful.  And  our  county  agent 
makes  it  a  part  of  his  business  to  see  that  those  men  are  following  the 
methods  that  are  safe  for  that  particular  region.  So  that  I  feel  now 
that  money  put  in  there  becomes  much  safer  than  it  would  have  been 
in  the  past  or  could  be  now  except  for  the  educational  cooperation. 
You  gentlemen  are  perfectly  familiar  with  your  losses  in  this  country, 
and  I  am  inclined  to  believe  that  within  a  few  miles  from  Washing- 
ton valuable  lessons  might  be  given  in  farming.  The  soil  seems  im- 
poverished here.  We  are  trying  to  profit  by  the  experience  of  the 
eastern  section  and  insisting  upon  dairying  and  stock  raising  and  a 
forage  crop  raising,  not  only  as  the  line  of  industry  adapted  to  that 
region,  but  the  lines  of  industry,  the  combinations,  so  to  speak,  which 
will  prevent  the  impoverishment  of  the  soil  which  has  occurred  in 
your  section  and  give  them  a  continuously  productive  soil  instead  of 
what  I  see  you  have  here. 

STATEMENT  OF  EDWARD  N.  BREITUNG,  MINING  ENGINEER,  OF 

MARQUETTE,  MICH. 

Senator  Hollis.  State  your  name,  residence,  and  occupation  for 
the  record. 

Mr.  Breitung.  Edward  N.  Breitung,  Marquette,  Mich.  My  work 
is  mining  engineer,  and  my  office  address  is  11  Pine  Street,  New  York. 

Now,  T  do  not  want  to  say  anything,  irentlemen,  about  land  credits, 
because  you  are  familiar,  and  more  so  than  I  am,  with  that  feature. 
But  what  I  want  to  address  myself  to  is  the  opportunity  of  having  it 
done  within  a  reasonable  time — that  is,  in  taking  conditions  as  we 
find  them  uoav.  If  we  had  ordinary  times  before  us  for  the  next  10 
years,  I  would  say  that  we  could  adopt,  almost  bodilv,  European 
conditions.  But  w7e  must  consider  the  fact  that  we  first  have  to 
satisf}7  the  farmer,  because  he  will  not  take  to  this  easily,  at  least  the 
experience  I  have  heard  from  men  who  are  familiar  with  the  subject 
and  mine  is  the  farmer  never  takes  to  anything  new  easily.  So  he  has 
got  to  be  reckoned  with.  We  have  got  to  satisfy  and  make  it  attrac- 
tive for  him. 

And  then  we  have  got,  as  the  other  gentleman  said  here,  the  hard- 
heartedness  of  the  investing  capitalists  to  deal  with.  He  is  not 
changed  any.  He  is  going  to  be  the  same  as  in  all  ages.  Therefore 
we  have  got  to  satisfy  him  in  some  way. 


RURAL    CREDITS.  321 

And  then  we  have  the  third  and  still  harder  problem  of  making 
this  kind  of  security  attractive  to  our  own  people.  They  know  noth- 
ing about  it.  It  is  a  new  thing  to  them.  They  may  hang  back 
almost  as  far  as  the  farmer. 

So  what  I  wish  to  say  is  along  the  practical  lines  of  this  kind. 

It  seems  to  me  that  in  order  to  make  it  attractive  to  the  farmer 
we  ought  to  have  these  banks — the  land-credit  and  the  personal- 
credit — in  one,  because  it  would  cheapen  their  operation  a  great 
deal. 

Senator  Hollis.  You  mean,  when  they  are  looking  up  a  man  to 
see  whether  he  is  worthy  to  have  a  long-time  loan  they  could  satisfy 
themselves  as  to  whether  he  is  worthy  to  have  a  short-time  loan  ? 

Mr.  Breitung.  Yes ;  they  could  satisfy  themselves  as  to  their  secur- 
ity for  a  short-time  loan  at  the  same  time.  And  why  have  two  insti- 
tutions do  the  same  thing?  That  is  the  starting  point;  and  also,  if 
they  had  the  one  institution  doing  this  same  thing,  he  would  be 
assured  of  money  at  a  reasonable  price,  because  an  institution  that 
could  carry  out  the  land  loan  could  not  stoop  to  taking  usurious 
interest.  They  might  like  to  take  it,  but  they  could  not  take  it  from 
him,  because  if  they  were  loaning  him  on  a  long-time  loan  at  a  low 
rate  of  interest  it  would  not  look  reasonable. 

Senator  Hollis.  It  would  look  unreasonable  to  make  a  long-time 
loan  at  5  per  cent  and  a  short-time  loan  at  10  per  cent  ? 

Mr.  Breitung.  Yes.  They  could  not  do  it ;  it  would  be  very  unrea- 
sonable. And,  for  instance,  the  farmer  would  be  better  satisfied  to  be 
taken  care  of  by  one  set  of  men,  especially  if  the  set  of  men  he  made 
application  to  were  responsible  and  were  not  trying  to  grab  his  land. 

That  leads  me  up  to  the  point  I  think  it  is  entirely  unnecessary 
to  have  mortgage  foreclosure.  I  know  that  sounds  peculiar,  but  let 
us  consider  the  case.  A  banker  does  not  want  land ;  that  is,  the  real 
banker.  He  wants  his  money  back  with  interest.  When  he  takes 
land — the  property — it  has  got  to  be  forced  on  him,  probably.  An- 
other thing,  if  we  have  the  proper  kind  of  contract  with  the  farmer, 
and  do  not  loan  him  too  much  money,  how  can  the  banker  lose  by 
simply  becoming  trustee  for  the  man  when  he  becomes  short  on  his 
interest  or  short  on  his  principal,  say  for  a  year  or  two?  Now,  when 
they  become  trustees  they  are  in  a  delicate  position.  He  has  got  to 
do  the  right  thing  as  the  cestui  que  trust,  whether  he  wants  to  or  not. 

That  at  first  looks  a  little  startling,  but  if  we  go  back  long  ages 
ago,  in  the  old  Roman  law,  almost  too  far  back  for  me  to  mention — 
but  it  will  be  found  in  some  of  the  law  books — we  find  when  a  man 
took  a  mortgage  on  the  land  he  took  the  land  and  worked  out  the 
debt,  and  when  the  debt  was  worked  out  he  handed  him  back  the 
farm.  We  would  do  this  a  little  differently.  If  he  got  back  in  his 
interest  and  principal  payments,  we  would  put  somebody  in  there  to 
work  out  the  debt  just  far  enough  so  as  to  catch  up  the  payments  that 
are  back,  and  when  we  catch  up  the  interest  and  principal  that  has 
become  in  arrears  then  he  would  be  reinstated.  Now,  that  would 
give  an  opportunity  to  the  man  and  do  a  great  deal  of  good  and  be 
attractive.  Sometimes  a  man  might  be  a  very  hard-working  man, 
and  he  might  have  a  year  or  two  of  very  bad  crops,  and  instead  of 
saying  to  this  farmer,  "  This  farm  does  not  belong  to  you  any  more," 

37031—14 21 


322  BUBAL    CREDITS. 

they  might  say  to  this  man  they  might  even  rent  him  his  farm  back, 
if  he  was  the  right  kind  of  a  man — if  they  saw  he  was  the  right  kind 
of  a  farmer,  but  through  misfortune  or  something  unforeseen  he 
had  gotten  in  arrears  in  his  payments,  they  might  even  rent  the  man 
his  own  farm,  so  that  he  could  work  it  out  and  get  it  back  in  two  or 
three  years.  But  if  he  was  a  man  who  was  worthless  and  was  not 
worthy  of  their  doing  this,  they  would  get  some  worthy  man  to  go 
in  there,  and  in  time  the  mortgagor  would  get  it  back. 

Senator  Hollis.  That  means  you  would  have  to  have  a  strong  dis- 
cretion in  some  one. 

Mr.  Breitung.  Yes;  it  does. 

Senator  Hollis.  To  whom  would  you  confine  that? 

Mr.  Breitung.  I  would  confine  it  to  getting  the  second  and  third 
younger  sons  of  the  farmers  from  Europe.  I  happen  to  know,  be- 
cause I  go  to  P^urope  frequently — a  great  deal  of  mining,  as  you 
know,  is  done  by  capital  on  the  other  side — so  I  have  become  quite 
familiar  with  the  conditions  over  there.  The  older  son  over  there 
inherits  everything,  and  there  would  often  be  younger  sons  who 
would  be  glad  to  come  to  this  country  if  they  saw  an  opening.  Those 
are  the  men  that  I  would  bring  here  to  get  to  work  out  such  a  farm 
as  that,  and  they  would  be  willing  to  do  that,  if  they  could  see  an 
opportunity  afterwards  with  the  money  they  had  saved  as  renters 
on  these  farms  to  get  land  of  their  own.  And  in  that  way  we  would 
bring  a  class  from  Europe  wdiich  we  now  know  very  little  of — the 
class  that  does  not  usually  come. 

Mr.  Bulkley.  You  mean  to  say  these  imported  farmers  could 
work  a  farm  out  of  debt  where  an  American  had  failed,  and,  at  the 
same  time,  save  up  enough  money  to  buy  land  of  their  own? 

Mr.  Breitung.  Yes.    That  is  just  what  I  mean. 

Mr.  Bulkley.  Where  do  you  think  you  would  find  them. 

Mr.  Breitung.  France,  Germany,  Holland,  and  Belgium  are  full 
of  them.  In  other  words,  they  make  their  livings  on  farms  over  there 
that  our  men  would  not  think  worth  looking  at.  And  then  they  are 
trained  in  saving.  Our  farmers,  and  all  of  our  people  in  every 
class — it  is  not  one  class,  but  every  class — throwT  away  more  than  they 
require  to  live  on.  It  is  not  the  fault  of  our  people ;  it  has  been  the 
way  they  have  gone  along  in  that  direction.  I  am  one  of  them,  and 
probably  one  of  the  worst  offenders,  but  that  is  true. 

Senator  Hollis.  My  question  was  addressed  not  so  much  to  the 
agent  you  would  put  in  charge,  but  to  the  person  who  would  have 
the  discretion  of  saving  whether  a  man  ought  to  have  another  chance. 
AVould  that  be  the  bank  itself? 

Mr.  Breitung.  That  would  be  the  bank  itself. 

Senator  Hollis.  They  would  have  it  because  their  money  is  in- 
vested ? 

Mr.  Breitung.  Because  their  money  is  invested. 

Senator  Hollis.  You  could  not  take  care  of  that  very  well  by 
statute  ? 

Mr.  Breituno.  Except  in  this  way:  You  would  require  a  certain 
number  of  directors  to  see  that  a  man  who  was  worthy  was  given 
a  fair  chance. 

Senator  Hollis.  I  do  not  see  how  any  one  except  a  Government 
representative  could  exercise  that  discretion  fairly.  Perhaps  they 
might  be  expected  to. 


RURAL    CREDITS.  323 

Mr.  Breitung.  Yes;  they  could  be  expected  to,  because  the  bank 
would  know  everybody,  more  or  less,  was  inclined  to  their  side,  and 
that  is  the  reason  why  it  would  be  a  good  thing  to  have  some  of  them 
directors. 

Senator  Hollis.  Have  you  considered  the  value  of  some  central 
body  among  these  local  banks  ? 

Mr.  Breitung.  Yes. 

Senator  Hollis.  Do  you  favor  that  ? 

Mr.  Breitung.  I  favor  it  for  this  reason:  It  is  the  impression  it 
would  have  upon  the  public  at  large,  here  and  abroad. 

Now,  I  am  approaching  the  idea  of  selling  these  debentures,  which 
is  very  important  and  is  really  going  to  be  one  of  the  hardest  things. 
It  is  a  very  peculiar  thing,  but  I  see  it  so  often  in  financing  enter- 
prises— it  is  not  always  so  much  what  a  thing  is,  as  it  is  the  impres- 
sion it  makes  on  the  public,  whether  it  will  take  or  not.  Now,  if 
these  debentures  were  put  out  in  such  a  way  that  a  man  who  would 
say  "  Oh,  I  do  not  think  they  are  so  good  "  would  be  held  down,  it 
would  go  a  might  long  way  toward  disposing  of  them  in  large 
Quantities. 

Now,  in  order  to  do  that  there  has  got  to  be  some  big  organiza- 
tion that  people  will  respect,  not  in  Dakota,  but  that  they  will 
respect  in  Washington  or  California  or  Michigan  or  any  other 
place — something  that  when  it  is  mentioned  it  is  not  open  to  doubt 
whether  a  debenture  is  good.  And  especially  when  we  go  abroad 
to  sell  them  in  Europe,  we  could  go  to  France,  we  could  go  to 
England,  we  could  go  to  Scotland— and,  in  fact,  a  great  many  of  our 
debentures  are  already  bought  in  Scotland — and  we  could  go  to  those 
countries  if  Ave  had  a  collection  of  small  banks  under  one  central 
institution.  For  instance,  you  might  take  a  banker,  one  of  the 
large  banks  here  in  Washington,  and  he  might  have  the  very  best 
bank  security  possible.  Suppose  he  might  go  to  Europe,  it  would 
be  impossible  for  him  to  get  a  hearing,  because  he  would  not  repre- 
sent an  institution  which  was  large  enough  to  inspire  confidence. 
Second,  if  he  got  a  hearing,  it  is  doubtful  when  it  would  take  the 
trouble  to  arrange  with  him  for  the  securities.  If  that  was  some 
large  institution,  that  would  be  easy.  We  might  even  have  four 
directors  on  the  board  representing  some  of  those  large  European 
interests. 

Now,  I  know  that  does  sound  peculiar,  but  they  feel  a  good  deal 
as  we  do.  For  instance,  take  the  case  of  our  railroad  bonds  sold  in 
Europe.  They  were  sold  by  getting  men  to  come  over  and  act  as 
directors,  ex-officio,  on  those  railroads,  and  coming  over  and  see- 
ing that  they  were  all  right.  We  might  handle  that  in  the  same 
way  they  do  four  or  five  insurance  companies.  Some  of  you  gentle- 
men are  familiar,  perhaps,  with  the  fact  that  some  of  the  great 
insurance  companies  have  boards  of  directors  in  every  State  out- 
side of  their  regular  board. 

Senator  Hollis.  That  is  a  sort  of  a  branch  bank? 

Mr.  Breitung.  Yes ;  the  same  sort  of  an  arrangement. 

It  would  be  necessary  to  give  a  wide  confidence  to  these  deben- 
tures, because  it  is  not  a  question  of  selling  $200,000  or  $1,000,000 
worth  of  debentures,  but  a  question  of  selling  billions  of  dollars 
of  these  securities  if  }tou  want  to  do  any  real  good.     While  it  is 


324  RURAL   CREDITS. 

easy  enough  to  talk  of  selling  a  billion  of  dollars  of  securities,  it 
is  quite  hard  to  dispose  of  that  amount. 

Senator  Hollis.  It  seems  to  me  rather  improbable  there  will  be 
one  central  bank  of  any  kind  established  by  this  Congress.  Now, 
it  has  been  proposed  that  these  organizations  might  be  coterminous 
with  the  States. 

Mr.  Breitung.  That  could  be  done. 

Senator  Hollis.  I  wish  you  would  discuss  it  in  that  view,  and 
prabably  with  reference  to  having  them  coterminous  with  the  Fed- 
eral reserve  districts. 

Mr.  Breitung.  I  do  not  see  why  you  could  not.  The  only  thing 
I  would  like  to  see  is  that  you  have  them  large  enough  so  when' 
we  go  over  there  they  will  think  it  is  worth  while  and  would  con- 
sider it.  We  want  to  get  real  consideration.  That  is  one  of  the 
troubles  with  the  banks  of  Europe.  While  we  regard  some  of 
our  banks  in  New  York  as  large  banks,  when  you  go  to  London 
the  City  Bank  is  looked  upon  as  very  small. 

Senator  Hollis.  How  many  banks  are  there  in  London  that  are 
larger  than  the  National  City  Bank? 

Mr.  Breitung.  Probably  10.  And  some  of  them  are  ten  times  as 
big.  No  matter  what  the  size  of  the  bank  was  or  what  the  size  of 
the  companies,  it  would  not  make  the  debentures  so  much  better, 
but  it  is  the  public  effect.  _ 

Now,  I  quite  agree  with  you,  there  is  no  reason  they  should 
not  be  divided  just  the  way  they  have  these  currency  banks — 
regional  banks.  They  would  be  all  right,  because  they  are  large 
enough  to  carry  confidence  themselves.  But  these  banks  must  be 
of  a  certain  size;  that  is  all,  a  size  big  enough  so  that  they  will 
be  able  to  get  real  attention. 

Mr.  Bulkley.  Do  you  think  there  is  any  considerable  market  for 
land-mortgage  bonds  there,  even  under  the  best  circumstances? 

Mr.  Breitung.  Yes,  sir;  a  very  large  one. 

Mr.  Bulkley.  At  what  rate  of  interest? 

Mr.  Breitung.  I  suppose  you  could  probably  sell  at  about  5.  You 
could  sell  at  4  later  on,  probably,  but  the  trouble  is  you  could  not 
start  at  4.  You  might  gradually  come  down  to  4,  but  you  would 
have  to  start  at  5.  That  is  not  strange,  although  it  may  seem  so,  be- 
cause you  are  going  to  have  South  America  to  deal  with.  Argentina 
has  such  a  bank,  Brazil  is  going  to  have  several,  and  you  see  we  are 
not  the  only  ones  offering  debentures.  Eventually  we  ought  to  get 
the  same  rates  they  do,  but  not  at  the  start.  Therefore  I  think  we 
ought  to  use  some  form  of  capital  that  will  carry  the  respect  of  the 
handlers  of  this  kind  of  security  and  of  the  buyer  without  too  great 
a  charge.  Therefore  I  am  leading  up  to  what  I  call  the  mobilization 
of  credit. 

Mr.  Bulkley.  When  you  say  5  per  cent,  you  mean  the  bonds  would 
pay  5  per  cent  and  that  the  investors  would  pay  out  of  that  for  their 
own  inspection? 

Mr.  Breitung.  I  think  the  farmer  would  have  to  pay  for  the  in- 
spection. Now,  this,  I  know,  sounds  bad,  but  I  have  always  been  of 
the  opinion  that  a  farmer  will  not  get  any  very  cheap  money  for 
some  years.  The  farmer  will  have  to  pay  between  6  and  7.  "When  I 
say  6  and  7,  I  do  not  mean  that  the  mortgage  will  carry  6  and  7,  and 


EUEAL    CREDITS.  325 

then  an  additional  10  per  cent  for  commissions  outside.  I  mean  the 
actual  cost  to  him. 

Mr.  Bulkley.  I  mean  will  the  American  banks  you  are  proposing 
have  to  pay  the  salaries  of  the  directors  and  officials? 

Mr.  Breitung.  Yes. 

Mr.  Bulkley.  And  then  pay  5  per  cent  on  the  money  besides? 

Mr.  Breitung.  Yes,  sir.  Of  course,  these  officials  and  directors 
will  put  up  a  large  part  of  this  money. 

Mr.  Bulkley.  Yes;  but  you  propose  to  pay  5  per  cent  and  then  pay 
salaries  on  top  of  that? 

Mr.  Breitung.  They  would  not  get  a  salary;  they  would  get  a  com- 
mission. 

Mr.  Bulkley.  Would  they  absorb  that  out  of  the  5  per  cent  ? 

Mr.  Breitung.  No  ;  that  would  come  out  of  the  difference  between 
the  5  and  the  6  and  7  per  cent, 

Mr.  Bulkley.  It  would  be  another  charge  on  the  American  bank 
in  addition  to  the  interest  charge? 

Mr.  Breitung.  It  would;  because  you  could  not  ask  them  to  sell 
the  securities  in  Europe  without  some  sort  of  consideration — I  doubt 
whether  you  could  do  it — and  I  will  tell  you  why:  Your  man  from 
Argentina,  your  man  from  India,  and  your  man  from  Egypt,  to 
whom  you  are  going  to  offer  these,  would  expect  some  sort  of  a  com- 
mission ;  and  I  think  the  gentleman  is  right  that  we  have  got  to  face 
the  fact  the  banker  is  going  to  get  as  much  as  he  can. 

Mr.  Bulkley.  Isn't  there  a  lot  of  Scotch  money  loaned  in  this 
country  now  at  a  good  deal  less  than  5  per  cent  ? 

Mr.  Breitung.  It  has  been;  but  the  Scotchman  loans  it  himself. 
They  are  Scotch  debenture  companies,  doing  business  in  the  United 
States. 

Mr.  Bulkley.  How  much  does  the  Scotch  investor  get  ? 

Mr.  Breitung.  He  gets  sometimes  3-|  and  4,  and  sometimes  he 
won't  get  that.  When  you  take  care  of  the  giving  of  the  security  and 
everything  else,  I  do  not  believe  most  of  the  debentures  sold  in  Scot- 
land would  average  over  3  per  cent  if  the  whole  cost  was  put  in. 

Senator  Hollis.  What  do  you  mean — that  they  would  not  bring 
more  than  that  to  the  investor? 

Mr.  Breitung.  Yes. 

Mr.  Bulkley.  How  much  of  this  sort  of  security  could  we  dispose 
of  abroad  if  we  should  adopt  this  plan  you  are  suggesting? 

Mr.  Breitung.  I  was  going  to  say  you  could  probably  dispose  of 
a  hundred  million  or  two,  the  first  thing,  and  probablv.  eventually, 
$500,000,000  a  year,  or  more. 

Mr.  Bulkley.  $500,000,000  a  year? 

Mr.  Breitung.  Yes,  sir;  if  we  would  raise  the  interest  a  little  bit. 

Mr.  Bulkley.  Raise  it  above  5  per  cent,  you  mean  ? 

Mr.  Breitung.  Not  above  5  per  cent.  But  in  order  to  do  that  you 
would  have  to  have  debentures  there  could  not  be  any  doubt  about; 
it  could  not  be  open  to  any  question. 

That  leads  up  to  the  question  of  how  to  satisfy  the  banker.  It 
will  be  easy  to  satisfy  the  banker.  We  could  say,  "  See  here,  now,  we 
do  not  intend  to  use  your  money  in  any  large  quantities ;  this  money 
is  mostly  coming  from  the  public.  What  we  want  you  to  do  is  to  put 
in  a  little  money  and  allow  us  to  get  credit  upon  it — to  guarantee 
these  debentures." 


326  RURAL    CREDITS. 

Senator  Hollis.  And  just  to  put  in  a  little  money  in  the  way  of 
stock  subscription? 

Mr.  Bkeitung.  Yes;  in  the  way  of  stock  subscription.  And  then 
have  a  separate  organization  like  Lloyds.  That  is  the  modern  con- 
ception. We  have  an  ancient  conception  of  it  in  the  Bank  of  Venice 
that  did  the  business  of  the  world  for  300  or  400  years.  They  were 
not  using  any  money  at  all  except  the  merchants',  and  it  was  smashed 
by  a  well-known  soldier  named  Bonaparte  because  he  did  not  stop  to 
think.  He  went  to  the  Bank  of  Venice  and  said,  "  Gentlemen,  I  want 
so  much  money  in  gold."  They  said,  "  This  bank  don't  deal  in  gold ; 
it  deals  in  credit."  He  could  not  understand  that,  and  he  closed  it 
up  right  away.  He  never  stopped  to  argue;  he  just  closed  it  up. 
Now,  "that  would  be  the  way  to  satisfy  the  banker,  and  it  would  not 
only  satisfy  the  banker  but  would  allow  the  farmer  to  have  a  large 
selling  credit,  because  all  of  our  farmers,  collectively,  would  have  a 
very  large  credit.  Supposing  a  farmer  owned  a  farm  worth  $300,000 
or  $500,000  and  put  $300,000  or  $500,000  in  the  credit  arrangement. 
It  would  put  the  farmer  where  he  could  have  a  real  voice  in  this 
thing  without  putting  up  much  money. 

Senator  Hollis.  Eight  there  there  is  something  I  want  to  suggest 
to  you  and  to  the  committee  at  the  same  time — a  matter  that  came 
under  my  personal  observation — of  how  banks  regard  the  credit  of 
farmers.  There  was  at  one  time  operating  in  New  England  one  or 
two  men  who  went  around  and  formed  an  association  of  farmers  in 
each  vicinity — an  association  of  30  farmers — to  buy  a  French  stud- 
horse to  improve  the  stock  in  that  vicinity.  The  French  studhorse 
eventually  came  from  Indiana,  I  believe.  I  can  not  remember  that 
one  of  those  associations  was  ever  successful  in  carrying  out  that 
scheme.  But  the  promoters  would  take  these  notes,  which  were  joint 
and  several  notes — three  of  them — due  in  one,  two,  and  three  years, 
respectively,  signed  by  the  30  farmers  of  the  vicinity.  The  pro- 
moters would  show  the  farmers  how  to  organize  this  association  and 
then  get  their  notes,  joint  and  several,  so  that  if  there  was  one 
farmer  in  the  bunch  worth  $3,000  the  notes  would  be  good.  Then 
they  would  take  these  notes  to  some  bank,  usually  off  some  100  or 
200  miles,  so  that  they  would  not  know  am7thing  about  the  details 
of  the  scheme.  These  notes  were  printed  with  the  head  of  a  stud- 
horse on  them,  and  the  banks  knew  perfectly  well  they  were  what 
were  called  "  studhorse  notes."  But  the  bank  would  take  those  notes 
gladly,  because  thev  said  out  of  30  farmers  there  was  apt  to  be  one 
or  more  worth  $3,000. 

I  was  employed  by  one  of  the  banks  to  collect  one  of  those  notes, 
and  the  judgment  of  the  bank  turned  out  to  be  correct.  We  did  find 
enough  of  those  farmers  to  satisfy  those  notes. 

That  gives  an  indication  of  how  bankers  look  at  the  credit  of  farm- 
ers in  the  aggregate.  They  would  not  take  the  note  of  the  individual 
farmers,  but  if  they  could  get  30  farmers  on  those  notes  they  felt 
perfectly  safe. 

Now,  I  would  like  to  know  if  that  is  a  fair  illustration  of  what  you 
spoke  of? 

Mr.  Breitung.  Yes;  that  is  a  fair  illustration  of  collective  farm 
credit.  And  we  also  intend  to  protect  the  farmers  in  this  case.  In- 
stead of  the  notes  being  joint  and  several,  a  man  would  only  have  to 
pay  his  proportion,  and  it  would  be  spread  over  a  large  number,  so 


RURAL    CREDITS.  327 

that  even  if  the  debenture  would  have  to  be  paid  by  the  guarantor 
it  would  not  be  as  hard  on  a  man  as  if  it  was  joint  and  several. 

Senator  Hollis.  What  you  are  speaking  for  is  collective  credit, 
which  will  bring  large  sums  of  money  cheaply,  and  then  that  may  be 
divided  up  in  individual  sums? 

Mr.  Brettung.  Yes.  Now,  a  good  deal  of  the  world's  insurance, 
all  of  the  great  marine  insurance  of  England,  is  done  in  that  way. 
They  find  they  can  do  it  cheaper  and  more  efficiently.  It  has  never 
been  taken  up  in  this  country  to  any  extent  that  I  recall.  T  do  not 
know  the  reason,  but  it  never  has. 

Senator  Hollis.  We  have  followed  the  individual  idea. 

Mr.  Breitung.  Yes;  that  is  the  idea.  Now,  I  want  to  say  one 
more  thing.  As  I  said  before,  in  starting,  these  are  not  ordinary 
times.  In  ordinary  times  some  of  these  ways  I  have  suggested  here 
would  not  be  necessary,  but  there  is  a  world-wide  shortage  of  money, 
and  therefore  if  we  go  out  to  get  any  great  amount  of  cash  capital  we 
are  going  to  fail  to  get  it.  Here  is  the  reason :  There  are  all  sorts  of 
industrials.  I  know  there  is  probably  a  billion  dollars  in  what  we 
might  call  cold  storage,  in  securities  waiting  to  come  out  at  the  first 
favorable  call. 

Mr.  Bulkley.  In  this  country? 

Mr.  Breitung.  Yes;  and  there  is  probably  twice  that  much  more 
in  Europe.  Now,  they  are  waiting  to  come  out;  they  are  in  indus- 
trials, and  some  of  them  earning  as  high  as  15  and  20  per  cent.  If 
they  had  to,  they  would  go  pretty  high  to  get  their  bonds  taken. 
Now,  we  are  not  going  to  offer  sufficient  inducements  as  to  profits  on 
the  stock  in  this  kind  of  concerns  in  the  first  few  years  to  make  it 
attractive.  That  is  the  reason  for  this  mobilization  of  credit,  be- 
cause a  man  could  afford  to  take  a  very  large  portion  on  his  credit 
of  what  he  will  take  out  of  cash.  Therefore  my  hope  will  be  that 
these  concerns  in  the  United  States  would  start  with  this  mobiliza- 
tion of  credit  and  not  with  a  cash  capital. 

Mr.  Bulkley.  How  long  do  you  expect  the  shortage  of  capital  to 
last? 

Mr.  Breitung.  It  will  last  until  we  have  an  adjustment  of  com- 
mercial arrangements.  The  worst  offenders  in  that  case  have  been 
the  railroads  of  the  United  States.  If  the  railroads  had  started  out 
by  selling  stock  instead  of  bonds,  they  would  not  be  in  this  position 
now.  But  I  know  it  is  a  fact,  and  has  always  been  a  fact  in  the  com- 
mercial world,  that  a  man  who  would  put  his  own  money  into  the 
building  of  a  railroad  was  regarded  as  foolish.  He  would  simply 
issue  bonds  on  it,  and  that  is  one  of  our  troubles.  Now,  we  have  had 
other  troubles  in  Europe,  but  they  are  different  kinds.  They  have 
been  the  speculation  in  the  great  companies  they  have  in  India  and 
in  South  Africa  and  other  places.  They  have  had  their  troubles,  but 
they  have  been  of  a  different  kind. 

Our  trouble  is  there  is  a  very  large  amount  of  securities  out  for 
which  nothing  has  been  paid,  but  they  have  been  made  to  earn  money 
and  we  have  got  them  on  our  hands — that  is,  the  world  has  got  them 
on  their  hands — and  they  are  all  going  to  come  in  and  compete  with 
this  kind  of  a  concern.  We  want  to  bring  it  out,  and  we  want  to 
make  it  as  attractive  as  we  can.  Now,  those  concerns  can  almost 
afford  to  give  a  good  many  of  those  securities  away.  Let  me  give 
you  an  illustration :  I  am  a  member  of  a  banking  house  which  is 


328  RURAL    CREDITS. 

taking  and  underwriting  to  build  a  railroad.  They  are  not  half  so 
bad  as  they  are  in  the  United  States,  but  now  what  they  did,  they 
sold  us  those  bonds  at  75  and  gave  us  a  bonus  of  50  per  cent  of  the 
stock.  We  have  placed  most  of  those  bonds  in  Holland,  so  that  stock 
cost  us  nothing,  and  that  stock  will  probably  pay  5  per  cent  now. 

Mr.  Ragsdale.  How  much  did  you  say  the  stock  would  pay  ? 

Mr.  Breitung.  Oh,  probably  in  a  year  or  two,  6  or  7  per  cent. 
Now,  it  did  not  cost  us  anything.  I  just  want  to  give  yon  the  illus- 
tration. Here  is  the  illustration :  You  go  out  and  start  a  land  bank, 
and  you  tell  the  men,  "  Oh,  yes;  this  thing  will  probably  pay  5,  6,  or 
7  per  cent  in  two  or  three  years."  We  turn  around  and  say  to  him, 
"  Here  is  stock  that  will  pay  7  per  cent  now."  Which  is  he  going 
to  buy?  It  did  not  cost  us  anj'thing,  and  we  can  sell  at  almost  any 
price.  You  have  got  to  compete  with  this  very  thing  if  we  have  got 
to  go  out  to  raise  that  large  amount. 

Senator  Hollis.  To  offset  that,  we  have  got  to  build  up  a  large 
regional  institution  so  as  to  establish  a  feeling  of  confidence  in  the 
solvency  of  those  debenture  bonds? 

Mr.  Breitung.  Yes. 

Senator  Hollis.  And  to  do  it,  you  say  we  must  get  all  the  collec- 
tive credit  together  we  reasonably  can? 

Mr.  Breitung.  Yes;  that  is  true,  and  you  must  also  face  the  con- 
dition that  it  will  be  impossible  to  raise  that  large  amount  of  cash 
capital  in  the  next  few  years.  Therefore,  why  not  take  the  expedi- 
ent of  using  this  credit  during  this  number  of  years,  and  then  after- 
wards, if  it  is  found  not  to  be  what  is  desired,  gradually  withdraw 
and  substitute  cash  for  it  as  the  times  allow  ? 

Senator  Hollis.  It  may  be ;  well,  we  can  not  in  the  next  few  years. 
We  have  got  to  go  slowly  and  experiment  and  feel  our  way,  and  per- 
haps it  is  not  altogether  bad  times  are  not  favorable. 

Mr.  Breitung.  That  might  be  true.  But  these  people  want  this 
money ;  they  are  waiting  for  it,  and  it  keeps  the  country  back  if  they 
do  not  get  it.  Now,  if  they  could  get,  in  the  next  few  years,  there 
credit  capital,  and  that  credit  capital  would  answer  the  purpose,  it 
would  be  much  easier  to  wipe  out  than  cash  capital,  because  you  could 
have  an  agreement  that  it  could  be  retired  after  a  certain  number  of 
years. 

Mr.  Platt.  What  you  have  said  in  regard  to  present  securities 
is  only  another  way  of  saying  the  stock  market  has  got  to  advance 
before  they  will  get  the  people  to  buy  these  securities? 

Mr.  Breitung.  That  is  it.  You  have  got  to  realize  that  some  of 
these  things  have  not  cost  them  anything,  and  they  could  turn 
around  and  give  them  away,  practically,  and  that  is  going  to  inter- 
fere with  the  market  for  new  securities.  And  just  to  give  you  an 
illustration,  take  the  case  of  Edward  Breitung  Co.  (Ltd.)  ;  this  stock 
has  not  cost  us  anything,  and  if  it  pays  6  or  7  per  cent  we  can  afford 
to  sell  for  a  figure  at  which  no  man  can  compete.     That  is  the  idea. 

Senator  Hollis.  You  get  large  commissions  that  the  people  pay? 

Mr.  Breiti  no.  That  is  the  idea.  And  the  world  is  full  of  just 
such  things  as  that;  and  while  I  do  not  defend  it,  the  world  is  full 
of  it. 

Senator  Hollis.  You  are  like  Tom  Johnson  and  the  tariff — as  long 
as  it  is  the  way,  you  are  going  to  benefit  by  it. 


RURAL    CREDITS.  329 

Mr.  Breitung.  That  is  true ;  as  long  as  it  is  the  way,  we  are  going 
to  benefit  by  it,  but  I  would  like  to  see  it  wiped  out, 

Mr.  Platt.  It  is  practiced  mostly  to-day  by  the  rather  small  enter- 
prises, like  the  street  railways  and  things  of  that  sort? 

Mr.  Breitung.  Yes;  or  connecting  up  the  trunk  lines  and  things 
of  that  kind,  where  they  can  cut  off  a  hundred  miles  or  two  or  where 
they  approach  congested  districts — say,  where  the  railroads  approach 
New  York— and  it  does  not  want  to  go  through  that  district  but  wants 
to  take  it  around.  A  railroad  coming  east,  say,  does  not  want  to  go 
through  Chicago  or  Milwaukee,  and  so  they  will  all  build  a  joint 
track — these  big  railroads  will  build  a  joint  track  bed;  and  that  is  the 
kind  of  railroad  that  is  being  built  now. 

Mr.  Platt.  They  do  not  have  to  give  a  bonus  of  stock  on  those 
railroads,  do  they? 

Mr.  Breitung.  They  do,  because  it  is  the  custom,  just  like  saying 
"  Good  morning." 

Mr.  Platt.  Practically  every  railroad  in  the  United  States  built 
nowadays  gives  a  bonus,  doesn't  it? 

Mr.  Breitung.  It  is  the  custom;  that  is  the  idea;  just  like  saying 
"  Good  morning."  Most  everyone  does  it.  In  fact,  I  never  heard  of  a 
big  railroad  being  built  without  doing  it.  Now,  that  is  my  reason  for 
talking  so  strongly  on  this  credit  capital.  In  the  first  place,  the 
farmer  could  take  a  great  share  of  the  stock ;  in  the  second  place,  we 
could  say  to  the  banker,  "  Here,  now,  you  like  to  make  money.  You 
have  lots  of  money,  and  you  ought  to  be  willing  to  put  your  name 
down  for  $100,000  of  that  credit  capital."  They  would  do  it  and 
never  wink  an  eye,  while  if  you  ask  for  $100,000  in  money  he  would 
say,  "  How  much  am  I  going  to  get  on  this?" 

Mr.  Platt.  In  other  words,  you  feel  the  way  Mr.  Lenox  said  of 
the  men  in  Colorado.  They  appealed  to  the  men  in  Colorado  Springs 
to  build  up  the  country,  and  not  as  a  money-making  proposition. 

Mr.  Breitung.  That  was  a  money-making  proposition.  You 
would  say,  "  Here,  gentlemen,  you  have  made  millions  of  dollars  in 
this  country,  and  if  you  subscribe  your  name  and  become  a  guarantor 
of  these  debentures  it  would  not  hurt  you.  You  give  that  much 
money  away  on  things,  and  it  would  not  hurt  you,"  and  the  chances 
are  they  would  in  ninety-nine  out  of  one  hundred  cases  never  be  called 
upon  for  it,  and  they  could  be  impressed  as  good,  patriotic  citizens 
of  this  country  that  they  ought  to  be  willing  to  do  something  to  help 
along. 

Mr.  Ragsdale.  What  per  cent  of  the  capital  would  you  raise  in  that 
way? 

Mr.  Breitung.  I  think  80  per  cent. 

Mr.  Seldomridge.  Do  you  think  the  Government  could  participate 
in  a  guaranty  of  anything  of  that  sort  ? 

Mr.  Breitung.  They  could,  and  it  would  be  better. 

Mr.  Seldomridge.  How  could  they? 

Mr.  Breitung.  I  do  not  know.  I  am  not  familiar  enough  with 
the  law,  but  they  could  do  it  as  long  as  it  is  a  good  guaranty. 

Mr.  Bulkley.  What  to  you  mean  by  "being  better" — that  it 
would  permit  the  securities  to  be  sold  on  a  low  interest  basis  ? 

Mr.  Breitung.  I  think  it  would,  and  give  more  confidence  in  it  to 
the  public. 


330  RURAL    CREDITS. 

Mr.  Ragsdale.  If  these  people  would  give  their  credit  capital,  as 
you  have  indicated,  then  they  would  have  a  voice  to  a  considerable 
extent  in  the  operation  of  the  bank? 

Mr.  Breitung.  They  would. 

Mr.  Ragsdale.  And  therefore  the  bank  would  be  owned  and  oper- 
ated by  people  who  would  not  have  any  capital  invested? 

Mr.  Breitung.  Yes;  they  would — credit. 

Mr.  Ragsdale.  I  did  not  say  "  credit " ;  actual  capital.  They  would 
not  have  any  money  actually  invested  in  it,  and  the  whole  system 
would  then  be  controlled  and  dominated  by  a  class  of  men  who  would 
be  able  to  give  their  credit? 

Mr.  Breitung.  Yes;  but  not  the  voice  that  governed  it;  that  is 
the  idea. 

Mr.  Ragsdale.  Why  not,  if  the  farmers  could  not  give  credit  un- 
less they  were  very  wealthy  men,  and  you  say  that  80  per  cent  of  it 
is  to  be  raised  in  that  way?  Therefore  it  would  be  absolutely  owned 
and  controlled  by  them,  wouldn't  it? 

Mr.  Breitung.  No;  the  farmer  himself  ought  to  be  able  to  give  a 
large  part  of  this  credit. 

Mr.  Ragsdale.  Could  the  farmers  in  the  United  States  subscribe  a 
few  hundred  thousand  dollars? 

Mr.  Breitung.  They  could,  easily;  not  in  money,  but  in  credit.  I 
do  not  know,  but  there  must  be  many  hundreds  of  thousands  of 
dollars — many  millions  of  dollars — of  farms  owned  by  farmers  free 
of  debt. 

Senator  Hollis.  Yes;  and  then  in  my  district  the  farmers  have 
got  money  in  the  savings  banks.  They  have  millions  in  the  savings 
banks  in  my  State. 

Mr.  Ragsdale.  Yes,  Senator.  Pardon  me,  but  what  are  the  indi- 
vidual farmers  worth? 

Senator  Hollis.  Some  of  them  are  worth  a  good  deal  of  money, 
because  they  have  sold  the  timber  in  my  part  of  the  country  and  put 
the  money  in  the  savings  banks.  Lots  of  them  are  worth  $100,000 
in  my  part  of  the  country. 

Mr.  Ragsdale.  But  if  a  farmer  is  worth  $100,000  he  is  not  going 
to  give  that  much  in  credit? 

Senator  Hollis.  I  do  not  know  much  about  that. 

Mr.  Breitung.  That  is  my  argument;  because  if  that  was  done 
under  Government  supervision  and  in  a  safe  and  proper  manner,  his 
chance  for  loss  is  almost  nothing,  you  see.  You  see  the  idea,  because 
you  have  got  to  lose  the  cash  capital  before  his  credit  is  called  on. 

Mr.  Bulkley.  Your  idea  is  they  should  subscribe  credit  capital, 
and.  although  nobody  would  ever  expect  to  call  on  it,  it  would  be 
there  as  security  by  way  of  a  guaranty  ? 

Mr.  Breitung.  Yes. 

Mr.  Bulkley.  Would  they  net  dividends  on  that  capital  ? 

Mr.   Breitung.  Yes,  sir;   they   would. 

Mr.  Platt.  What  is  the  distinction  between  that  sort  of  capital 
and   watered   stock? 

Mr.  Breitting.  There  is  this  distinction — that  this  sort  of  capital 
does  some  real  good,  because  it  allows  you  to  sell  these  debentures 
just  like  the  indorsement  of  a  piece  of  paper. 

Mr.  Platt.  Just  like  watered  stock;  you  could  not  sell  the  bonds 
of  these  enterprises  if  j^ou  did  not  offer  the  stock  as  a  bonus? 


RURAL    CREDITS.  .331 

Mr.  Breitung.  There  is  something  in  that ;  but  you  want  to  figure 
the  farmers  in  this  way  would  have  a  chance  to  control  this  thing 
if  they  wish  to  that  they  could  not  in  any  other  way.  That  is,  you 
could  not  ask  them  to  put  a  very  large  amount  of  money,  but  they 
could  put  up  a  large  amount  of  credit  between  them. 

Senator  Hollis.  And  that  credit  would  merely  allow  them  to 
borrow  real  money   somewhere   else? 

Mr.  Breitung.  That  is  the  idea. 

Mr.  Ragsdale.  It  is  not  a  thing  on  earth,  as  I  understand,  other 
than  the  system  of  paying  brokerage  in  New  York. 

Mr.   Breitung.  No. 

Mr.  Ragsdale.  Why  not?  The  man  in  New  York  to-day  sells 
credit  to  the  individual  borrower,  and  he  gives  them  the  stock  just 
like  this  railroad  gave  you  the  stock,  and  that  stock  is  your  profit 
for  handling  it.  Now,  the  people  put  up  this  credit — the  same  thing 
that  is  put  up  to-day — and  for  that  credit  they  direct  the  society, 
and  get  a  dividend  on  their  stock  without  having  to  put  up  a  cent. 

Mr.  Breitung.  Just  wait  a  minute.  In  the  first  place,  the  cash 
capital  will  come,  the  larger  percentage  of  it,  from  them. 

Mr.  Ragsdale.  I  am  not  talking  about  the  cash  capital;  I  say  the 
system  is  the  same  as  the  system  in  existence  to-day  ? 
*  Mr.  Breitung.  Yes.     But  if  you  consider,  it  is  redistributed  back 
among  the  people. 

Mr.  Ragsdale.  So  is  the  money  you  are  all  drawing  now. 

Mr.  Breitung.  No  ;  I  am  not  drawing  it. 

Mr.  Ragsdale.  Aren't  you  one  of  the  people? 

Mr.  Breitung.  Yes;  but  not  in  the  sense  you  put  it.  We  are 
looked   upon  as  money  sharks. 

Mr.  Ragsdale.  I  did  not  put  it  that  way. 

Mr.  Breitung.  This  credit  capital  would  be  desired  to  give  the 
farmer,  if  you  will  excuse  the  slang,  what  we  call  a  "  swing."  That 
is,  the  man  worth  $100  or  $200,000  would  have  control  of  this,  in- 
stead of,  as  I  pointed  out  to  you,  as  the  railroad  is  controlled  by 
another  man  who  does  not  do  anything  for  it  but  sell  its  bonds.  He 
does  not  get  this;  it  would  be  redistributed  among  other  people. 

Mr.  Seldomridge.  What  we  are  trying  to  do  here  is  to  build  up  a 
40  per  cent  reserve  of  gold  that  exists  in  the  Glass-Owen  scheme, 
and  then  use  the  credit  to  finance  the  lack  of  cash  capital? 

Mr.  Ragsdale.  If  the  Government  is  going  to  control,  they  have  to 
own  and  operate  and  direct ;  and  if  it  is  going  to  be  a  success,  where 
in  the  world  is  the  wisdom  going  of  going  out  and  paying  the  profits 
to  other  people  who  do  not  put  up  a  cent? 

Mr.  Breitung.  If  the  Government  will  guarantee  it  there  would 
not  be  any  reason  in  the  world  but  what  it  would  be  the  best  thing 
for  the  farmers  of  the  country.  But  if  it  won't,  then  it  ought  to 
allow  some  other  way  to  do  it.  I  would  like  to  have  the  Govern- 
ment guarantee  it  first,  and  then  if  it  won't,  to  have  this  other  plan 
second.     That  is  the  idea. 

Senator  Hollis.  Mr.  Breitung,  your  theory  is  you  have  got  to  have 
a  lot  of  money,  many,  many  millions,  and  you  can  not  get  many,  many 
millions  unless  you  have  a  first-class  security  to  offer.  If  the  Gov- 
ernment would  back  you,  you  could  get  it,  but  if  the  Government 
would  not,  or  would  not  provide  the  law,  then  what  is  the  next  best 
thing? 


332  RURAL    CREDITS. 

Mr.  Breitung.  Yes. 

Mr.  Ragsdale.  It  is  a  simple  thing  if  you  are  going  to  put  in  a 
system  where  they  are  first-class  securities. 

Senator  Hollis.  But  the  question  is  how  can  you  make  them  a 
first-class  security? 

Mr.  Breitung.  I  would  even  admit,  for  the  sake  of  argument,  that 
they  are  first  class.  But  it  is  the  impression  you  have  got  to  make 
on  the  people.  They  can  not  be  open  to  doubt.  Now,  I  am  almost 
certain  that  this  thing  could  be  controlled,  so  far  as  what  is  called 
the  financial  credit,  so  that  it  would  have  over  a  tenth  or  a  twen- 
tieth, and  that  could  be  kept  from  voting,  because  you  would  not 
have  to  offer  it  to  them  unless  you  wished.  They  could  be  offered 
where  you  wished  it  to  go.  But  I  would  say  this,  as  I  have  said  in 
talking  to  Congressman  Moss  here  a  while  ago:  I  thought  it  advis- 
able not  to  give  the  control  of  this  thing  at  any  place  but  to  able 
farmers.  At  the  same  time,  I  would  not  leave  the  other  fellow  out. 
I  would  make  use  of  him  also  and  would  tell  him  to  come  in  and 
take  his  part  of  the  work  and  to  try  to  get  him  to  do  it.  I  would  do 
it  for  two  reasons:  One  is,  why  shouldn't  we  use  his  money  and 
credit  to  a  certain  amount  if  he  is  not  going  to  get  control.  In  the 
second  place,  if  we  do  not  want  him  we  could,  figuratively  speaking, 
knock  him  out  afterwards.  That  is  the  idea.  You  have  the  owner- 
ship, and  you  are  the  director  of  this  thing;  you  have  your  money 
in  it  and  know  all  about  it.  and  why  do  you  want  to  go  into  it  if  it 
is  bad? 

In  other  words,  suppose  you  could  redistribute  back  among  your 
people  these  profits  made  by  the  railroad  underwriters  from  the 
money  of  the  people  in  just  the  district  the  railroad  runs  through 
there  would  not  be  any  very  great  harm  in  it,  but  suppose  those  people 
in  the  districts  that  the  railroad  runs  through  could  have  taken  those 
bonds  and  gotten  the  bonus  of  stock  then  you  would  have  again  what 
I  am  trying  to  do  in  this  place  here.  You  are  quite  right  that  we 
are  to  use  the  same  method,  but  we  are  not  allowing  the  same  people 
to  get  the  profits. 

Mr.  Ragsdale.  In  other  words,  you  think  men  who  are  not  familiar 
with  finance,  who  have  made  no  study  of  this  proposition,  would 
come  in  and  guarantee  this,  or  do  you  think  the  men  of  wealth  and 
the  men  who  have  made  a  life-long  study  of  it  and  are  familiar  with 
it  will  be  the  ones  to  put  up  this  guaranty  ? 

Air.  Breitung.  I  think  this:  The  prominent  men  in  your  different 
States — he  does  not  have  to  be  much  of  a  financier — would  come  in 
and  the  people  would  follow  them  to  a  certain  extent. 

Mr.  Ragsdale.  You  are  not  familiar  with  conditions  in  my  country, 
if  you  think  that. 

Mr.  Breitung.  That  has  been  my  experience. 

Mr.  Platt.  Couldn't  you  get  your  people  to  follow  you  if  you 
went  in? 

Mr.  Ragsdale.  No;  they  would  not;  and  I  would  not  go  in  if  I 
thought  they  would. 

Mr.  Breitung.  My  experience  has  always  been  that  the  people 
followed  somebody  or  some  crowd  in  most  everything  they  do. 

Air.  Ragsdale.  I  think  they  have  been  pretty  good  followers  in 
America  for  a  long  time. 


RURAL   CREDITS.  333 

Mr.  Breitung.  They  have  been  pretty  good  followers.  I  once 
asked  a  well-known  man,  "  How  do  you  regard  a  corporation  that  is 
brought  out  ?  "  He  said,  "  Entirely  by  the  antecedents  of  the  people 
who  bring  it  out." 

Now,  of  course,  I  am  thoroughly  convinced  if  the  Government 
will  do  it,  it  is  not  open  to  argument,  but  if  the  Government  does  not 
wish  to  do  it,  then  why  should  it  stop  it  ?  Couldn't  it  allow  it  to  go 
on  in  some  form  ? 

Mr.  Ragsdale.  To  my  mind,  it  is  inconceivable  that  this  system 
should  be  turned  over  to  a  lot  of  people  who  do  not  put  up  any  money 
and  who  do  not  incur  any  liability  till  all  of  the  original  resources 
have  been  exhausted  and  until  the  Government  has  admitted  its  in- 
ability to  conduct  successfully  a  rural-credit  system. 

Mr.  Breitung.  Suppose  we  draw  the  line  a  little  broader ;  suppose 
we  make  two  corporations  of  them.  Suppose  you  have  one  with  the 
cash  capital  to  conduct  the  business  and  the  other  simply  to  guaran- 
tee it? 

Mr.  Ragsdale.  I  can  not  see  the  necessity  of  that.  It  seems  to  me 
much  wiser  that  if  you  gentlemen  in  New  York,  with  your  bene- 
ficence  

Mr.  Breitung  (interposing).  Oh,  no;  I  do  not  claim  to  be  benefi- 
cient. 

Mr.  Ragsdale  (continuing).  Wish  to  get  up  a  company  and  then 
let  the  rural-credit  companies  deal  with  it  and  pay  the  brokerage,  but 
it  will  be  optional  with  them  and  not  mandatory  under  the  law  to 
pay  a  part  of  the  profits  for  it  if  it  should  become  necessary. 

Mr.  Breitung.  We  would  not  ask  that  they  would  have  to  do  it, 
but  we  would  like  a  law  that  was  to  be  inspected  by  the  United  States 
inspectors  and  under  Government  supervision  to  allow  such  a  cor- 
portion.  That  is  the  only  thing  we  ask  for,  don't  you  see.  That 
would  be  the  only  thing.  And  what  we  want  is  this :  We  could  create 
such  a  corporation  as  that  now,  but  it  would  be  practically  unin- 
spected and  uncontrolled.  We  could  take  any  one  of  the  trust  com- 
panies in  Washington,  or  any  one  in  New  York,  and  go  around  and 
get  credit  capital  behind  it  and  go  into  that  business,  but  there  would 
be  no  State  inspectors,  either  Government  or  State,  that  could  control 
it.  Now,  what  we  think  is  that  a  thing  of  that  kind  is  so  important 
to  all  of  the  people  that  the  Government  should  either  say  to  us  we 
can  not  do  it  at  all  or  to  take  the  inspection  of  it.  I  mean,  they  should 
either  say  it  could  be  done  or  it  could  not. 

Mr.  Ragsdale.  In  other  words,  you  want  to  go  into  the  banking 
business  under  the  national  banking  law,  with  all  the  privileges  and 
powers  which  are  a  part  of  the  national  bank? 

Mr.  Breitung.  No. 

Mr.  Ragsdale.  Other  than  a  deposit  system,  and  not  put  up  any 
money  ? 

Mr.  Breitung.  Oh,  yes.  Oh,  there  is  not  any  question  about 
putting  up  the  money.  Suppose  they  have  fallen  $100,000,000; 
they  would  have  to  put  up  $10,000,000.  Suppose  they  fall  $50,- 
000,000;  they  would  have  to  put  up  $5,000,000.  There  is  no  ques- 
tion about  putting  up  some  money.  The  question  is,  we  could  do 
this  now  under  the  law. 

Mr.  Ragsdale.  I  know. 


334:  BUBAL    CBEDITS. 

Mr.  Breitung.  You  say.  Why  don't  we.  There  is  the  question. 
We  would  be  glad  to  do  this,  but 'one  of  the  reasons  why  we  don't 
is  that  we  would  have  no  inspection. 

Mr.  Ragsdale.  Every  State  in  the  Union  has  an  inspection  law, 
hasn't  it? 

Mr.  Breitung.  Not  covering  these  bonds.  No  State  in  the  Union 
has  a  law  governing  the  inspection  of  bonds  issued  on  debentures. 

Mr.  Ragsdale.  No;  none  that  I  know  of. 

Mr.  Breitung.  No;  there  is  nothing  covering  that.  We  could 
issue  any  kind  of  debentures.  Now.  we  have  found  the  Govern- 
ment inspection  is  a  good  thing  instead  of  a  bad  thing,  for  two 
reasons:  One  is  it  relieves  us  of  a  lot  of  work  and  danger,  and,  in 
the  second  place,  it  gives  confidence. 

Mr.  Ragsdale.  Yes. 

Mr.  Breitung.  That  is  the  idea.  Now,  this  thing  is  so  very 
important  that  the  Government  ought  either  to  take  a  hand  in  it, 
or  tell  us  that  we  could  do  it  and  see  that  any  debenture  which  was 
issued  could  come  up  to  a  certain  standard  and  be  inspected;  be- 
cause if  you  do  not — I  don't  know  whether  you  gentlemen  remember 
the  awful  failure  of  a  land-mortgage  company  which  was  made  in 
America  some  years  ago,  but  we  would  have  that  same  thing  over 
again.  Human  nature  does  not  change  any ;  it  may  be  a  little  more 
varnished,  but  it  is  the  same  when  you  get  down  to  the  bottom; 
so  it  would  be  the  old  idea  of  the  money  lender  over  again,  getting 
all  they  could  and  let  the  thing  smash,  if  necessary. 

Mr.  Bulkley.  Mr.  Breitung,  I  would  be  glad  if  you  would  tell 
us  a  little  more  in  detail  about  the  failure  of  the  land  mortgages 
in  this  country.  We  have  not  anything  very  good  in  the  record 
about  that. 

Mr.  Breitung.  The  land  mortgage  failure  was  brought  about  by 
three  reasons :  In  the  first  place,  the  country  was  rather  wild  and  un- 
settled. 

Mr.  Bulkley.  What  date  are  you  speaking  of? 

Mr.  Breitung.  The  last  one  was  when  the  Lombard  failed. 

Mr.  Bulkley.  Do  you  remember  what  year  that  was  ? 

Mr.  Breitung.  No;  I  do  not. 

Senator  Hollis.  It  preceded  the  campaign  of  1896  a  few  years. 

Mr.  Breitung.  About  that  time.  It  was  brought  about  by  three 
conditions:  One  was  that  the  United  States  was  a  newer  country 
then,  conditions  were  not  well  settled ;  it  was  pretty  hard  to  tell  what 
land  was  worth  and  pretty  hard  to  make  a  judgment  on  it  at  times. 
In  the  second  place,  the  farmer  got  it  into  his  head  that  he  could  do 
what  we  call  rob  the  soil  and  move  on,  and  a  lot  of  them  did  abandon 
their  farms  and  let  them  take  them.  In  the  third  place  they  dealt 
through  an  intermediary,  a  commission  man,  and  the  difference  be- 
tween the  interest  charged  in  the  mortgage — let  us  suppose  it  would 
be  7  per  cent  in  the  mortgage—that  very  mortgage  sometimes  would 
cost  20  per  cent,  sometimes  10,  sometimes  15,  or  sometimes  12. 

Those  three  conditions  together  brought  about  the  failure. 

Mr.  Ragsdale.  Wasn't  there  another  condition? 

Mi\  I'liKiirxG.  Well,  there  was,  a  very  great  reason,  that  the 
farmer  felt  he  was  going  to  lose  his  farm  anyway,  and  he  got  reck- 
less, most  of  them. 

Mr.  Platt.  The  most  profitable  crop  of  a  good  many  farmers  was 
a  mortgage? 


KUEAL    CREDITS.  335 

Mr.  Breitung.  That  is  what  I  was  going  to  say.  The  credit  of  the 
bank  was  always  there  to  issue  bonds,  no  matter  what  they  were 
issued  on.  That  last  point  is  the  more  reason  why  the  States  and 
the  Government  should  have  a  regulation  of  that. 

Mr.  Platt.  Now,  we  have  had  quite  a  little  testimony  here  to  the 
effect  that  the  present  value  of  the  farms  in  this  country  has  in- 
creased 100  per  cent  in  the  last  10  years,  according  to  the  census,  and 
is  on  a  more  or  less  inflated  basis.  Farmers  have  come  in  here  and 
told  us  farms  which  were  less  productive  now  than  they  were  10  years 
ago  are  worth  125  per  cent  higher  prices.  Is  it  safe  to  loan  on  such 
farms  to-day? 

Mr.  Breitung.  My  idea  is  they  are  inflated. 

Mr.  Ragsdale.  From  your  study  of  conditions — you  say  the  land  is 
now  inflated — do  you  believe  it  will  ever  be  any  cheaper? 

Mr.  Breitung.  Yes. 

Mr.  Ragsdale.  You  do? 

Mr.  Breitung.  Yes.  Now,  of  course  that  may  be  a  mistake,  but 
I  will  tell  you  why  I  think  it  will  be:  The  world  is  getting  nearer 
together  all  the  time ;  the  great  grain  fields  of  South  America,  Can- 
ada, and  Russia  will,  within  the  next  10  or  20  years,  be  practically  at 
our  call,  because  freights  will  get  cheaper  as  the  handling  power  gets 
cheaper. 

Mr.  Ragsdale.  You  say  freight  will  get  cheaper,  in  view  of  the 
fact  that  the  railroads  are  now  asking  for  an  increased  freight  rate? 

Mr.  Breitung.  They  are  now  asking  for  an  increased  freight  rate 
for  the  reason  they  are  in  bad  shape  over  here.  Now,  it  is  not  for  me 
to  defend  the  railroads 

Mr.  Ragsdale.  Oh,  no. 

Mr.  Breitung  (continuing).  And  I  am  not  going  to  try  it,  but  I 
just  want  to  say,  point  out  a  country  where  they  handle  freight  as 
cheaply  as  they  do  in  the  United  States. 

Mr.  Ragsdale.  Of  course  that  does  not  benefit  the  United  States. 

Mr.  Breitung.  No  ;  .but  that  is  a  test. 

Mr.  Weaver.  Don't  you  think  land  will  increase  in  value  with  the 
increased  population  in  our  country? 

Mr.  Breitung.  Much  slower  than  we  expect.  I  will  give  you  some 
little  reason  for  that.  We  have  been  robbing  the  farms;  that  is  the 
trouble.  The  real  truth  is  we  have  been  taking  out  and  putting 
nothing  back.  Now,  that  has  got  to  be  put  back  before  the  farm  is 
of  any  real  value.  Half  of  the  farms  in  the  United  States  are  not 
giving  half  of  the  crop  they  should.  Now,  it  is  going  to  cost  a  large 
amount  of  money  to  put  back  the  farms  where  they  will  give  a  full 
crop,  and  that  amount  of  money  has  got  to  come  out  of  the  actual 
value  of  the  land.  I  do  not  mean  a  new  farm  that  has  not  been 
worked  is  not  a  good  one,  but  take  one  that  has  been  worked  for  25 
years  and  very  little  put  back.  And,  taking  the  aggregate  of  the 
farms  altogether,  there  is  an  inflation.  And  you  see,  here  is  the 
thing  that  has  kept  the  inflation  up:  The  assessor  in  most  of  our 
farm  communities  assessed  this  farm  when  it  was  a  big  producer 
at  one  time  and  and  he  has  not  put  it  down. 

Now,  I  know  I  am  talking  too  long  and  that  you  gentlemen  want 
to  get  through,  and  I  want  to  beg  your  pardon  for  going  into  this  at 
such  length,  and  I  want  to  supplement  this  with  some  pamphlets 
that  I  have  written. 


336  RURAL    CREDITS. 

I  think  that  I  can  show  you  gentlemen  this  thing  here  would  put 
it  in  the  hands  of  the  farmers.  That  is  where  I  understand  it  wants 
to  be.  And  you  would  have  to  hire  a  certain  number  of  bankers 
and  experts  to  run  the  machinery  just  as  you  have  the  electrician 
here  to  run  the  electricity  and  do  other  things.  That  is  the  idea. 
You  must  have  some  specialists  in  that  line  who  would  handle  the 
accounting  under  the  comptroller. 

Senator  Hollis.  You  recommended  a  substitute  bill  to  Senator 
Fletcher.  Will  you  tell  for  the  record  what  your  connection  has 
been  with  rural  credits,  and  wherein  your  interest  lies  ? 

Mr.  Breitung.  My  interest  lies — in  other  words,  I  became  in- 
terested in  this  way,  through  Mr.  Herrick,  of  Cleveland,  who  I  have 
known  for  years. 

Senator  Hollis.  You  mean  Myron  Herrick? 

Mr.  Breitung.  Yes.  He  came  to  me  one  day  and  said  "  You  have 
got  to  go  to  Paris."  I  said,  "  Why ;  I  don't  want  to  go  to  Paris." 
He  said,  "  You  have  got  to  go  with  me."  I  said,  "  If  it  is  a  pleasure 
trip  I  will  go."  He  said,  "No;  I  want  somebody  who  is  familiar 
with  figures,  and  I  know  you  are  an  engineer  and  can  get  at  those 
figures,  and  get  at  the  real  inside  of  what  is  happening  over  there," 
and  he  said,  I  am  familiar  with  the  way  you  make  reports."  For 
instance,  he  said,  "  I  know  you  are  always  from  Missouri,  and  I 
want  to  know  what  these  things  mean  in  Europe." 

Senator  Hollis.  What  particular  thing  ? 

Mr.  Breitung.  Rural  credits,  farm  credits.  And  after  a  while — 
he  has  always  been  a  good  friend  of  mine — I  consented  to  go. 

Senator  Hollis.  You  were  on  the  commission  ? 

Mr.  Breitung.  I  was  on  the  commission  and  went  all  over  this 
carefully. 

Mr.  Ragsdale.  I  believe,  if  you  will  pardon  me,  you  offered  your 
views  to  the  commission  and  they  did  not  care  to  adopt  them? 

Mr.  Breitung.  Yes ;  I  offered  my  views  to  the  commission  and  they 
did  not  act  on  them.  The  fact  is,  they  could  hardly  be  expected  to 
do  so.  A  bill  of  that  kind  has  got  to  be  introduced  and  thrashed 
out.     It  took  the  currency  bill  now  many  years  to  be  thrashed  out  ? 

Mr.  Ragsdale.  Not  very  long  after  the  Democrats  got  in  power. 

Mr.  Breitung.  No;  but  it  took  a  long  time,  and  it  was  perfectly 
right.  It  was  thrashed  out  in  committees,  and  then  it  was  up  for 
discussion.  Now,  I  will  tell  you  what  I  really  think  ought  to  be  done. 
Of  course  it  is  not  for  me  to  say ;  but  what  I  really  think  ought  to  be 
done,  we  ought  to  have  one  line  of  bills  along  the  line  as  laid  down 
by  Senator  Fletcher  and  his  assistants,  and  there  ought  to  be  another 
one  along  the  line  of  using  credit  capital.  In  other  words,  they  can 
thrash  it  out  in  two  ways  and  then  agree  on  it.  Of  course  I  could 
not  say  that  when  I  was  arguing  to  Senator  Fletcher's  committee, 
because  I  had  to  make  an  argument  for  some  one  plan.  But  now  it 
has  gotten  in  here,  where  it  is  going  to  be  amended  from  all  sides, 
and  it  is  the  proper  thing  to  do. 

Mr.  Bulkley.  Is  there  any  difference  in  the  risk  on  farm  loans  in 
the  United  States  and  Europe? 

Mr.  Breitung.  Yes;  it  is  greater  in  the  United  States. 

Mr.  Bulkley.  The  risk  is  greater  ? 

Mr.  Breitung.  Yes ;  there  is  more  risk  in  the  United  States. 

Mr.  Bulkley.  Why  is  that,  Mr.  Breitung? 


RURAL    CREDITS.  337 

Mr.  Breitung.  The  reason  is  that  the  farmer  in  Europe  has  for  so 
long  a  time  agreed  to  it,  to  keep  his  land  up  to  a  certain  condition, 
that  he  always  does  it.  If  he  takes  $10  out  of  his  land  in  crops,  he 
places  it  back  in  fertilizer  so  that  it  will  leave  the  soil  the  same,  so 
that  the  farm  will  be  the  same  to  day  and  in  1,000  years  in  produc- 
tion.    He  does  not  rob  it  in  any  way. 

Mr.  Ragsdale.  And  you  think  with  the  climatic  conditions  and 
greater  fertility  of  the  soil  and  the  comparative  intelligence  of  the 
American  citizen  and  the  peasant  of  Europe  that  it  is  more  of  a  risk 
in  America  than  in  Europe  ? 

Mr.  Breitung.  Yes;  undoubtedly. 

Mr.  Platt.  There  is  no  doubt  about  that? 

Mr.  Breitung.  No  ;  there  is  no  doubt  about  that. 

Mr.  Platt.  You  are  absolutely  right  about  that,  undoubtedly? 

Mr.  Breitung.  Oh,  yes;  I  do  not  want  to  cast  any  reflection  upon 
the  intelligence  of  our  farmers,  but  the  other  man  has  been  brought 
up  that  way,  and  we  are  largely  creatures  of  habit  and  follow  the 
course  we  got  started  on. 

Mr.  Ragsdale.  Is  it  not  a  fact  in  Russia 

Mr.  Breitung  (interposing).  Russia  is  not  a  European  country. 

Mr.  Ragsdale.  You  are  testifying  as  to  Europe  and  America? 

Mr.  Platt.  You  did  not  hear  Dr.  Coulter's  testimony,  did  you? 

Mr.  Ragsdale.  Yes;  I  did;  but  he  testifies  now  that  it  far  more 
of  a  risk  in  America  to-day  than  in  Europe. 

Mr.  Breitung.  But  Russia  is  not  regarded  as  European.  I  will 
appeal  to  the  doctor  on  that. 

Dr.  Coulter.  Russia  is  an  exception.  I  think  Mr.  Breitung  has 
in  mind  France,  Germany,  and  Italy. 

Mr.  Breitung.  Yes. 

Mr.  Bulkley.  Do  the  farmers  in  Continental  Europe  earn  a 
higher  return  on  the  investment  in  land  than  our  farmers? 

Mr.  Breitung.  I  think  they  do.  My  memory  is  they  do.  The 
doctor  probably  remembers.     I  think  they  do. 

Mr.  Ragsdale.  Oh,  no. 

Mr.  von  Engelken.  I  think  you  are  mistaken  about  that. 

Mr.  Breitung.  Probably  I  am.  This  much  I  believe,  though,  that 
it  is  much  safer.    It  is  safer;  I  feel  very  certain  of  that. 

Mr.  Bulkley.  If  they  could  not  earn  a  larger  interest  on  the  in- 
vestment that  would  not  seem  to  make  it  safer. 

Mr.  Breitung.  No  ;  it  would  not.  But,  as  I  understand,  our  farm- 
ers here  are  more  liable  to  change  and  we  have  not  the  same  rules. 
I  presume  if  we  could  get  them  inoculated  with  the  same  ideas  they 
have  in  Europe  to  keep  the  farm  up  to  the  same  condition  it  would 
be  so — it  would  be  better  here.    But  I  am  speaking  of  it  as  it  is  now. 

Mr.  Woods.  You  spoke  of  the  return  on  the  investment.  Do  you 
mean  the  net  return? 

Mr.  Breitung.  Yes. 

Mr.  Woods.  Not  the  gross  return? 

Mr.  Breitung.  I  meant  the  net  return,  of  course. 

Mr.  Ragsdale.  Don't  you  think  the  farming  has  advanced  in  the 
last  10  years  in  America  more  than  it  has  in  the  same  period  of  time 
anywhere  else  in  the  world? 
37031—14 22 


338  RURAL    CREDITS. 

Mr.  Breitung.  You  say  farming  has? 

Mr.  Ragsdale.  Farming  as  a  whole. 

Mr.  Breitung.  It  has  made  more  rapid  strides. 

Mr.  Ragsdale.  Has  it  not  advanced  more?  Just  simply  take  10 
years  ago  and  now,  in  the  old  country  and  here,  and  has  it  not  ad- 
vanced over  here  in  America  more  than  in  any  country  in  the  world  ? 

Mr.  Breitung.  You  mean  we  are  further  ahead  of  them — how  ad- 
vanced during  that  period? 

Mr.  Ragsdale.  I  mean  made  more  progress  during  the  past  10 
37ears  than  any  other  country  in  the  world. 

Mr.  Breitung.  You  mean  advanced  in  machinery? 

Mr.  Ragsdale.  I  mean  advanced  further  from  a  given  point — the 
point  where  we  are  now  and  where  we  were  then,  10  years  ago. 

Mr.  Breitung.  That  is  true. 

Mr.  Ragsdale.  And  don't  you  believe,  now,  under  the  present  di- 
rection of  the  Agricultural  Department,  we  are  on  the  eve  of  the  big- 
gest advance  we  have  ever  made? 

Mr.  Breitung.  I  do. 

Mr.  Ragsdale.  Then  why  should  there  be  any  appreciation  in  risk 
with  this  wise  control  by  the  Agricultural  Department,  when,  by  your 
own  statement,  our  advance  is  greater  than  any  other  country  in  the 
world  ? 

Mr.  Breitung.  Here  is  the  reason :  I  do  not  want  to  enter  on  a  dis- 
cussion, but  maybe  the  doctor  will  bear  me  out  when  I  say  it  is  gener- 
ally true  that  the  net  return  on  the  farm  in  Europe  is  greater  than  in 
the  United  States,  when  you  consider  the  market  systems. 

Dr.  Coulter.  It  is  much  more  stable  and  much  more  regular. 

Mr.  Breitung.  Yes ;  and  they  are  much  more  sure  of  their  returns. 

Dr.  Coulter.  Yes ;  they  are  much  more  sure  of  their  returns. 

Mr.  Breitung.  And  then,  you  have  to  remember,  when  you  con- 
sider the  difference  of  the  market  systems,  he  comes  very  close  to 
getting,  if  he  does  not  really  get  more  net. 

Mr.  Coulter.  That  is  pretty  hard  to  say;  but  I  think,  without 
doubt,  it  is  much  more  stable,  much  more  regular,  and  the}7  are  much 
more  sure  of  their  returns  and  there  is  less  uncertainty  than  we  have. 

Mr.  Breitung.  There  is  no  doubt  about  it. 

Mr.  Coulter.  We  run  to  all  extremes  ? 

Mr.  Breitung.  You  have  made  the  very  argument  I  menu :  that 
being  more  regular,  it  is  safer. 

Mr.  Coulter.  I  think,  without  doubt,  it  is  safer. 

Mr.  Breitung.  Have  you  ever  figured  what  the  farmer  actually 
gets,  and  have  you  figured  that  very  often  our  farmers  have  burned 
or  thrown  their  crop?  away;  and  they  do  not  have  to  do  that  in 
Europe?  With  all  due  deference  to  you  two  gentlemen — I  do  not 
remember  the  figures,  and  it  is  hard  to  get  accurate  figures — but 
these  two  gentlemen  know  and  I  am  still  a  little  in  doubt  as  to 
whether  the  net  of  the  European  farmer  is  not  as  great  or  greater 
than  over  here,  when  you  consider  the  facilities  and  that  our  farmers 
must  burn  their  crops  at  times  and  can  not  move  them  at  times. 

Mr.  Coulter.  Considering  conditions? 

Mr.  Breitung.  Yes;  considering  what  an  American  can  live  on 
over  here  and  then  that  a  dollar  goes  twice  or  three  times  as  far 
over  there.    That  is  the  idea. 


RURAL    CREDITS.  339 

Mr.  Ragsdale.  In  other  words,  when  you  consider  how  they  live 
and  how  we  live,  but  not  what  a  man  can  live  on  ? 

Mr.  Breitung.  Yes.  After  all,  I  am  not  so  sure  I  am  very  far  from 
it.  Of  course  I  do  not  want  to  dispute  it,  but  I  am  not  certain ;  but 
that  is  the  way  I  figure,  that  the  European  farmer  over  there,  taking 
the  regular  conditions,  the  regular  market,  and  everything  else,  does 
not  really  get  more  net  out  of  it,  without  what  is  costs  to  live,  than 
our  farmers  do. 

Mr.  Coulter.  That  may  be  true. 

Mr.  Platt.  Have  the  farm-credit  associations  over  there  added  to 
that? 

Mr.  Breitung.  Yes ;  that  is  true ;  very  much.  Now,  what  I  would 
like  to  say  to  you  is  that  there  is  no  attempt  to  do  what  you  think, 
for  a  certain  class  to  get  control  of  this. 

Mr.  Ragsdale.  Oh,  no. 

Mr.  Breitung.  The  attempt  is  the  other  way  around. 

Mr.  Ragsdale.  I  am  suggesting  that;  I  am  stating  what  I  believe 
to  be  the  risk,  that  is  all. 

Mr.  Breitung.  I  know  what  you  mean — that  these  men  have  the 
credit  and  they  would  lend  it? 

Mr.  Ragsdale.  They  would  sell  it. 

Mr.  Breitung.  They  would  sell  it,  and  the  other  men,  even  if  they 
had  it,  would  not  be  willing  to  sell  it. 

Mr.  Ragsdale.  Would  not  do  it? 

Mr.  Breitung.  Would  not.    There  may  be  something  in  that. 

(In  order  to  preserve  the  continuity  of  his  argument,  the  statement 
of  Mr.  von  Engelken,  made  at  to-day's  hearing,  has  been  placed  at 
the  beginning  of  the  proceedings  of  the  session  of  February  27, 1914.) 

(Thereupon,  at  1.05  o'clock  p.  m.,  the  committee  adjourned  until 
to-morrow,  Friday,  February  27,  1914,  at  10.30  o'clock  a.  m.) 


FRIDAY,   FEBRUARY  27,    1914. 

United  States  Senate, 

Washington,  D.  C. 
The  subcommittees  met  in  joint  session  at  10.30  o'clock  a.  m.,  Hon. 
Henry  F.  Hollis  presiding. 

Present:  Representatives  Bulkley,  Stone.  Seldomridge,  Woods, 
Piatt,  and  Moss. 

STATEMENT  OF  F.  J.  H.  VON  ENGELKEN,  OF  FLORIDA. 

PROCEEDINGS  OF  THURSDAY,  FEBRUARY   2  6,    1914. 

Mr.  von  Engelken.  Mr.  Chairman,  I  was  a  member  of  the 
American  commission,  and  I  find  now  I  was  the  only  member  of  the 
American  commission  who  spoke  a  foreign  language  sufficiently  well 
to  get  any  real  information  from  the  people  direct.  I  conducted  an 
investigation,  therefore,  that  was  somewhat  different  from  the  inves- 
tigation conducted  by  the  commission  as  a  whole,  because  I  knew 
that  practically  all  they  would  get  in  the  hearings  that  were  to  be 
held  would  be  figures  and  statistics,  which  we  already  had  in  this 
country.  What  I  wanted  to  get  more  than  anything  else  was  to  ac- 
quire an  insight  into  the  habits  and  the  lives  and  the  characteristics 
of  the  people  under  which  this  system  had  flourished  and  then  make 
a  comparison  in  order  to  see  whether  what  had  been  so  very  success- 
ful over  there  could  be  transferred  to  our  conditions  with  any  degree 
of  success.  Therefore  I  spent  most  of  my  time  in  Germany  in  the 
country  living  with  the  farmers  in  their  homes.  Congressman  Moss 
accompanied  me  there  for  some  time. 

Now,  I  may  say  in  the  beginning,  that  I  am  in  favor,  as  one  of 
the  authors  of  the  minority  report,  of  the  underlying  principles  of 
the  report  of  the  United  States  commission.  Our  report  deals 
largely  with  the  means  by  which  this  system  is  to  be  established, 
because  we  felt  there  were  certain  weaknesses  in  the  plan  as  outlined 
here  which  would  militate  against  securing  that  confidence  on  the 
part  of  the  investor  which  is  going  to  be  essential  if  the  system  is 
a  success. 

Mr.  Bulkley.  Can  you  tell  us  how  many  joined  in  the  minority 
report? 

Mr.  von  Engelken.  Mr.  Jones,  of  Denver,  and  myself  wrote  this 
minority  report,  and  it  was  sent  around  and  has  six  signatures. 

Mr.  Bulkley.  Out  of  how  many  members? 

Mr.  von  Engelken.  Can  you  tell,  Dr.  Coulter? 

Mr.  Coulter.  There  were  79  members. 

Mr.  von  Engelken.  There  were  29  members  in  favor  of  the  ma- 
jority report  and  6  for  the  minority,  and  the  balance  took  no  action. 
340 


RURAL    CREDITS.  341 

Mr.  Coulter.  There  were  about  18  or  20  who  wrote  in  and  ex- 
pressed their  views,  and  the  majority  of  the  commission  was  in  ses- 
sion here  when  the  action  was  taken. 

Mr.  von  Engelken.  The  minority  report  differs  from  that  of  the 
majority  in  this  particular:  This  report  is  a  minority  report,  really, 
of  the  majority  report  of  the  American  commission  of  the  United 
States  commission's  report. 

The  first  part  of  this  report  outlines  some  of  the  objections  which 
the  minority  has  to  the  modified  suggestion  in  the  report  of  the 
majority  of  the  commission  that  cooperative  credit  should  be  en- 
couraged in  this  country  at  this  time.  Personally  I  am  unalterably 
opposed  to  that,  except  under  proper  guidance  and  supervision. 
The  majority  of  the  American  commission  made  no  specific  recom- 
mendations ;  and  as  Mr.  Jones  and  I  picked  some  flaws  in  this  United 
States  commission's  bill,  to  which  I  shall  refer  later  on,  we  embodied 
in  our  minority  report  also  a  plan  which  has  the  same  principles 
as  the  plan  of  the  United  States  commission,  but  differs  in  some 
minor  essentials  which  we  think  tend  rather  to  safety. 

Now,  I  may  also  say  here  that  I  am  opposed  as  a  farmer  to  the 
creation  of  any  system,  through  Government  means  or  aid,  for  the 
purpose  of  establishing  short-time  credit  institutions.  And  as  I  go 
on  I  would  appreciate  it  if  you  gentlemen  would  question  me  on  that 
subject,  because  I  have  very  decided  views  on  it.  The  principal  one 
is  I  do  not  see  any  need  for  it. 

Mr.  Platt.  You  are  referring  now  to  personal  credit? 

Mr.  von  Engelken.  Yes,  sir ;  I  am  referring  to  personal  credit.  I 
understand  President  Wilson  has  approved  it,  and  I  am  sorry  to 
differ  with  him. 

Taking  up  this  bill  now — that  is  the  thing  we  really  have  under 
discussion,  isn't  it — the  United  States  commission's  plan  ? 

Mr.  Bulkley.  The  subject  generally  is  under  discussion.  A  great 
deal  of  the  discussion  has  been  directed  to  the  Fletcher-Moss  bill, 
but  I  would  be  glad  to  have  you  make  any  remarks  you  please  on 
the  subject,  whether  they  are  directly  applicable  to  that  bill  or  not. 

Mr.  von  Engelken.  I  want  to  refer  particularly  to  this  bill,  be- 
cause I  think  it  embodies  more  that  is  good  than  anything  that  I 
have  seen  on  the  subject. 

Mr.  Bulkley.  That  is  the  assumption  that  we  have  been  working 
on,  but  we  have  not  in  any  way  committed  ourselves  to  that  bill. 

Mr.  von  Engelken.  One  of  the  fundamental  weaknesses  to  this 
bill  is,  in  my  opinion,  that  in  the  first  place  it  provides  for  a  commis- 
sioner of  farm-land  banks,  who  is  to  receive  a  salary  of  $6,000  a  year. 
Now,  let  me  say  in  the  beginning  that  I  have  tried,  in  considering 
this  bill,  to  eliminate  myself  as  a  farmer  and  put  myself  in  the  place 
of  an  investor,  because  you  gentlemen  are  really,  in  the  last  analysis, 
holding  a  brief  not  for  the  farmers,  but  for  the  investor. 

If  you  can  secure  the  immediate  confidence  of  the  investor  any  sys- 
tem almost  that  you  can  devise  will  supply  the  farmer  with  the 
money.  You  might  devise  a  system,  maybe,  to  provide  farm  mort- 
gages, but  unless  that  system  absolutely  appeals  to  the  confidence 
of  the  investor  it  will  fall  of  its  own  weight. 

From  the  standpoint  of  a  bond  buyer,  the  first  weakness  in  this 
bill  is  that  you  have  a  system  which  is  to  provide  an  outlet  for 


342  BUBAL    CEEDITS. 

$2,000,000,000,  we  will  say,  in  round  figures,  of  farm-mortgage  se- 
curities. The  Government  undertakes  to  act,  in  a  measure,  as  a 
guardian  between  the  investor  and  the  farmer,  through  a  system  of 
inspection.  In  other  words,  it  attempts  to  insure  the  investor  that 
there  has  been  an  inspection  made  of  the  security  offered  and,  as 
far  as  can  be  ascertained,  it  is  good. 

Now,  you  have  here  provided  for,  in  Washington,  one  man  draw- 
ing $6,000  a  year  to  stand  between  the  investing  public  and  the  pos- 
sible issue  of  $2,000,000,000  of  bonds,  and  at  the  particularly  un- 
fortunate time  when  the  system  is  to  be  inaugurated,  you  see.  If 
you  get  a  system  started  and  its  works,  one  man  can  probably  handle 
it,  but  at  its  inception,  when  everything  must  be  done  and  must  be 
built  from  the  ground  up  at  the  outset,  it  certainly  will  require  more 
men,  who  can  handle  this  properly  and  have  the  ability  to  under- 
stand it,  than  one  man.     That  is  one  of  the  first  weaknesses. 

Take  your  currency  system,  for  instance.  For  the  elaborate  sys- 
tem you  have  built  up,  you  have  a  board  here  and  the  Federal  reserve 
banks  to  pass  upon  the  security  in  lieu  of  which  currency  shall  be 
issued.  Bonds  are  money,  although  they  certainly  are  not  legal 
tender,  but  in  any  event  what  is  good  for  the  goose  is  good  for  tb*" 
gander. 

Mr.  Platt.  This  provision  for  the  farm-land  bank  refers,  I  tr 
it,  to  a  man  similar  to  the  Comptroller  of  the  Currency  ? 

Mr.  von  Engelken.  Yes;  but  under  the  Comptroller  of  the  «\ 
rency  is  this  Federal  reserve  board. 

Mr.  Bulkley.  It  is  not  exactly  under  him,  but  rather  controls  v. 
whole  organization. 

Mr.  von  Engelken.  It  is  part  and  parcel  of  the  organization,  and 
that  board  has  on  its  hands  now  the  work  of  inaugurating  the  system, 
hasn't  it? 

Mr.  Platt.  Yes. 

Mr.  von  Engelken.  And  as  far  as  I  can  ascertain  the  amount  of 
currency  issued  in  this  country  at  any  one  time  is  certainly  less  than 
a  billion  dollars.  And  here  is  an  issue  of  bonds  which  may  be  twice 
as  much,  and  yet  you  provide  no  vehicle  for  the  establishment  of  that 
system,  particularly  in  view  of  the  fact  that  you  are  dealing  with  a 
class  of  people  who  have  absolutely  no  experience  in  it,  whereas  in 
the  currency  bill  you  are  dealing  with  bankers  and  men  of  affairs 
and  men  who  can  readily  grasp  the  proposed  change. 

Mr.  Bulkley.  Of  course,  the  amount  of  currency  outstanding  at 
any  one  time  is  no  measure  of  the  difficulties  in  administration.  In 
a  commercial  banking  system  the  turnover  of  securities  is  much  more 
rapid. 

Mr.  von  Engelken.  I  understand  that;  but  the  main  idea  I  was 
trying  to  bring  out  was  the  fact  it  would  require  more  men  here  in 
Washington  and  a  more  comprehensive  head,  because  the  farmers 
must  be  led. 

Mr.  Platt.  Your  idea  is  that  it  should  be  a  board? 

Mr.  von  Engelken.  A  board,  at  least. 

Mr.  Platt.  I  do  not  understand  it  is  the  office  of  this  bill  that  these 
banks  will  necessarily  be  organized  in  very  great  numbers  all  at  once, 
but  that  they  will  be  somewhat  of  a  slow  growth.  In  the  first  place, 
some  of  the  States  will  have  to  pass  certain  legislation  before  they 


EUEAL    CEEDITS.  343 

can  be  organized  in  those  States,  simplifying  title  registration  and 
abolishing  mortgage  taxation. 

Mr.  von  Engelken.  I  can  not  believe  that.  When  this  bill  is 
passed — and  I  believe  it  will  be  workable  when  it  is  passed — there 
will  be  a  certain  effort  through  the  country  to  enable  the  farmers  to 
take  advantage  of  it,  because  the  thing  is  very  pressing. 

Mr.  Platt.  Is  it  true  that  the  need  isAany  more  pressing,  particu- 
larly at  this  time,  than  it  has  been  at  any  time  within  the  past  25 
years,  we  will  say?  Farmers  to-day  are  more  prosperous  than  ever 
before,  and  land  values  have  enhanced,  and  they  are  getting  more 
for  their  products. 

Mr.  von  Engelken.  But,  you  see,  the  greatest  thing  in  the  world 
that  is  keeping  the  farmers  in  business  is  the  improvement  in  land 
values. 

Mr.  Platt.  I  agree  with  you  on  that.  I  think  it  has  been  the  un- 
earned increment. 

Mr.  von  Engelken.  That  has  been  the  salvation.  If  land  values 
had  remained  the  same  or  gone  down  under  the  slipshod  methods  of 
farming,  a  large  number  of  farms  would  be  untenanted. 

Mr.  Platt.  And  at  the  same  time  the  values  have  gone  up,  and 
because  the  products  have  gone  up  the  farmer  is  getting  more  than 
he  ever  has  in  the  past,  even  in  the  Civil-War  days. 

Mr.  von  Engelken.  That  is  very  true.  And  when  I  say  the  need 
is  pressing  at  this  time  I  do  not  mean  to  say  it  is  more  pressing.  It 
has  been  pressing  all  along  during  the  last  generation. 

Mr.  Platt.  You  do  not  mean  to  say  there  is  any  pressing  need  at 
the  present  time  that  requires  a  desperate  action  ? 

Mr.  von  Engelken.  No;  I  do  not  say  if  this  system  is  not  inaugu- 
rated within  a  year  or  two  a  great  many  of  the  farmers  are  going  out 
of  business.  They  will  manage  to  get  along  just  as  they  have  in 
the  past.  But  I  say  this,  that  the  farmers  are  bringing  a  pressure 
to  bear  upon  the  legislatures  to  enable  them  to  take  advantage  of 
the  means  necessary  and  make  it  advantageous  for  their  use;  and 
even  the  farmers  who  have  mortgages  on  their  land  now  will  trans- 
fer their  mortgages  as  fast  as  they  can  into  a  system  where  they  can 
get  a  better  mortgage  rate  with  the  amortization  plan. 

Mr.  Platt.  I  am  not  so  sure  of  that.  I  think  a  good  many  of  them 
will,  but  I  do  not  think  they  all  will. 

Mr.  von  Engelken.  Of  course,  I  do  not  mean  to  indicate  they  all 
will,  but  from  my  experience  I  think  a  good  many  of  them  will. 

Mr.  Platt.  Take,  for  instance,  States  like  Illinois,  Indiana,  Ohio, 
Pennsylvania,  and  New  York,  where  the  rate  of  interest  paid  is  less 
than  6  per  cent,  or  along  in  the  neighborhood  of  6  per  cent.  Under 
this  system  the  farmers  will  not  get  much  cheaper  rates  than  that, 
if  any. 

Mr.  von  Engelken.  That  brings  up  a  point  I  was  going  to  come  to 
a  little  later  on.  I  feel  you  must  get  away,  really,  in  the  considera- 
tion of  this  problem,  from  those  Central  States,  because  the  farm- 
ing in  those  States  is  not  new.  They  are  older  States  and  the  agri- 
culture is  established,  and  a  system  of  this  sort  will  not  make  an 
appeal  to  them  that  it  will  to  the  Southern  States  and  the  Western 
States,  and,  in  fact,  all  of  the  newer  States,  you  see. 


344  RURAL    CREDITS. 

Mr.  Piatt.  I  think,  judging  from  my  knowledge  of  the  •farmers 
of  the  Eastern  States,  that  they  would  probably  be  in  a  better  posi- 
tion to  take  advantage  of  a  system  like  this  and  organize  it  than  in 
the  newer  States. 

Mr.  von  Engelken.  I  do  not  quite  see  that. 

Mr.  Platt.  The  conditions  are  more  stable  and  they  have  more  to 
invest  themselves  in  it. 

Mr.  von  Engelken.  You*meaii  that  the  farmers  have  more  to 
invest  themselves? 

Mr.  Platt.  Yes.  I  do  not  think  the  farmers  of  the  Eastern  States 
are  as  well  off,  perhaps,  as  they  are  in  some  of  the  Central  Western 
States,  like  the  Dakotas  and  Iowa,  for  instance.  Perhaps  the  farmers 
in  those  sections  are  better  off  than  they  are  in  New  York  and 
Pennsylvania.    I  think  they  are,  as  a  rule. 

Mr.  von  Engelken.  You  mean  in  the  corn  belt  ? 

Mr.  Platt.  Yes. 

Mr.  von  Engelken.  What  I  was  trying  to  indicate  was  that  the 
spread  of  this  movement  would  probably  be  most  pronounced  in  the 
less  wealthy  States,  perhaps  along  the  Atlantic  coast,  in  the  South, 
and  West. 

Mr.  Platt.  They  have  got  to  find  the  capital  to  organize  the  banks 
from  somewhere. 

Mr.  von  Engelken.  Yes;  I  know  they  do.  But  in  this  minority 
report  there  we  have  submitted  a  plan  which  will  in  a  measure  assist 
the  farmer  in  getting  his  capital. 

Mr.  Platt.    Yes. 

Mr.  von  Engelken.  The  next  point,  gentlemen,  in  this  matter  is 
the  proposition  to  allow  any  10  farmers  to  open  a  bank.  I  can  not 
agree  with  that  at  all.  In  the  first  place,  you  must  take  into  consid- 
eration that  the  farmer  is  the  greatest  of  optimists  and  also  the 
greatest  of  pessimists  in  the  world.  Mentally  he  has  not  the  balance 
that  the  business  man  must  have  to  be  a  successful  business  man. 

Mr.  Platt.  What  do  you  mean  by  being  the  greatest  optimist  and 
at  the  same  time  the  greatest  pessimist? 

Mr.  von  Engelken.  I  mean  a  farmer  acts  a  great  deal  in  this  way : 
He  is  subject  to  so  many  conditions  over  which  he  has  no  control. 
If  he  has  two  or  three  days  of  rain,  you  can  meet  the  farmers  on  the 
road  and  every  one  will  be  a  pessimist  for  the  time  being — the  crops 
are  ruined,  and  they  don't  know  what  they  are  going  to  do,  and  so 
forth  and  so  on.  Then  the  thing  changes.  I  have  just  gone  through 
such  an  experience  at  home  within  the  last  two  or  three  days.  Then 
pretty  soon  the  crops  will  grow  up  a  little  better  and  the  sun  will 
shine,  and  then  they  get  very  optimistic  and  they  are  going  to  have 
great  big  crops,  and  so  forth  and  so  on.  And  so  they  go  from  extreme 
to  the  other — from  an  extreme  pessimist  to  an  extreme  optimist — 
without  that  balance  of  mentality  which  is  part  and  parcel  of  a  sane, 
conservative  business  man. 

Now,  then,  the  proposition  is  to  let  these  farmers  open  a  bank — 
independent— and  then  go  out  into  the  open  market  and  sell  bonds. 
And  these  10  farmers,  or  more,  are  to  appoint  a  committee  of  three 
who  are  to  appraise  the  property,  and  that  is  the  only  restriction 
made  upon  the  amount  to  bemoaned  upon  this  property — the 
appraisement  of  these  three  farmers.    And  I  do  not  believe  that  this 


RURAL    CREDITS.  345 

would  encourage  any  degree  of  investment  in  farm-land  mortgage 
bonds,  particularly  when  they  are  issued  by  the  little  local  banking 
institutions  fighting  among  themselves  for  such  portion  of  the  bond 
market  as  may  happen  to  be  available.  In  the  first  place,  the  thing 
is  going  to  fall  to  pieces,  because  they  could  not  get  50  for  their 
bonds,  if  they  sold  them  at  all. 

Mr.  Bulkley.  Would  you  buy  the  stock?  Is  that  an  attractive 
investment  ? 

Mr.  von  Engelken.  The  stock  of  these  banks? 

Mr.  Bulkley.  Yes. 

Mr.  von  Engelken.  It  would  not  appeal  to  me  as  a  farmer. 

Mr.  Bulkley.  How  do  you  think  it  would  be  received  in  the  com- 
munity where  you  live?     You  live  in  Florida,  do  you  not? 

Mr.  von  Engelken.  Yes;  I  live  in  Florida. 

Mr.  Bulkley.  How  do  you  think  it  would  be  received  there  ? 

Mr.  von  Engelken.  I  will  tell  you  what  I  think  upon  that,  Mr. 
Bulkley.  If  this  bill  went  through  our  farmers  would  perhaps  get 
together  and  raise  $10,000,  because  the  farmers  down  there,  with 
very  few  exceptions,  are  not  very  familiar  with  the  underlying  eco- 
nomic principles  of  finance.  They  would  look  at  this  and  say,  "  The 
Government  has  looked  into  this  thing  and  passed  it  on  to  us  as 
sound.  We  will  now  organize  a  bank  and  sell  bonds."  And  they 
have  no  idea  what  it  means  to  sell  bonds ;  no  conception. 

Mr.  Bulkley.  In  other  words,  you  think  they  would  in  fact  sub- 
scribe to  the  stock  whether  it  was  good  judgment  to  do  so  or  not? 

Mr.  von  Engelken.  Yes;  I  do.  Now,  they  would  be  confronted 
right  there  with  this  situation:  Personally  I  would  not  take  stock 
in  a  bank  of  that  sort,  but  I  would  be  the  first  one  to  take  the  money 
if  I  could  from  Dr.  Coulter's  bank  there,  we  will  say,  if  I  could  get 
it  to  lend  me  20  per  cent  of  its  capital.  Now,  those  farmers,  without 
any  guide  or,  in  fact,  any  control,  would  loan  me  $2,000,  which  is 
20  per  cent  of  their  capital.  I  would  have  the  money  for  35  years, 
we  will  say.  Then  they  would  proceed  to  issue  bonds  and  try  to 
sell  them;  and,  let  us  say  for  the  sake  of  argument,  that  the  best 
that  they  could  get  for  their  bonds  would  be  60.  What  is  going  to 
happen  ?  That  is  the  last  loan  those  fellows  are  going  to  make.  And 
obviously  they  can  not  liquidate — — 

Mr.  Platt  (interposing).  It  depends  very  largely  on  the  interest 
return  on  the  bonds  there,  does  it  not,  as  to  what  they  would  sell 
for  ?    Do  you  suppose  they  would  be  4  per  cent  bonds  ? 

Mr.  von  Engelken.  No,  sir. 

Dr.  Coulter.  Not  in  Florida  ? 

Mr.  von  Engelken.  Not  in  Florida.  They  will  run  around  7£ 
and  8. 

Mr.  Platt.  Don't"  you  think  you  could  get  more  than  60  for  an  8 
per  cent  bond,  for  instance  ? 

Mr.  von  Engelken.  I  do  not  believe  they  could,  unless  they  could 
demonstrate  there  had  been  conservatism  in  the  issuing  of  that  bond 
and  appraising  the  property.  I  can  get  money  down  there  from  an 
individual  at  8  per  cent,  but  the  individual  who  loans  the  money 
appraises  the  property,  you  see.  Take  your  own  case,  for  instance. 
Suppose  those  bonds  came  to  you.  You  know  nothing  of  Florida, 
except  you  know  that  10  farmers  there  have  organized  a  bank  and 


346  RURAL    CREDITS. 

the  farmers  have  appraised  my  property,  and  they  hand  it  to  you, 
now,  as  being  50  per  cent  of  the  value  on  a  conservative  valuation. 
Would  you  buy  it  ? 

Mr.  Platt.  If  these  farmers  had  actually  put  $10,000  in  cash  into 
their  bank,  I  am  inclined  to  think  I  might  take  a  chance  on  one  or 
two  of  them.  I  do  not  think  I  would  consider  them  a  gilt-edge 
investment  for  trust  funds  at  the  start. 

Mr.  von  Engelken.  That  is  it  exactly ;  and  that  is  what  you  must 
have. 

Mr.  Coulter.  And  that  is  what  the  bill  provides,  for  trust  funds 
of  the  United  States  courts,  for  these  institutions,  where  the  land  is 
to  be  appraised  by  the  members  themselves,  and  maybe  the  farmers 
who  want  the  loan  themselves;  and  that  is  why  I  believe  the  mi- 
nority has  brought  a  suggestion  here  which  is  the  best  that  has  been 
offered,  as  to  how  the  appraisement  should  be  made  if  the  bonds  are 
to  sell  outside  of  the  little  community  where  the  institution  is  located. 

Mr.  von  Engelken.  In  the  first  place,  let  us  say  we  are  10  farmers 
organizing  a  bank.  Now,  you  come  straight  from  the  farm,  and  the 
first  people  who  will  go  to  borrow  from  the  bank  are  the  men  who 
are  in  it.  Many  of  them  will  borrow  from  the  bank  to  pay  them  for 
the  capital  they  put  in  to  organize  with.  You  see,  those  are  institu- 
tions of  borrowers,  you  understand.  Now,  then,  this  committee  comes 
around  to  me  and  appraises  my  land.  Is  it  not  logical  to  suppose 
that  this  committee  and  those  farmers  Avill  appraise  that  land  at  its 
highest  possible  value? 

Mr.  Coulter.  If  they  want  to  borrow  much  money  ? 

Mr.  von  Engelken.  Yes.  Conditions  are  prosperous  now,  and 
there  are  high  land  values,  and  they  will  get  as  much  money  on  their 
property  as  they  can,  and  therefore  they  will  appraise  my  property 
as  high  as  they  dare.  Then  it  is  simply  a  case  of  I  scratch  your  back 
and  you  scratch  mine.  And  all  the  property  in  that  bank  will  be 
at  a  high  appraisal.  You  see  the  weakness  I  mean,  and  I  have  taken 
this  bill  to  the  Lord  in  prayer  with  me,  is  the  fact  that  you  have  no 
check  on  the  appraisement  of  this  property,  and  unless  you  can  as- 
sure the  investor  there  has  been  some  real  check  on  the  optimism  of 
the  farmers  in  appraising  this  land,  you  will  never 

Mr.  Platt  (interposing).  Isn't  there  a  provision  in  here  that  the 
appraisement  shall  correspond  with  the  assessed  valuation  ? 

Mr.  von  Engelken.  No. 

Mr.  Platt.  That  is  is  in  one  of  the  bills. 

Mr.  Coulter.  The  statement  of  the  assessed  valuation  ? 

Mr.  von  Engelken.  I  have  a  farm  in  Florida  for  which  I  have  re- 
fused a  bona  fide  offer  of  $18,000.  What  do  you  suppose  it  is  ap- 
praised at? 

Mr.  Platt.  About  $7,000. 

Mr.  von  Engelken.  $800.  Where  is  the  relation  between  the 
value  of  that  property  and  the  assessed  value.  The  value  of  that 
farm  is  based  upon  the  income  earning  power  value  over  a  period  of 
five  or  six  years,  and  where  is  the  relation  between  the  assessed  value 
and  the  actual  value  of  that  property? 

Mr.  Coulter.  I  may  say  there  that  Senator  Gore,  who  was  a  mem- 
ber of  the  United  States  commission,  suggested  a  certain  percentage 
of  the  assessed  value  should  be  used  as  a  basis,  and  his  argument  was 
it  would  force  the  farmers  of  the  country  to  carry  through  State 


RURAL   CREDITS.  347 

laws  making  the  assessed  value  the  true  value  of  the  property  and 
straighten  out  the  tax  system  of  the  States  at  the  same  time. 

Mr.  Bulkley.  Is  not  that  the  root  of  the  whole  thing?  You  are 
speaking,  Mr.  von  Engelken,  about  the  tendency  of  the  farmers  to 
appraise  the  property  too  high  ? 

Mr.  von  Engelken.  Yes. 

Mr.  Bulkley.  Now,  if  they  were  limited  to  the  assessed  value, 
there  would  not  be  that  danger,  would  there  ? 

Mr.  von  Engelken.  No;  there  would  not  be  that  danger,  but  a 
great  many  farmers,  on  the  other  hand,  who  have  property  of  real 
worth  would  suffer  by  not  getting  what  they  would  be  entitled  to 
get  on  a  basis  of  its  true  value. 

Mr.  Bulkley.  If  they  should  get  their  assessments  increased  to  the 
true  value,  where  would  be  the  damage? 

Mr.  von  Engelken.  Let  me  explain  that  to  you.  We  are  assessed 
at  home  22  mills  on  the  dollar. 

Mr.  Platt.  Taxed,  you  mean? 

Mr.  von  Engelken.  Yes;  taxed  22  mills  on  the  dollar.  Now, 
where  would  I  get  off  if  they  assessed  my  property  at  anything  like 
its  fair  value? 

Mr.  Bulkley.  Of  course  if  they  assess  everybody  else's  farm  at  its 
fair  value,  they  would  reduce  the  rate. 

Dr.  Coulter.  They  would  reduce  the  rate,  because  the  value  of  the 
property  would  be  doubled  or  trebled  or  quadrupled,  and  the  rate 
would  be  reduced  accordingly. 

Mr.  von  Engelken.  We  are  just  now  going  through  an  experience 
in  Florida  of  that  kind.  They  are  appraising  the  property  at  more 
like  its  real  value;  and  while  that  is  proposed,  we  all  feel  if  it  is 
passed,  because  the  assessment  has  been  put  up  to  the  limit,  it  is  to 
be  used  as  a  way  of  getting  more  money.  The  assessment  will  jump 
up  and  the  millage  will  drop  down  at  first,  but  then  in  a  few  years 
they  will  be  up  again. 

Dr.  Coulter.  Now,  that  is  true  in  every  part  of  the  country.  The 
same  thing  is  actually  happening  in  my  State.  They  have  actually 
gone  out  and  made  a  new  appraisement  of  the  property,  and  they 
have  taken  the  selling  price  of  the  property  as  the  basis  and  now  they 
are  down  to  a  point  where  they  are  practically  without  a  State  debt. 
There  is  no  State  tax,  practically,  at  all.  That  is  to  say,  the  State 
levy  is  canceled  year  after  year  because  they  derive  their  taxes  from 
the  income  tax,  the  inheritance  tax,  and  the  corporation  tax,  and  the 
tendency  is  in  States  where  the  assessed  value  is  equal  to  the  true 
value  that  your  levy  goes  down  and  down  until  you  actually  cancel 
the  taxes  for  several  years. 

Mr.  Bulkley.  We  have  reduced  our  tax  rate  in  Cleveland  from 
about  3.30  to  1.55  by  a  more  honest  assessment,  but  the  assessment 
is  not  high  enough  yet. 

Dr.  Coulter.  That  has  been  Senator  Gore's  contention,  and  I  was 
in  hopes  Senator  Gore  would  be  here  in  these  hearings,  because  he 
made  a  considerable  study  of  that  and  said  he  reserved  the  right  to 
raise  that  question  when  the  matter  got  before  the  committee. 

Mr.  Platt.  I  think  there  is  some  truth  in  what  Mr.  von  Engelken 
said,  though,  when  you  get  the  assessment  up,  the  tendency  is  not  to 
put  the  tax  rate  down  low  enough  to  make  the  tax  bills  quite  as  low 
as  they  were  before. 


348  RURAL    CREDITS. 

Mr.  liiLKLEY.  Yes;  there  is  something  in  that. 

Mr.  Platt.  The  people  feel  that  way,  and  then  there  is  a  question 
between  the  people  in  the  country  and  the  people  in  the  city,  for  in- 
stance, as  to  an  equalization  of  the,  assessment.  The  assessment,  I 
think,  ought  to  he  higher  in  proportion  to  the  true  value  than  it  is  in 
the  case  of  your  Florida  farm. 

Mr.  vox  Engelken.  It  is  going  to  be. 

Senator  Owex.  What  is  your  suggestion  as  to  how  a  check  could 
be  put  upon  this  situation? 

Mr.  vox  Engelken.  That,  Senator,  is  bound  up  largely  with  an- 
other feature  I  propose  to  call  your  attention  to,  and  that  is  the 
organization  of  this  local  bank  into  a  State  federation  with  a  central. 

Dr.  Coultei;.  And  yet  it  is  true  your  suggestion  would  apply 
equally  well  to  this. 

Senator  Owen.  I  do  not  think  I  heard  your  suggestion  as  to  how 
you  would  be  able  to  put  a  check  on  an  unfair  valuation. 

Mr.  vox  Exgelkex.  Of  course  our  minority  report  there  has  sub- 
mitted a  plan  whereb}-  we  have  no  new  banks  for  the  farmers;  be- 
cause after  talking  it  over  and  discussing  it  thoroughly  we  came  to 
the  conclusion,  and  1  am  rather  still  inclined  to  the  opinion,  that  it 
is  wiser  to  do  with  what  we  have  and  is  safer,  maybe,  than  to  try 
something  new,  because  it  has  worked  with  the  people  with  whom  we 
have  nothing  in  common  except  perhaps  plrysical  construction,  and 
that  is  with  the  little  country  banker,  the  local  banker.  I  have  read  a 
great  deal  in  these  farm  papers  about  this  thing,  and  it  has  been  a 
cry  against  the  Money  Trust  and  against  this  thing  and  that,  and 
nobody  has  said  a  word  for  the  poor  banker  wTho  really,  in  the  last 
analysis,  is  the  best  friend  the  farmer  has. 

Mr.  Platt.  Undoubtedly  there  is  an  enormous  amount  of  dust  in 
the  air,  and  some  of  it  has  got  to  be  cleared  away. 

Mr.  von  Engelken.  I  am  going  to  start  to  clear  some  of  it  away 
right  now.  And  I  will  tell  you  I  am  for  the  country  banker.  Gentle- 
men, without  question  the  country  banker  has  done  more  for  the 
farmer  in  the  past  than  he  has  deserved,  because  the  farmer  has  not 
been  in  a  position  to  merit  credit  anywhere  by  his  conduct.  Further- 
more, he  has  not  conducted  his  operations  in  the  past  in  a  manner 
wdiich  would  merit  any  degree  of  credit.  If  any  commercial  house 
conducted  its  business  as  the  average  farmer  conducts  his,  they  could 
not  get  a  penny  of  credit.    Is  not  that  so  ? 

Mr.  Bulkley.  I  am  afraid  it  is. 

Mr.  von  Engelken.  I  know  it  is.  Now,  then,  it  is  proposed  to  have 
the  farmers  who  are  pressed  into  this  bill  suddenly  transmuted  into 
bankers. 

Mr.  Platt.  It  is  not  necessary  in  all  cases  that  farmers  will  always 
organize  these  banks.  They  may  be  organized  under  this  plan  by 
men  who  are  not  farmers  at  all. 

Mr.  vox  Engelken.  Yes,  sir;  but,  you  see,  you  must  remove  the 
weakest  link  in  the  chain,  because  if  you  do  not  remove  that  weakest 
link  the  thing  is  going  to  fall  down;  in  order  for  the  thing  to  be  a 
success,  all  the  links  in  the  system  must  be  equally  strong. 

Senator  Owen.  How  do  you  propose  to  fix  this  value  of  the  farm? 

Mr.  vox  Exgelkex.  We  propose  to  link  this  with  the  country  bank 
and  let  the  country  bank  act  as  a  check  upon  the  optimism  of  the 
farmers  in   appraising  this  land,   you   see.     And,   furthermore,  we 


RURAL    CREDITS.  349 

make  this  provision,  or  suggested  to  Dr.  Coulter  this  provision,  that 
in  place  of  providing  a  Federal  fiduciary  agent  in  every  little  bank — 
which  is  a  cumbersome  system  and  accomplishes  nothing,  because 
every  one  of  those  fiduciary  agents  is  nothing  more  nor  less  than  a 
witness  in  the  last  analysis — let  the  country  banks  transact  their  own 
business  and  confederate  them  into  a  State  central,  and  let  the  central 
be  the  point  of  Government  attack  and  supervision.  Let  the  Govern- 
ment provide  proper  inspectors  who  will  go  to  the  central  and  inspect 
the  security  behind  these  bonds  before  they  are  allowed  to  float  the 
bonds  to  the  public.  You  see,  that  in  itself,  if  the  farmers  know, 
provided  it  is  a  bank  of  farmers  only,  that  their  valuation  is  going 
to  be  made  the  subject  of  a  check  by  Government  appraisement,  it  will 
have  a  very  wholesome  effect  in  limiting  the  valuation  they  put  upon 
the  property  for  loan  purposes.  The  Federal  fiduciary  agents  pro- 
vided in  this  bill  can  not  check  values  behind  the  mortgage.  It  would 
be  quite  possible  under  this  system  for  a  farmer  or  a  group  of  farmers 
in  a  declining  community — what  I  mean  is  in  some  of  the  trucking 
States,  etc. — where  there  has  been  a  boom  in  a  certain  thing — and  I 
have  one  case  in  mind  where  land  values  three  years  ago  were  up  to 
$2,500  an  acre,  and  that  same  land  to-day  can  be  bought  for  $250 — if 
a  group  of  such  farmers  get  together  for  the  purpose  of  organizing  a 
bank  and  getting  out  from  under,  they  would  put  a  mortgage  of 
$10,000  on  a  $5,000  piece  of  land,  don't  you  see? 

Mr.  Platt.  It  looks  possible. 

Mr.  von  Engelken.  It  is  possible;  and  it  is  the  possibilities  you 
must  consider.  But  if  that  goes  to  a  central,  the  central  would 
provide,  to  begin  with,  checks  upon  these  farmers  in  their  too  high 
valuation  of  lands  through  the  appraisal  which  the  central  makes; 
and  then  the  Government  appraiser  steps  in  when  this  bond  issue  is 
proposed  to  be  floated  to  the  public  and  checks  those  securities  which 
he  finds  behind  the  bonds ;  and  if  the  valuation  in  any  case  seems  to 
him  to  be  out  of  reason  he  will  go  down  and  investigate  and  make 
the  local  either  reduce  the  amount  or  margin  it.  It  is  provided  that 
the  banks  should  pay  for  this  service,  and  they  are  willing  to  bear 
this  burden  of  inspection.  At  that  point  of  inspection,  let  the  in- 
spection be  a  sure-enough  inspection  and  check,  as  if  you  were  build- 
ing an  automobile  engine,  where  one  man  grinds  a  flywheel,  and 
another  turns  a  cylinder,  and  so  forth  and  so  on,  each  part  is  turned 
out  with  no  inspection ;  out  when  it  is  ready  to  be  sold  to  the  public 
every  part  of  it  is  thoroughly  inspected.  And  that,  in  my  opinion, 
should  be  the  function  the  Government  exercises,  and  the  only  func- 
tion, except  to  charter  these  banks. 

Mr.  Coulter.  That  is  to  say,  when  the  bank  had  finished  making 
its  loans  up  to,  say,  $10,000,  or  whatever  the  loans  were,  and  was 
ready  to  start  issuing  its  bonds,  at  that  point  the  Government  would 
send,  as  it  now  sends  an  inspector  to  the  bank,  an  appraiser  to  the 
community,  and  the  appraiser,  when  he  reached  the  community, 
would  inspect  the  appraisement  by  the  land  banks  of  the  resources 
behind  the  bonds,  and  unless  those  lands  were  of  proper  value  and 
the  appraisement  was  satisfactory  the  bonds  could  not  be  issued. 

Mr.  von  Engelken.  Yes. 

Mr.  Coulter.  And  in  that  way  the  cost  of  appraisement  would  be 
reduced,  because  the  appraiser  would  go  only  when  a  larger  number 
of  pieces  were  to  be  appraised  for  the  purpose  of  circulating  bonds. 


350  RURAL    CREDITS. 

Mr.  von  Engelken.  You  see,  the  cost  of  this  Federal  fiduciary 
agent  now  must  be  borne  by  the  little  banks,  and  if  you  do  away  with 
the  Federal  fiduciary  agent  in  every  bank  and  provide  instead  one 
inspection  at  the  central  it  would  reduce  the  cost  to  each  bank, 
because  you  would  thus  have  available  a  fund  sufficient  to  pay  for  a 
real  rigid  Federal  inspection,  don't  you  see  ? 

PROCEEDINGS  OF  FRIDAY,  FEBRUARY   27,   1914. 

Mr.  von  Engelken.  I  was  thinking  over  last  night  what  I  said 
yesterday,  and  it  seemed  very  unsatisfactory  to  me,  because  of  the 
interruptions.  We  drifted  for  away  from  the  subject  I  was  discuss- 
ing, and  I  would  like  to  suggest  this  morning  that  I  have  my  sug- 
gestions on  this  bill  grouped  into  various  headings,  and  if  you  will 
let  me  get  out  of  my  system  my  ideas  on  each  one  of  the  headings, 
then  I  will  say  when  I  am  done  and  we  can  discuss  that  heading,  if 
that  is  agreeable. 

Senator  Hollis.  I  think  we  will  get  along  better  if  we  adopt  your 
suggestion. 

Sir.  von  Engelken.  The  different  features  in  this  bill  that  I  want 
to  call  your  attention  to  are,  first  of  all,  the  question  of  the  inde- 
pendent State  unit  bank  or  local  unit  bank,  rather,  as  against  the 
organization  headed  by  a  State  unit. 

Then  I  want  to  call  attention  to  my  criticism  of  the  fiduciary  agent, 
and  then,  finally,  on  this  bill  I  want  to  call  attention  to  the  deposits 
feature,  and  if  I  have  time  I  want  to  pay  my  respects  to  the  matter 
or  short-time  credit. 

I  have  read  very  carefully  the  reasons  given  in  this  bill  which 
prompted  the  writers  of  it  to  suggest  purely  local  institutions,  and 
I  must  confess  that  while  the  language  is  splendid  and  the  wording 
all  that  could  be  desired,  I  do  not  get  really  any  light  on  the  subject 
as  to  why  they  feel  that  that  plan  is  better  than  a  plan  of  an  organiza- 
tion. Mention  is  made  of  the  fact  that  this  should  be  a  competitive 
system  of  banks.  Let  us  analyze  that  question  and  see  what  that 
competition  will  bring  about.  You  are  laying  down  certain  fixed 
rules  which  these  banks  must  follow.  If  you  inject  into  a  local  dis- 
trict competition  the  competition  can  only  take  the  form  of  a  higher 
valuation  of  the  land.  In  other  words,  if  you  have  two  banks  com- 
peting for  the  business  of  the  farmer  in  the  same  district,  banks 
regulated  as  closely  in  the  conduct  of  that  business  as  these  banks 
are,  the  farmer  will  go  to  the  bank  which  puts  the  highest  valuation  on 
his  land  and  which  will  give  him  the  most  money  on  the  land  which 
he  has  to  place  behind  the  loan  as  security.  This  appears  to  me  to 
be  an  element  of  weakness.  Any  one  institution  can  take  care  of  any 
one  district.  Opposed  to  that  plan  is  the  plan  of  a  State  organiza- 
tion whereby  these  little  local  unit  banks  are  headed  and  guided  by 
a  State  unit  bank,  which  they  own  and  control.  The  advantages  of 
that  over  the  independent  system  are  as  follows : 

In  the  first  place  it  wili  promote  confidence  on  the  part  of  the 
investor,  unquestionably,  if  he  feels  that  there  is  an  organization  in 
the  State  which  guides  the  farmers  in  their  transactions  and  which 
acts  as  a  go-between  and  provides  a  further  inspection  of  the  assets 
behind  the  loans.  This  State  unit  organization  provides  an  ap- 
praiser, and  that  appraiser,  whenever  any  local  has  made  sufficient 


RURAL   CREDITS.  351 

loans  to  call  on  the  State  unit  organization  for  funds  in  exchange 
for  its  mortgages,  will  send  this  appraiser  down  there  to  pass  upon 
the  appraisement  made  of  the  security  back  of  the  loan.  That  fur- 
ther strengthens  it. 

In  the  third  place,  the  State  unit  organization,  being  made  up  of 
all  the  organizations  in  the  State,  spread  over  the  entire  territory, 
is  in  a  remarkably  advantageous  position  to  assist  any  local  institu- 
tion over  one  or  more  loan  years,  since  obviously  it  will  be  to  the 
advantage  of  all  the  other  units  in  this  organization  to  prevent  any- 
thing happening  which  will  discredit  the  entire  organization,  owing 
to  the  fact  that  any  one  unit  may  have  local  crop  failures. 

Another  feature  which  is  very  important  is  this,  that  in  the  bill 
which  is  here  before  you  I  fail  to  find  any  provision  made  for  liqui- 
dation. Your  local  unit  bank  stands  entirely  on  its  bottom,  and  if 
those  farmers  who  organize  that  bank  become  possessed  of  the  idea 
that  it  is  not  profitable,  or  something  happens  in  the  locality  which 
makes  it  unprofitable,  how  can  they  liquidate?  Those  farmers  may 
have  a  loan,  and  even  one  loan  made  for  a  period  of  as  long  as  35 
years,  and  the  man  who  borrowed  the  money  will  not  return  the 
money  to  them,  yet  they  are  in  the  enforced  position  that  they  are 
tied  up  to  a  thing  which  is  unprofitable  and  will  have  no  way  of 
getting  out,  whereas,  under  an  organization  such  as  I  have  suggested, 
if  any  one  unit  wishes  to  get  out,  the  loans  made  by  it  can  be  dis- 
tributed among  the  other  units  in  the  State  by  the  organization 
which  stands  at  the  head  and  guides ;  and  in  that  way  any  local  can 
easily  get  out  from  under  if  it  so  desires.  I  think  that  is  a  feature 
that  will  make  a  strong  impression  on  the  investors,  and  the  investor's 
point  of  view  is  the  point  of  view  that  we  must  keep  before  us. 

Later  on  I  propose  to  show  that  this  State  organization  provides 
the  gest  avenue  for  Government  supervision. 

These  are  the  points  that  I  have  mapped  out  here,  which  to  my  mind, 
indicate  that  an  organization  will  strengthen  this  plan,  not  only 
in  its  relation  to  the  local  units,  but  also  in  the  minds  of  the  investing 
public. 

Now,  I  would  be  very  glad  to  hear  any  criticisms  of  that. 

Mr.  Woods.  Mr.  von  Engelken,  do  I  understand  that  it  is  your 
idea  to  have  the  State  institutions  only  issue  the  bonds? 

Mr.  von  Engelken.  Yes,  sir. 

Mr.  Woods.  And  not  the  locals  ? 

Mr.  von  Engelken.  Not  the  locals. 

Mr.  Bulkley.  As  I  understand  your  suggestion  the  State  would  be 
divided  into  districts,  and  there  would  be  a  single  bank  which  would 
have  a  monopoly  in  each  district. 

Mr.  von  Engelken.  No;  I  would  not  control  that  in  any  way; 
but  I  would  provide  that  whenever  these  local  banks  are  organized 
they  must  become  members  of  the  organization.  I  think  the  matter 
of  opening  banks  will  gradually  seek  its  own  level,  and  whatever 
local  unit  banks  are  organized  must  become  members  of  the  State 
osganization.    I  would  make  that  mandatory. 

Senator  Hollis.  Just  as  national  banks  have  to  become  members  of 
the  Federal  reserve  system? 

Mr.  von  Engelken.  Exactly. 

Mr.  Seldomridge.  Do  you  see  any  advantage  in  your  idea  in  ex- 
tending the  market  for  the  bonds— for  the  debentures  ? 


352  RURAL    CREDITS. 

Mr.  von  Engelken.    Decidedly. 

Mr.  Seldomridge.  Over  the  other  plan  of  a  large  number  of  units 
acting  independently  of  each  other  ? 

Mr.  von  Engelken.  Decidedly.  Place  yourself,  for  instance,  in 
the  position  of  a  possible  investor  in  land-mortgage  bonds.  I  live  in 
a  portion  of  Florida  with  which  you  are  probably  entirely  unac- 
quainted, yet  a  group  of  farmers  and  I  organize  a  bank.  You  might 
be  in  position  to  buy  one  of  our  bonds,  yet  what  do  you  know  about 
them  ?  Nothing.  You  say,  "  Well,  I  know  nothing  about  this  country. 
These  farmers  may  be  all  right,  and  they  may  not  be  all  right.  In 
other  words,  you  inject  that  which  we  are  trying  to  eliminate,  as  far 
as  possible,  and  that  is  the  personal  element  between  the  investor  and 
the  man  who  produces  the  assets.  If  you  have  an  organization  backed 
by  the  entire  real-estate  security  of  the  State  of  Florida,  which  is 
being  hypothecated,  you  would  not  look  very  much  farther. 

Senator  Hollis.  You  would  provide  that  the  State  association 
should  inspect  the  loans,  so  that  you  would  have  annual  reports, 
probably,  of  the  condition  and  how  they  were  doing  business,  but  you 
would  not  undertake  to  have  any  representative  of  the  State  asso- 
ciation examine  every  loan,  would  you?  Would  you  have  the  presi- 
dent examine  every  loan  ? 

Mr.  von  Engelken.  No.  My  idea  is  this — and  that  idea,  I  may  say, 
is  incorporated  in  this  minority  report:  A  local  will  make  a  certain 
number  of  loans,  you  see,  under  its  own  appraisement.  When  it  has 
a  block  of  mortgages  which  it  is  no  longer  able  to  retain  for  itself — ■ 
and  it  must  be  obvious  that  a  local  will  hang  onto  these  mortgages  as 
long  as  it  can,  because  of  the  higher  rate  of  interest,  consequently 
more  profit  accruing  to  the  bank  if  it  does  not  convert  the  mortgages 
into  bonds — but  when  it  gets  a  block  of  mortgages  and  applies  to 
the  State  unit  organization  for  permission  to  transfer  those  mortgages 
to  the  State  unit  for  bonds,  you  understand,  the  State  unit  will  supply 
the  funds  in  exchange  for  the  mortgages,  then  the  appraiser  goes 
down  and  investigates  these  securities  before  they  will  relieve  the 
local  unit  organization  of  them. 

Senator  Hollis.  And  that  application  would  not  be  made  until 
they  had  a  substantial  number,  and  therefore  the  expense  would  be 
divided  among  a  number  of  loans. 

Mr.  >on  Engelken.  Until  they  would  be  compelled  to  call  on  the 
central  for  cash  in  exchange  for  mortgages,  which  might  be  only  once 
or  twice  a  year. 

Mr.  Moss.  How  did  you  intend  to  have  the  capital  of  the  central 
bank  raised? 

Mr.  vox  Engelken.  By  a  portion  of  the  capital  of  the  local  units. 

Mr.  Moss.  So  that  the  entire  capital  of  the  central  bank  would  be 
owned  by  the  local  banks? 

Mr.  von  Engelken.  Yes,  sir. 

Mr.  Moss.  What  security  would  be  behind  a  bond  that  would  be 
issued  by  the  central  bank? 

Mr.  von  Engelken.  I  will  answer  that  right  here.  There  is  one 
subject  in  this  minority  report  which  is  eliminated  from  the  remarks 
I  have  made  here  now. 

First.  The  signer  of  the  original  loan. 


EUEAL    CREDITS.  353 

Second.  The  combined  judgment  of  the  local  banker  and  his 
farmer  associates  as  to  the  desirability  of  the  signer  as  a  borrower 
and  as  to  the  value  of  his  security. 

Third.  The  land  itself,  upon  which  not  exceeding  50  per  cent  of 
its  value  would  be  loaned. 

Fourth.  The  indorsement  of  the  local  and  the  moral  obligation  of 
the  bank  with  which  such  local  is  affiliated. 

Fifth.  The  double  liability  of  the  holders  of  the  capital  of  the 
locals,  protecting  all  loans  indorsed  to  the  State  unit  organization  by 
the  locals. 

Sixth.  The  judgment  of  the  officials  and  executive  committee  of  the 
State  unit  organization  and  its  rechecking  of  the  securities  as  herein- 
after provided. 

Seventh.  The  capital  of  the  State  unit  organization. 

Mr.  Moss.  But  the  capital  of  the  State  unit,  belonging  to  the  local 
and  being  taken  from  the  local,  does  not  increase  the  amount  of  capi- 
tal behind  the  loan  at  all,  does  it? 

Senator  Hollis.  Mr.  Moss,  it  would  put  the  locals  behind  the  de- 
bentures of  the  institution.  It  would  put  the  combined  capital  of  the 
locals  behind  the  debentures. 

Mr.  Moss.  The  point  I  am  making  is  this :  This  proposition  starts 
out  that  the  local  banks  may  have  the  right  to  issue  bonds  to  the  ex- 
tent of  15  times  the  amount  of  their  capital.  If  you  authorize 
the  local  bank  to  take  part  of  that  capital  and  put  it  into  the  central 
bank,  by  so  doing  you  do  not  increase  the  total  amount  of  capital  that 
is  pledged  behind  these  bonds,  whatever  the  whole  amount  may  be. 
If  you  permit  each  one  of  the  locals  to  pledge  15  times  the  amount 
of  their  entire  local  capital,  the  mere  matter  of  fact  that  you  have  a 
central  organization  and  they  pledge  the  capital  belonging  to  the 
local  is  not  putting  behind  the  bond  any  additional  capital.  I  want 
to  know  if  that  is  not  true? 

Senator  Hollis.  It  would  put  the  liability  of  all  the  stockholders 
of  all  the  banks  and  the  resources  of  all  the  banks  behind  everything 
that  the  State  association  guaranteed. 

Mr.  von  Engelken.  I  can  see  Mr.  Moss's  point,  Senator  Hollis, 
but  I  can  not  agree  with  him. 

Mr.  Moss,  you  are  predicating  what  you  say  upon  the  assumption 
that  the  entire  State  would  have  two  or  three  years  of  crop  failure; 
that  is,  that  the  failure  would  cover  the  entire  State.  Of  course, 
there  is  no  more  real  capital  invested  in  this  system  than  there  is  in 
the  other,  but  the  fact  remains  that  the  money  that  the  local  unit 
puts  into  the  State  unit  it  gets  back  again  when  needed  to  exchange 
mortgages  for  cash,  but  it  is  reasonable  to  suppose  that  if  there  be 
local  crop  failures  or  any  crop  failures  at  all  they  will  not  be  State 
wide. 

Now,  then,  you  have  this  additional  protection,  that  if  you  have  a 
local  unit  only,  and  that  local  unit  goes  through  a  serious  stress,  you 
knock  the  props  out  from  under  it;  whereas  if  you  have  the  State 
unit  you  have  the  combined  strength  of  all  the  local  units  of  that 
State  to  help  this  one  local  unit  tide  over  that  stress. 

Mr.  Moss.  The  total  income  of  all  the  banks,  whatever  that  is. 
would  be,  of  course,  the  interest  on  the  total  amount  of  mortgages  of 
pll  the  local  banks. 

H7031— 14 23 


354  RURAL    CREDITS. 

Mr.  von  Engelken.  Yes. 

Mr.  Moss.  And  the  total  outgo  would  be  the  interest  upon  the 
bonds  ? 

Mr.  von  Engelken.  Yes. 

Mr.  Moss.  Now,  how  would  it  be  possible,  excepting  just  the  differ- 
ence in  administration  charges,  paying  part  of  the  administration 
cost  to  the  central  bank — how  would  it  be  able  to  anticipate  any  pay- 
ments to  any  local  that  would  fail  to  make  its  payments,  excepting 
it  did  it  out  of  part  of  the  administration  charge  that  goes  to  the 
central  bank?  What  independent  income  does  the  central  bank 
have? 

Mr.  von  Engelken.  Let  me  think  about  that  a  minute.  That  is 
a  question  I  had  not  considered. 

Mr.  Woods.  They  must  necessarily  take  a  part  of  that  1  per  cent. 

Mr.  Moss.  The  proposition  is  that  if  the  local  banks — under  this 
scheme  the  most  that  the  banks  can  have  for  administration  charges 
is  1  per  cent.  Now,  the  question  comes  in,  How  does  it  add  to  the 
total?  How  much  strength  does  it  add,  if  you  have  part  in  the 
central  bank  and  part  in  the  local,  rather  than  to  let  the  local  bank 
have  it  all,  as  we  do  under  the  present  system?  What  income  does 
the  central  bank  have  that  these  local  banks  do  not  have? 

Mr.  Woods.  It  adds  a  great  deal  of  strength  in  this,  that  it 
gives 

Mr.  Moss  (interposing).  That  is  the  question,  What  additional 
income  does  it  have? 

Mr.  von  Engelken.  The  income  of  the  central  will  come  out  of 
the  1  per  cent,  but  the  central  arrogates  unto  itself  certain  functions; 
that  is,  in  other  words,  finding  a  market  for  the  bonds.  That  is 
administrative  and  comes  out  of  the  1  per  cent.  But  the  local  bank 
delegates  those  functions  to  the  State  unit,  you  see,  and  of  course  it 
is  appropriate  that  it  should  receive  a  certain  portion  of  the  admin- 
istration charges  for  the  services  rendered. 

Mr.  Bulkley.  Under  your  plan  the  local  would  not  be  put  to  any 
expense  at  all  in  marketing  the  bonds. 

Mr.  von  Engelken.  No,  sir;  and  it  is  not  in  position  to  market 
them  with  any  degree  of  success,  according  to  my  opinion. 

Mr.  Moss.  However,  the  incomes  of  the  locals  are  the  same  under 
the  two  systems — local  or  central  bank?  The  income  would  be  pre- 
cisely the  same? 

Mr.  von  Engelken.  Yes. 

Mr.  Moss.  Therefore  there  would  be  no  greater  funds  to  meet  the 
greater  liability  under  one  plan  than  the  other  ? 

Mr.  von  Engelken.  No;  but  you  see  the  profits  or  turnover  made 
of  the  money  reverts  again  to  the  local  units.  It  is  simply  an  added 
link  to  the  chain  which  strengthens  it. 

Senator  Hollis.  That  is,  they  would  have  a  certain  amount  of  money, 
but  they  would  get  more  efficient  service  through  the  State  organi- 
zation? 

Mr.  von  Engelken.  They  would  delegate  certain  functions  to  an 
organization  where  an  organization  would  produce  better  results. 

Mr.  Moss.  We  have  come  to  an  agreement  on  that  now. 

Just  one  other  question.  You  have  stated  also  that  liquidation 
would  be  very  much  easier  under  the  central  plan.  If  each  local 
bank  has  issued  bonds  to  the  amount  of  15  times  its  capital  and  one 


RURAL   CREDITS.  355 

bank  should  fail,  how  could  you  take  and  distribute  that  bond  issue 
to  the  other  banks  unless  they  increased  their  capital  stock  ? 

Mr.  von  Engelken.  The  other  banks  would  have  to  increase  their 
capital  stock  to  the  amount  of  the  outstanding  obligations  which  this 
liquidating  bank  has. 

Senator  Hollis.  Could  it  not  be  done  this  way,  that  the  State  as- 
sociation would  take  over  any  bank  that  failed,  with  its  assets  and 
liabilities  and  liquidate  them? 

Mr.  von  Engelken.  It  provides  a  field  for  them  which  is  not  pro- 
vided otherwise. 

Mr.  Seldomridge.  Let  me  ask  you  a  question:  Granting  the  advis- 
ability of  this  central  organization,  why  should  not  a  State  govern- 
ment provide  by  law  for  the  expenses  of  that  organization  ?  We 
provide  for  the  expenses  of  coal-mine  supervision,  and  we  provide 
for  the  expenses  of  many  multiform  activities  of  the  State.  Why 
should  not  the  expenses  of  that  central  organization  be  borne  abso- 
lutely by  general  taxation  ? 

Senator  Hollis.  You  mean  by  the  Government,  do  you  not,  and  not 
by  the  State?    You  mean  by  the  Federal  Government,  do  you  not? 

Mr.  Seldomridge.  Either  by  the  Federal  Government  or  by  the 
State. 

Senator  Hollis.  That  may  be  a  way  in  which  we  can  help  along 
this  system. 

Mr.  Seldomridge.  Why  not  do  that  and  not  whittle  the  thing  down 
to  taking  care  of  it  by  1  per  cent  ? 

Senator  Hollis.  I  think  that  is  something  we  ought  to  consider 
very  carefully. 

Mr.  Seldomridge.  I  think  it  is  fundamental  to  the  growth  and  de- 
velopment of  the  country  that  this  system  should  be  thoroughly  and 
efficiently  organized,  and  I  think  it  is  a  proper  subject  for  Govern- 
ment expenditure.  The  Government  might  divide  the  expense  with 
the  State.  The  State  would  be  willing  to  appropriate  for  part  of  it. 
We  provided  for  $225,000,000  for  good  roads  to  be  met  with  an  equal 
appropriation  by  the  States.  Why  could  we  not  do  the  same  thing 
for  these  mortgage  banks? 

Mr.  von  Engelken.  As  a  farmer,  this  business  of  State  aid  or  na- 
tional aid  is  very  attractive,  but  I  am  a  great  believer  in  this  axiom, 
that  it  is  much  easier  to  spend  money  that  is  not  actually  earned. 
What  I  mean  to  point  out  is  this:  Take  a  case  of  a  young  man  with 
a  rich  father  and  a  young  man  who  works  for  his  living.  It  is  all 
right  for  the  States,  we  will  say,  to  foster  this  in  the  beginning,  but 
not  to  give  anything.  Let  this  proposition  stand  on  its  own  basis,  be- 
cause it  has  sufficient  merit,  in  my  opinion,  to  do  so.  Let  it  work  out 
its  own  salvation,  because  it  is  only  by  that  means  that  they  will  ever 
profit.  If  it  is  advisable  to  put  a  little  steam  behind  this  in  the  be- 
ginning, let  it  be  a  loan  by  the  State  at  a  low  rate  of  interest,  which 
must  be  paid  back  when  the  thing  has  reached  a  point  where  it  is 
able  to  do  so,  and  I  think  you  will  find  that  the  farmers  of  the  coun- 
try will  be  more  inclined  to  agree  to  that.  Because  once  you  begin 
to  dip  your  hand  into  the  Treasury  there  is  no  stopping  it. 
Senator  Hollis.  There  is  no  going  back. 

Mr.  von  Engelken.  No,  sir;  and  you  are  not  dealing  with  a  class 
of  people  who  can  realize  the  dangers  of  that,  because  they  have 


356  RUBAL   CREDITS. 

not  had  a  business  training  which  enables  them  to  analyze  a  situa- 
tion of  that  kind. 

Mr.  Seldomridge.  The  farmers  will  say  we  are  taking  all  of  this 
out  of  them.  The  expense  would  either  have  to  come  out  of  the 
debtor  or  there  will  have  to  be  a  concession  made  by  the  creditor, 
and  I  can  see  where  the  Government  can  well  afford  to  provide  the 
machinery  and  have  it  well  oiled  and  in  working  order  rather  than 
to  allow  it  to  dwindle  and  drag  and  become  disabled  just  because  we 
have  not  provided  enough  to  start  it  off  and  keep  it  moving. 

Mr.  von  Engelken.  Of  course,  there  is  this  to  be  said  in  that  re- 
gard. I  propose  in  a  few  moments  to  show  the  relation  of  the  Gov- 
ernment to  these  State  unit  organizations.  It  may  be  possible  that 
it  would  strengthen  that  through  some  such  plan  as  you  propose, 
because  I  propose  to  show  that  the  logical  point  of  attack  on  the  part 
of  the  Government  is  the  State  unit  organization,  when  it  comes  to 
investigating  the  securities  before  they  are  placed  before  the  public. 

Mr.  Coulter.  Mr.  Chairman,  may  I  ask  a  question  ? 

Senator  Hollis.  Yes. 

Mr.  Coulter.  The  commission  had  section  44  put  in  the  bill  to 
settle  this  particular  point,  making  it  optional  with  the  small  insti- 
tutions to  provide  for  sales  agencies,  and  so  on.    That  section  reads : 

That  any  national  farm-bind  bank  may.  with  the  consent  of  the  commissioner 
of  farm-land  banks,  maintain  either  within  the  State  in  which  it  is  operating. 
or  elsewhere,  sales  agents  or  agencies  for  the  sale  of  its  national  land-bank 
bonds  or  for  trading  in  the  same. 

It  seems  to  me  that  the  suggestion  made  is  that  the  word  "  will  " 
be  changed  to  "shall";  instead  of  saying  "may  maintain''  say  it 
"  shall  maintain,"  and  then  say  each  such  agency  shall  be  limited  to 
one  State,  and  that  agency  shall  only  sell  the  bonds  of  that  State, 
and  shall  be  responsible  for  the  issuing  of  the  bonds.  That  is  really 
the  point,  is  it  not? 

Mr.  von  Engelken.  It  simply  resolves  itself  into  the  question  of 
where  you  put  the  word  "  shall." 

Mr.  Coulter.  I  say  it  is  making  it  compulsory  and  limiting  it  to 
a  State,  and  then  making  that  agency  responsible  for  the  issuing  of 
the  bonds  and  seeing  that  there  is  proper  cover. 

Senator  Hollis.  Of  course,  this  would  dignify  the  system  to  make 
it  a  State  unit  and  would  probably  give  the  bonds  a  greater  selling 
value. 

Mr.  von  Engelken.  Of  course,  I  might  make  this  suggestion,  that 
there  is  nothing  in  what  I  might  say  which  would  prohibit  the  local 
unit  selling  any  of  the  bonds.  The  central  is  the  issuing  body,  and 
the  issuing  body,  it  is  proper  to  suppose,  would  be  the  selling  body, 
because  of  its  greater  ability  to  find  a  market ;  but  if  any  local-unit 
organization  applies  to  the  central,  saying  they  have  a  market  for  the 
bonds,  the  bonds  can  be  transferred  to  them  for  sale. 

Senator  Hollts.  Is  there  anything  in  either  of  these  bills  which 
forbids  a  local  unit,  having  made  a  loan,  to  sell  that  loan  if  it 
wants  to? 

Mr.  von  Engelken.  I  have  seen  nothing  of  that  sort  in  either  of 
the  bills. 

Mr.  Coulter.  No.  As  a  matter  of  fact  we  contemplate  in  this  bill 
that  they  shall,  provided  that  bond  is  not  for  a  longer  period  than 
five  years. 


RURAL   CREDITS.  357 

Senator  Hollis.  Why  not  let  them  sell  it  anyway,  under  proper 
prescriptions  and  proper  precautions  to  prevent  the  borrowers  from 
being  cheated? 

Mr.  Coulter.  The  only  restriction  we  have  there  is  to  prohibit 
loans  for  longer  periods  than  five  years  for  more  than  15  times  the 
capital,  and  in  order  to  bring  those  all  into  one  class  then  they  issue 
bonds  on  those  and  the  limitation  is  on  the  bonds  rather  than  on  the 
loans.  I  think  if  they  made  loans  for  local  sale  as  individual  mort- 
gages for  periods  exceeding  five  years  that  we  would  begin  to  have  to 
make  a  limitation  on  the  amount  of  that  business,  while  as  far  as 
this  bill  is  concerned  no  limitation  is  made  as  to  the  amount  of  short- 
time  mortgage  business  that  it  might  do,  the  idea  being  that  it  may 
go  ahead,  as  the  present  custom  is,  until  the  farmers  gradually  get 
accustomed  to  the  longer-period  loans. 

Senator  Hollis.  I  can  see  if  they  should  sell  loans  that  ran  more 
than  five  years,  on  the  amortization  plan,  they  might  get  into  diffi- 
culties there.  But  my  idea  was,  that  if  they  did  resell  these  short- 
term  mortgages  that  the  bank  would  not  guarantee  them. 

Mr.  Woods.  There  is  the  point.  It  makes  no  difference  how  many 
loans  they  make  or  sell  if  it  is  a  $1,000,000  or  $10,000  capital,  pro- 
viding they  do  not  guarantee  any  of  them. 

Senator  Hollis.  Yes ;  and  they  may  make  some  money  doing  that. 

Mr.  Coulter.  That  was  the  very  idea  we  had  in  mind  in  that 
provision  allowing  them  to  do  that,  that  sort  of  business  paying  5 
per  cent.  I  think  the  best  illustration  of  that  is  this :  I  made  a  spe- 
cial trip,  at  my  own  expense,  to  Minneapolis,  to  look  into  a  banking 
company  that  does  business  beyond  the  five-year  loans — the  Wells- 
Dickie  Co. — which  has  about  $750,000  of  capital  and  surplus  and  is 
in  the  land-mortgage  business  in  three  or  four  adjoining  States. 
If  they  can  negotiate  a  loan  of  $10,000  or  $15,000  to  a  big  farmer  and 
make  it  for  10  years  they  do  so,  and  then  just  split  it  up  and  sell 
bonds ;  and  they  are  doing  an  immense  farm-bond  business.  My  idea 
was  that  they  could  not  sell  these  unless  they  were  five  years  or  less. 
If  they  were  for  a  longer  period  they  would  have  to  put  them  on  the 
other  basis. 

Mr.  von  Engelken.  It  seems  to  me,  Senator  Hollis,  that  there 
could  be  no  objection  to  these  local  units  selling  such  loans  providing 
they  do  it  under  the  supervision  of  a  State  organization,  for  this 
reason,  that  the  strength  of  a  State  organization  will  depend  upon 
the  fact  that  it  keeps  in  constant  touch  with  what  the  local  units  are 
doing,  because  you  must  strengthen  the  standing  of  these  bonds  which 
go  to  the  outside  public,  and  if  the  outside  public  found  out  that  the 
bonds  being  issued  by  the  State  unit  organization  are  only  such  as 
the  locals  could  not  independently  place  locally  there  would  arise  a 
feeling  that  there  is  no  supervision  over  the  issues  which  would 
warrant  investment  on  the  part  of  a  conservative  public. 

Mr.  Bulkley.  I  did  not  quite  understand  what  you  said  a  while 
ago  about  competition.  I  thought  you  developed  the  proposition 
that  there  was  not  any  particular  benefit  in  having  competition. 
Your  plan  does  not  contemplate  eliminating  competition  among 
these  banks  at  all,  does  it? 

Mr.  von  Engelken.  No.  The  idea  here  of  these  local  units  without 
any  organization  was  predicated  upon  the  idea  of  competition,  but 
it  seems  to  me  that  that,  as  I  said,  will  seek  it  own  level. 


358  RURAL   CREDITS. 

Mr.  Bulkley.  You  contemplate  that  the  banks  would  compete 
under  your  plan,  do  you  not? 

Mr.  von  Engelken.  I  do  not  believe  they  will,  because  I  do  not 
believe  that  there  will  be  more  banks  organized  in  any  locality  than 
will  suffice  to  take  care  of  the  business  of  that  community. 

Senator  Hollis.  That  is  a  duplication  of  the  mutual  ? 

Mr.  von  Engelken.  You  see,  Mr.  Bulkley,  take  your  local  banks 
in  your  town,  and  they  are  in  competition,  and  they  have  a  bigger 
latitude  in  the  conduct  of  their  business,  which  is  taken  away  from 
these  banks. 

Mr.  Bulkley.  They  have  some  latitude. 

Mr.  von  Engelken.  You  specify  what  the  function  of  these  banks 
shall  be,  and  how  the  business  shall  be  conducted. 

Senator  Hollis.  That  is,  the  rate  or  per  cent  is  compulsory. 

Mr.  von  Engelken.  Yas.  In  the  case  of  a  State  bank,  you  three 
gentlemen  may  be  bankers.  I  have  a  certain  class  of  security.  It 
may  appeal  to  Mr.  Bulkley  more  than  it  would  to  Senator  Hollis.  I 
would  go  to  Mr.  Bulkley,  and  then  he  holds  that  until  I  pay  it,  and 
takes  the  interest,  and  it  is  not  offered  to  the  public;  but  here  is 
something  offered  to  the  public.  Competition  will  bring  about  a 
condition  of  higher  appraisal  of  land  that  is  injurious  to  the  confi- 
dence which  the  public  must  have  in  this  thing. 

Senator  Hollis.  To  make  that  a  little  more  clear,  you  would  not 
expect  that  the  borrower  would  get  any  better  rate  of  interest  from 
one  bank  than  from  the  other,  but  he  could  get  his  land  value  raised 
so  that  he  could  get  more  money? 

Mr.  von  Engelken.  Eactly. 

Mr.  Bulkley.  I  do  not  see  how  you  can  be  sure  that  you  can  get 
a  like  rate  of  interest.  There  is  a  limitation  that  interest  shall  not 
exceed  1  per  cent  above  the  interest  paid  on  the  bonds,  but  many 
European  banks  of  this  character  do  business  on  much  less  than  1 
per  cent. 

Mr.  von  Engelken.  But  you  must  remember  that  there  is  nothing 
in  this  which  prevents  any  local  unit  bank  of  one  particular  State 
invading  the  territory  of  another. 

Mr.  Bulkley.  That  is  what  I  was  trying  to  get  at.  I  thought, 
from  what  you  said  before  about  competition  being  useless,  that  you 
had  some  suggestion  about  it. 

Mr.  von  Engelken.  No,  no ;  but  the  point  I  tried  to  bring  out  was 
that  the  argument  against  organization  in  this  bill,  as  nearly  as  I 
can  get  the  meaning  out  of  the  words,  is  that  they  want  to  encourage 
competition,  and  I  say  there  is  nothing  to  be  gained  by  individual 
banks  which  will  not  be  more  a  gain  by  coalescing  these  banks  into 
an  organization.  That  is  the  point  I  am  getting  at.  In  other  words, 
I  believe  it  is  a  strengthening  of  them. 

Mr.  Bulkley.  I  do  not  quite  understand  your  plan  for  distribut- 
ing the  loans  made  by  a  bank  that  might  want  to  go  into  liquidation. 
You  said  you  had  a'  suggestion  that  they  be  passed  around  among 
the  other  banks  within  the  State? 

Mr.  von  Engelken.  Yes. 

Mr.  Bulkley.  Would  that  be  compulsory  on  the.  other  banks  to 
take  them? 

Mr.  von  Engelken.  It  may  not  be  compulsory,  but  it  would  be  the 
logical  thing  to  do  for  the  banks  in  the  State,  for  they  are  all  inter- 


RURAL   CREDITS.  359 

ested  in  keeping  the  reputation  of  their  securities  up.  They  would 
automatically  have  to  do  it. 

Mr.  Bulkley.  Is  it  your  plan  to  invite  the  other  banks  to  bid  for 
them? 

Mr.  von  Engelken.  No. 

Mr.  Bulkley.  Then,  how  would  you  go  about  it  ? 

Mr.  von  Engelken.  The  board  of  directors  of  the  State  organiza- 
tion would  distribute  to  those  different  organizations  those  securi- 
ties of  this  one  which  desires  to  liquidate. 

Mr.  Bulkley.  And  fix  a  price  for  them  ? 

Mr.  von  Engelken.  I  would  suggest  on  the  same  basis  on  which 
they  had  been  issued  for  this  liquidating  loan. 

Mr.  Bulkley.  Suppose  some  of  the  other  banks  do  not  approve 
of  them  and  do  not  want  to  take  their  share  ? 

Mr.  Woods.  Mr.  Chairman,  there  seems  to  be  some  misunderstand- 
ing about  this.  If  any  bank  wants  to  liquidate,  these  local  banks 
hold  but  a  very  small  amount  of  mortgages;  they  have  no  bonds  out. 
The  central  institution  could  just  buy  the  loans  and  issue  bonds  for 
them  and  sell  them. 

Mr.  Bulkley.  I  am  trying  to  get  at  Mr.  von  Engelken's  sugges- 
tion. It  is  not  that,  because  he  proposed  that  the  loans  should  be 
distributed  among  the  other  local  banks.  He  does  not  propose  that 
the  central  organization  shall  buy  them. 

Mr.  Woods.  That  is  what  they  have  been  doing. 

Mr.  Bulkley.  I  do  not  know  that  they  have  been  doing  anything. 

Mr.  Woods.  I  mean  under  the  plan  they  would  be  doing  that. 

Mr.  Bulkley.  That  is  what  I  am  trying  to  find  out.  He  did  not 
say  that. 

Senator  Hollis.  It  was  my  suggestion  that  the  State  organization, 
if  there  were  one.  should  take  the  assets  over  and  liquidate  them. 
Mr.  von  Engelken  did  not  suggest  that,  but  that  they  be  distributed, 
and  of  course  it  would  be  compulsory  distribution. 

Mr.  Woods.  They  would  be  in  the  business  of  purchasing  these 
securities  of  the  locals  and  issuing  bonds. 

Senator  Hollis.  They  would  have  the  most  of  them.  There  would 
only  be  a  few  scattering  ones  that  came  in  recently. 

Mr.  von  Engelken.  Let  me  read  just  one  paragraph  which  I 
think  covers  that  very  point  in  this  report : 

The  locals  should  not  lie  permitted  to  issue  bonds  running  for  a  lens  time 
for  several  reasons : 

1.  Its  capital  would  be  small  and  its  market  necessarily  restricted.  Euro- 
pean investigation  revealed  no  small  associations  or  societies  doing  this  class  of 
business. 

2.  Should  it  place  a  number  of  long-term  loans  running  over  a  considerable 
period  it  might  find  itself  suddenly  in  a  very  embarrassing  situation  either  by 
reason  of  its  inability  to  market  the  loans  or  by  lack  of  a  sufficient  volume  of 
business  to  justify  its  continuation.  'In  either  ca se  it  would  find  itself  up  against 
a  losing  proposition,  without  the  power  to  liquidate  on  account  of  its  outstand- 
ing long-time  bonds.  Its  financial  embarrassment  would  therefore  be  inevitable, 
whereas  in  a  federation  as  proposed  any  individual  local  could  be  liquidated 
by  the  State  unit  organization  substituting  loans  received  from  more  successful 
locals  and  withdrawing  the  loans  bearing  the  indorsement  of  such  unsuccessful 
local,  turning  such  loans  over  to  the  nearest  successful  local,  whose  indorse- 
ment could  be  substituted  for  the  unsuccessful  one  on  some  agreed  basis.  In 
this  way  the  unsuccessful  local  could  retire  its  liabilities  and  liquidate  without 
a  receivership.  Or  the  State  unit  organization  could  easily  perfect  a  consolida- 
tion of  two  or  more  of  its  federated  locals  to  save  such  a  situation.  Provision 
for  such  consolidation  should  be  made  by  law. 


360  RURAL   CREDITS. 

Mr.  Bulkley.  According  to  that,  thou,  the  bank  has  got  to  get  out 
of  these  indorsements  by  substituting  the  indorsement  of  other  banks 
under  an  agreed  basis.  That  is  to  say.  the  bank  whose  indorsement 
was  substituted  would  have  to  be  compensated  for  it.  Is  that  the 
suggestion  ? 

Mr.  von  Engelken.  A  condition  of  that  sort  might  arise.  Even  if 
the  farmers  in  this  liquidating  bank  had  to  put  up  a  little  something 
in  order  to  gel  out  from  under,  they  would  be  vastly  better  off  than 
under  the  plan  here,  where  they  could  not  get  out  at  all. 

Mr.  Bulkley.  That  is  a  better  plan  than  what  I  first  understood 
you  to  suggest.  In  other  words,  it  seems  to  me  that  the  successful 
banks  whose  indorsements  are  desired  should  not  be  compelled  to 
give  those  indorsements.  They  should  be  permitted  to  sell  them  in 
competition  for  what  they  are  worth,  and  let  the  liquidating  stock- 
holders take  the  loss,  if  there  is  any. 

Mr.  vox  Engelken.  That  might  be  better. 

Here  is  one  sentence  that  might  clarify  the  atmosphere: 

Whereas  in  a  federation  as  proposed  any  individual  local  conld  be  liquidated 
by  the  State  unit  organization  substituting  loans  received  from  more  successful 
locals  and  withdrawing  the  loans  bearing  the  indorsement  of  such  unsuccessful 
local. 

For  instance,  they  could  go  out  in  the  market  and  purchase  suffi- 
cient bonds  to  retire  those  and  issue  instead  the  bonds  of  more  suc- 
cessful locals  upon  some  agreed  basis.  Of  course  things  of  that 
sort  can  not  be  fixed  by  statute;  they  must  be  met  by  agreement. 

Mr.  Bulkley.  Are  the  bonds  issued  by  the  individual  locals  ? 

Mr.  von  Engelken.  No,  sir.  In  other  words,  when  the  accumu- 
lation of  securities  from  the  combined  locals  in  the  State  reaches  a 
certain  point  the  State  unit  organization  would  issue  a  series  against 
the  collective  securities.  If  any  part  of  that  collective  security  should 
turn  out  to  be  weak  or  want  to  be  retired  it  would  simply 
be  necessary  to  retire  a  sufficient  number  of  those  bonds  of  that  series 
in  order  to  maintain  the  ratio  of  assets  behind  the  bonds  issued.  Do 
I  make  myself  clear?  Of  course  those  things  can  all  be  worked  out 
in  detail;  but  it  is  the  underlying  idea  that  I  am  trying  to  bring 
out  that  organization  gives  strength  just  as  it  does  in  the  Federal 
reserve  act.  I  believe  in  that  act  the  individual  banks  can  make 
what  loans  they  choose,  but  they  have  a  central  organization  which 
passes  upon  such  loans  as  the}^  propose  to  convert  into  public  use. 

Mr.  Seldomridge.  Have  you  covered  the  matter  of  the  Government 
dealing  with  the  central  organization? 

Mr.  von  Engelken.  No.  I  was  going  to  come  to  that  when  we  get 
the  question  of  the  central  wound  up,  and  if  you  have  no  more 
questions  I  will  pass  on  to  that. 

The  next  matter,  then,  is  the  question  of  the  Federal  fiduciary 
agent  and  his  functions,  which  goes  right  back  to  the  fundamental 
question  of  the  security  and  the  appraisement  of  the  property. 

It  seems  to  be  apparent  that  the  investors  of  the  country  recognize 
that  there  is  value  to  farm  property  for  loan  purposes.  But  if  you 
are  going  to  inject  confidence  into  the  investing  public  in  this  mat- 
ter there  must  be  some  assurance  as  to  the  amount  of  farm  property 
behind  anv  loan — the  ratio,  in  other  words,  of  security  behind  the 


RURAL   CREDITS.  361 

Loan  to  be  issued.  Now,  what  is  provided  here?  We  have  here  a 
bank  organized  by  10  farmers,  we  will  say,  considering  the  smallest 
unit  available,  3  of  these  farmers  to  be  an  appraisement  com- 
mittee. And  that  is  the  onlj^  appraisement  between  the  placing  of 
the  mortgage  and  the  issuance  of  the  bonds — these  three  farmers — ■ 
and  as  I  pointed  out  yesterday,  it  stands  to  reason  that  if  you  leave 
the  matter  to  the  farmers  those  farmers  are  going  to  appraise  that 
land  as  high  as  it  is  possible  for  them  to  do  so,  for  several  reasons. 
In  the  first  place,  the  members  of  this  local  unit  benefit  from  the 
appraisement.  They  are  the  borrowers.  They  might  want  to  place 
a  mortgage  on  their  own  place.  In  the  second  place,  the  higher  they 
can  appraise  that  property  the  better  indication  it  will  be  of  the 
value  of  farm  properties  in  that  section. 

Mr.  Coulter.  Even  though  they  do  not  issue  much  ? 

Mr.  von  Engelken.  Even  though  they  do  not  issue  much. 

Mr.  Coulter.  They  might  simply  borrow  on  a  10  per  cent  of  the 
value  basis. 

Mr.  von  Engelken.  Having  always  in  mind  the  idea  of  selling 
the  property,  which  does  not  exist  in  Europe. 

Senator  Hollis.  It  is  pretty  popular  to  have  high  priced  farm 
lands  in  a  community. 

Mr.  Coulter.  Except  there  is  fear  of  increased  taxation.  The 
Government  finds  that  to  be  the  case  in  making  a  census  of  farm- 
land values.  The  Census  Bureau  once  in  10  years  tries  to  ascertain 
the  value  of  all  property — not  the  assessed  value,  but  the  true  ex- 
change value.  The  first  thing  the  Census  Bureau  does,  when  it  goes 
to  eveiy  farmer  and  he  is  asked  the  value  of  his  farm,  is  to  say  that 
the  information  given  will  not  be  allowed  to  pass  into  the  hands  of 
the  tax  officers.  Here  is  the  National  Government  in  the  very  first 
sentence  assuring  the  farmer  that  it  will  not  let  the  tax  officers 
know  the  value  of  his  property. 

Mr.  von  Engelken.  I  have  nothing  to  say  on  that  subject. 

Mr.  Coulter.  So  that  I  am  not  giving  the  assessed  value,  knowing,  as 
we  do,  and  from  the  very  statement  that  Mr.  von  Engelken  gave 
here  yesterday  about  a  $16,000  or  $18,000  farm  assessed  for  taxation 
at  $800,  that  assessed  valuation  does  not  constitute  a  very  valuable 
index  to  the  true  exchange  value  of  farm  property.  The  efl'ort  of 
the  Government  is  to  get  the  true  value,  and  that  is  the  first  point 
made. 

Senator  Hollis.  Proceed,  Mr.  von  Engelken.    This  is  interesting. 

Mr.  von  Engelken.  Then  this  situation  will  arise :  Your  farmers 
proceed  to  make  loans  and  you  three  gentlemen  are  the  committee 
of  three.  I  am  the  owner  of  land  and  I  want  a  loan.  If  you  will 
appraise  my  property  as  high  as  you  can  I  will  in  turn  stand  behind 
you  in  the  appraisement  of  your  property.  A  situation  of  that  sort 
is  not  at  all  inconceivable  in  this  country,  and  yet  there  has  not  been 
any  check  placed  on  those  bonds  in  this  sort  of  connection.  You 
merely  say  that  the  appraised  value  of  that  farm  shall  be  available 
for  a  loan  of  50  per  cent  of  that  value,  and  the  value  shall  be  de- 
termined by  three  farmers  who  organize  this  bank. 

Senator  Hollis.  And  still  these  farmers  would  have  their  capital 
invested  and  they  would  not  want  to  make  the  value  too  high. 
That  would  be  a  check. 


362  RURAL   CREDITS. 

Mr.  von  Engelken.  At  the  same  time  I  might  think  my  farm  is 
worth  $25,000  and  place  a  loan  on  it  for  $12,500,  when  an  impartial 
appraiser  would  value  my  property  at  $15,000. 

Mr.  Woods.  Does  not  your  plan  provide  for  the  guarantee  of  those 
loans  by  the  locals? 

Mr.  von  Engelken.  Yes. 

Mr.  Woods.  Tt  seems  to  me  that  that  would  he  a  very  good  check 
on  any  tendency  toward  overappraisal. 

Mr.  von  Engelken.  But,  you  see,  here  is  the  point :  None  of 
these  farmers  are  going  to  make  any  loans  with  the  idea  that  any- 
thing is  going  to  happen. 

Mr.  Woods.  No;  but  the  officials,  when  they  come  to  guarantee  the 
loans,  would  see  to  that. 

Mr.  vox  Engelken.  But  those  officials  make  the  appraisal. 

Mr.  Woods.  I  consider  that  quite  a  check  in  itself. 

Mr.  von  Engelken.  T  am  going  to  point  out,  when  I  get  to  this 
fiduciary  agent,  where  I  think  that  situation  can  be  very  greatly 
strengthened  without  taking  from  the  farmers  the  function  of  ap- 
praising. 

This  Federal  fiduciary  agent  provided  here  for  each  local  unit 
organization  is,  to  my  mind,  a  cumbersome  plan  of  little  service  and 
purpose,  because  it  is  not  a  part  of  the  function  of  this  individual 
to  make  any  check  of  the  appraisement  of  the  property.  He  merely 
must  see  that  there  is  a  mortgage  for  a  bond.  The  mortgage  may 
be  for  $10,000  on  a  $5,000  piece  of  property,  but  then  that  goes  en- 
tirely over  his  head — it  is  entirely  without  his  jurisdiction.  Why  is 
it  not  better  to  eliminate  this  Federal  fiduciary  agent,  who  is  the 
agent  of  the  Government  and  is  the  only  individual  who  is  sup- 
posed to  strengthen  this  in  the  minds  of  the  investor,  and  let  the 
point  of  attack  of  the  Government  on  this  situation  be  at  the  State 
unit  organization  at  the  time  of  issuing  the  series  of  bonds?  That 
works  out  this  way :  The  State  unit  organization  appraises  by  its 
own  impartial  appraiser  the  mortgages  which  any  local  proposes  to 
convert  into  cash.  Then  when  this  State  organization  has  a  sufficient- 
block  of  collective  mortgages  it  announces  to  the  Government  that 
"  We  now  propose  to  issue  bonds."  It  gives  30  or  60  days'  notice. 
"Kindly  come  down  and  inspect  our  securities."  The  Government 
sends  an  appraiser  out  there,  who  goes  over  the  securities  in  detail, 
and  if  he  notices  anything  which  appears  to  him  to  be  dangerous 
it  is  his  business  to  investigate  the  entire  securities  before  the  bond 
issue  is  authorized.  That  is  exactly  similar  to  your  Federal  Reserve 
act.  in  which  the  fiduciary  agent — if  I  understand,  not  being  a 
banker — scrutinizes  and  checks  the  securities  which  any  local  bank 
has  before  it  is  allowed  to  issue  currency  against  it. 

Senator  Hollts.  The  Federal  reserve  agent  is  not  expected  to  know 
very  much  about  the  solvency  of  the  signers  of  the  notes.  He  is  to 
see  that  the  notes  have  their  face  value,  and  he  may  well  know,  per- 
haps, but  I  do  not  think  it  is  contemplated  that  he  shall  have  much 
knowledge  of  the  solvency.  You  would  want  to  go  further  in  investi- 
gating the  soundness  of  the  loan  than  the  Federal  reserve  net.  You 
see  they  have  that  40  per  cent  of  gold  back  of  them. 

Mi',  von  Engelken.  There  is  a  reserve,  but  there  is  this  other 
thing  in  your  Federal  reserve  net  :  lie  may  have  securities  of  a  great 
many  different  kinds,  whereas  this  is  all  security  of  one  kind. 


RURAL  CREDITS.  363 

Senator  Hollis.  It  is  contemplated  his  security  is  a  commercial 
loan ;  but  there  would  be,  unquestionably,  men  you  do  not  know  any- 
thing about,  and  you  would  want  to  investigate. 

Mr.  von  Engelken.  He  might  also  have  a  nine-months'  paper  from 
a  farmer.     Isn't  that  a  subject  of  discount? 

Senator  Hollis.  A  certain  amount  of  it  could  be  received,  I  think, 
under  regulations — six  months'  maturity. 

Mr.  von  Engelken.  That  is  the  idea  that  I  had  to  advance  here  as 
compared  to  the  one  that  is  brought  out  here. 

Senator  Hollis.  It  is  analogous  to  it,  and  the  illustration  is  very 
useful,  and  I  am  glad  you  made  it. 

Mr.  Seldomridge.  The  suggestion  has  been  made  that  some  part, 
if  not  all,  of  the  postal  savings  banks'  funds  might  be  invested  in 
these  banks.  How  is  the  Government  going  to  arrive  at  any  idea  of 
the  proper  proportion  of  those  savings  to  place  in  one  particular 
State  unless  they  can  deal  directly  with  some  central  organization  ? 

Mr.  von  Engelken.  That  strengethens  the  argument  I  make. 

Mr.  Seldomridge.  There  are  hundreds  of  these  banks  which  will 
solicit  these  funds  if  they  are  offered  to  them.  How  is  the  Govern- 
ment to  equitably  apportion  those  funds  unless  they  can  deal  with  a 
central  organization  in  the  various  States  and  endeavor  as  far  as 
possible  to  provide  for  a  fair  and  general  distribution? 

Senator  Hollis.  Perhaps  Dr.  Coulter  would  like  to  answer  that. 

Mr.  Coulter.  We  had  thought  that  postal  savings  funds  would 
likely  be  used  in  the  communities  where  the}''  were  collected. 

Mr.  AON  Engelken.  We  would  not  get  any  of  them  in  that  case. 

Mr.  Coulter.  It  is  a  fact  that  in  some  of  the  States  where  there  are 
practically  no  postal  savings  deposits  there  would  be  very  little  for 
the  purchase  of  farm-land  bonds  in  those  States. 

Mr.  Seldomridge.  It  seems  to  me  that  the  plan  proposed  here  is 
more  along  the  line  that  we  would  give  the  Government  a  chance  to 
take  funds  that  are  stored  in  one  locality  and  place  them  where  there 
is  need  for  them. 

.  Mr.  Coulter.  That  is  a  fact.  There  might  be  deposits  in  Jackson- 
ville and  might  not  be  any  down  around  Palatka;  and  the  funds  of 
the  savers  in  the  large  cities  probably  should  be  given  an  opportunity 
to  be  invested  throughout  the  State  on  the  consolidated  securities. 

Senator  Hollis.  To  carry  that  further,  in  New  England  there  is 
no  crying  need  of  money  for  farm  lands,  because  we  have  our  mutual 
savings  banks;  and  I  think  it  would  be  entirely  proper  to  transfer 
the  postal-savings  funds  from  New  England,  under  proper  authority, 
to  Florida  or  the  West,  where  there  is  need  for  them. 

Mr.  von  Engelken.  In  other  words,  pave  the  way  for  the  farmers 
in  those  localities  to  make  a  sort  of  decent  living. 

What  I  am  trying  to  get  at,  if  I  may  inject  this  idea,  is  simplicity. 
You  are  now  about  to  embark  on  something  in  which  you  have  noth- 
ing to  guide  you,  and  the  success  of  what  you  do  is  predicated  abso- 
lutely upon  the  degree  of  confidence  which  you  can  inject  into  the 
investing  public  at  once;  and  I  wanted  to  have  a  system  so  simple 
that  you  can  do  that.  If  it  wavers  in  the  beginning  it  is  liable  to  fall 
of  its  own  weight.  Therefore  it  is  my  opinion  that  what  you  must 
do  is  to  simplify  this  matter  and  leave  as  few  points  of  attack  as 
is  possible.  I  would  like  very  much  if  you  would  let  Dr.  Coulter  sub- 
stantiate me  in  this  idea  of  the  Government  supervision  of  securities. 


364  RURAL   CREDITS. 

because  I  think  lie  rather  inclines  to  my  opinion.  Am  I  right,  Dr. 
Coulter?  5     ' 

Mr.  Coulter.  I  have  in  mind,  first,  that  we  now  have  outstanding 
$2,000,000,000  of  mortgages,  and  the  investing  public  already  knows 
something  about  the  value  of  farm-land  mortgages;  and  if  they  have 
already  invested  $2,000,000,000  in  that  land,  the  bond  is  likely  to  be 
somewhat  more  favorably  received,  which  would  result  immediately 
in  action. 

As  to  the  local  appraisement,  I  think  there  is  a  great  deal  in  what 
Mr.  von  Engelken  says.  I  think  it  might  well  be  provided,  though 
it  is  not  in  the  commission  bill,  that  the  National  Government, 
through  the  bureau  of  farm-land  banks,  or  whatever  sort  of  bureau  is 
created,  should  have,  in  addition  to  bank  inspectors,  appraisers,  and 
then,  when  an  institution  was  ready  to  issue  a  considerable  block  of 
bonds,  that  the  appraiser  could  be  called  in  and  make  a  general  ap- 
praisement of  all  of  the  property  back  of  the  series  of  bonds.  That 
would  be  much  more  economical  than  generally  found,  for  instance, 
in  insurance  companies  and  land  companies,  where  every  time  you 
issue  mortgages  you  go  and  get  your  livery  rigs  and  you  have  your 
hotel  expenses  and  traveling  expenses  of  supervision  for  one  indi- 
vidual mortgage.  That  is  a  thing  which  is  so  expensive  that  the 
farmers  could  not  afford  to  have  it  go  on  the  way  it  has  gone  on 
heretofore.  If,  however,  the  appraiser  could  go  to  a  community  or  a 
State  and  cover  all  of  the  pieces  of  property  and  look  into  the  thing 
generally  it  might  be  a  very  valuable  addition.  It  might  place  a  great 
deal  of  additional  confidence  in  the  bond  and  in  every  way  redound  to 
the  benefit  of  the  system. 

I  must  confess  I  studied  for  weeks  trying  to  think  of  some  way  to 
have  an  unbiased  outsider  come  in  and  appraise  the  property,  and 
I  had  not  seen  any  way,  and  thought  the  fiduciary  agent  came  nearer 
to  it  than  any  other  way  suggested  in  European  concerns;  but  I 
believe  the  other  would  add  strength  to  it  in  addition  to  reducing 
the  expenses.  But  I  think  you  would  still  have  to  have  some  one 
in  the  local  institution  corresponding  to  the  fiduciary  agent.  It 
might  be  that  his  powers  might  be  simmered  down  almost  to  that  of 
a  notary  public  under  bond,  to  certify  that  the  mortgages  were 
in  and  of  face  value,  and  so  forth  and  so  on,  and  in  that  way 
reduce  the  powers  and  reduce  the  expense  also  of  the  fiduciary  agent 
and  increase  the  power  of  the  appraiser  and  his  functions.  But  I  do 
not  think  it  is  absolutely  necessary  to  have  a  State  unit.  I  think  it 
would  be  better  to  say  that  these  institutions  may  form  their  selling 
agencies  and  so  forth,  and  work  it  out  in  that  fashion. 

Mr.  von  Engelken.  I  do  not  agree  with  the  doctor  in  any  particu- 
lar, perhaps  because  I  have  had  more  recent  farming  experience  than 
he  has. 

Senator  Hollis.  We  are  very  fortunate  to  get  the  two  views  so 
intelligently  expressed. 

Mr.  von  Engelken.  My  experience  as  a  farmer,  gentlemen,  as 
briefly  outlined,  is  this— and  I  want  to  say  right  now  that  nothing  I 
say  must  be  understood  as  casting  any  discredit  or  aspersions  on  the 
farmers.  But  the  farmer  is  a  man  of  very  peculiar  mentality.  In  the 
very  nature  of  things  he  must  be  so.  because  he  is  subject  to  condi- 
tions over  which  he  has  no  control.  He  is  the  greatest  optimist  and 
the  greatest  pessimist  in  the  world,  as  I  said  yesterday;  a  creature 


EUEAL    CREDITS.  365 

of  impulse  and  a  very  hard  man  to  guide.    Ordinarily  our  American 
farmer  you  can  not  guide,  but  the  European  farmer  you  can. 

Senator  Hollis.  That  is  because  he  has  been  so  often  called  "  the 
independent  farmer,''  and  he  wants  to  keep  up  his  condition. 

Mr.  von  Engelken.  It  is  very  apparent  to  me,  and  I  wish  I  could 
express  it  in  such  a  Ava}T  as  to  convey  that  idea  to  you.  that  whatever 
3?ou  do  for  the  farmer  now  you  must  complete  and  turn  over  and  say, 
t;  Here  it  is ;  go  ahead,"  and  leave  nothing  for  him  to  work  out  for 
himself,  because  if  you  do  the  chances  are  in  a  great  many  cases  it 
won't  be  done  at  all.  You  have  got  to  build  the  track  and  build  your 
railroad  train  and  put  on  your  conductor,  complete  the  whole  thing, 
and  say,  "  Here  it  is;  get  aboard  and  go  on." 

•Senator  Hollis.  That  is  very  easy  to  understand,  because  each 
farmer  on  his  own  domain  is  king.  They  are  really  little  principali- 
ties, with  autocratic  control,  and  if  you  leave  anything  in  this  system 
for  them  to  work  out  there  will  be  a  great  many  different  minds; 
therefore,  if  they  are  going  to  join  a  system,  let  them  join  it  accord- 
ing to  the  rules.    That  is  your  idea  ? 

Mr.  von  Engelken.  That  is  my  idea.  I  had  a  little  experience 
along  that  line  in  the  case  of  the  Hastings  Potato  Exchange,  which 
was  organized  for  the  purpose  of  finding  a  market  for  the  universal 
product  of  that  section,  and  we  fought,  bled,  and  died — and  finally 
did  die — over  absolutely  nothing  that  had  any  relation  to  the  main 
question,  but  outside  things  which  were  injected  and  on  which  discus- 
sions were  had,  purely  minor  points,  until  those  who  reall}'  had  the 
thing  in  hand  and  had  some  enthusiasm  had  lost  it,  and  it  fell  to 
pieces.  That  is  what  I  am  trying  to  say.  If  you  provide  now  a  ve- 
hicle by  which  the  farmers  can  convert  their  assets  and  place  them  in 
the  open  market  for  sale,  finish  the  job  and  do  not  leave  anything  for 
them  to  do,  because  if  you  do,  in  one  locality  they  will  do  it  this  way 
and  in  another  one  they  will  do  it  that  wa}7,  and  there  will  be  a 
heterogeneous  mass  of  all  sorts  of  plans  and  you  run  great  danger  of 
getting  far  away  from  the  main  idea,  which  will  be  lost  sight  of  by 
the  fuss  and  dust  raised  by  these  little  disturbances.  That  is  my  firm 
belief. 

Mr.  Coulter.  May  I  just  ask  a  question  there? 

Senator  Hollis.  Certainly. 

Mr.  Coulter.  I  think  that  right  at  the  present  time  there  is  some 
strength  in  Mr.  von  Engelken's  argument  and  there  probably  would 
be  a  few  years  later,  until  we  get  a  system  of  farm  insurance,  the 
various  kinds  of  farm  insurance,  built  up.  In  those  parts  of  the 
country  where  there  is  not  such  a  thing  as  farm  insurance  well  estab- 
lished there  is  some  strength  in  the  argument,  and  it  may  be  that  I 
am  influenced  by  the  fact  that  my  farm  experience  in  actual  farming 
and  on  a  reasonably  large  scale  is  in  the  district  where  we  do  have 
very  well  established  farm  insurance.  For  instance,  if  a  cow  gets 
sick,  the  farmer  does  not  sit  up  all  night  and  fret  over  her  the  same 
as  if  he  did  not  have  her  insured.  I  suppose  he  is  not  quite  so  pessi- 
mistic, because  he  knows  that  he  is  not  going  to  lose  everything. 
After  all,  the  animal  is  covered  by  insurance.  And  the  same  thing 
is  true  with  crop  insurance.  We  are  in  a  country  where  we  have  the 
crops  insured  to  a  very  considerable  extent. 

In  fact,  the  farmers  have  gotten  so  well  acquainted  with  the 
problems  of  crop  insurance  that  in  my  State  a  year  or  so  ago  they 


366  RURAL    CREDITS. 

had  the  matter  up  of  establishing  a  State,  crop-insurance  system,  so 
as  to  balance  all  the  prospective  losses  in  every  little  community 
and  spread  the  loss  over  the  State,  knowing  that  at  any  time  any- 
body might  be  hit  and  that  anybody  probably  would  be  willing  to  pay 
in  a  cent  or  two  to  spread  over  the  loss,  and  in  that  way  no  farmer  need 
sweat  blood  when  he  saw  a  thunderstorm  coming  up  or  saw  a  green 
cloud  that  might  mean  hail.  And  there  is  always  a  chance  that  one 
little  community  might  be  hard  hit  and  a  little  institution  might 
suffer  more  than  if  you  had  a  State  central,  which  would  level  things 
out  for  the  entire  State,  and  I  have  no  doubt  but  what  I  am  in- 
fluenced by  30  years  of  living  on  a  farm  and  raised  farm  products 
in  a  district  where  we  have  settled  some  of  these  outside  problems. 

Mr.  von  Ekgelken.  Referring  to  what  Dr.  Coulter  has  said,  I 
want  to  point  out  that  you  are  having  now  ideas  on  this  same 
subject  from  men  familiar  with  farm  conditions  from  the  oppo- 
site ends  of  this  country.  Dr.  Coulter  comes  from  an  old  and  well- 
settled  community.  I  have  lived  in  the  State  myself  and  I  know 
that  there  is  infinitely  less  moving  around.  But  what  J  get  my 
information  from  is  a  new  country,  where  it  is  entirely  possible 
that  10  years  from  now  there  will  not  be  a  single  man  in  the  farm 
community  who  is  there  to-day.  And  as  it  is  a  fact  that  what  you 
provide  now  will  be  more  largely  taken  advantage  of  in  these  new7 
communities  where  it  is  most  needed,  it  is  logical  to  approach  the 
problem  from  the  viewpoint  of  a  new  community. 

Senator  Hollis.  That  raises  a  question  that  it  might  be  well  to 
discuss.  Of  course,  it  is  contemplated  that  borrowers  will  move 
from  the  community  and  that  others  will  buy  the  farms  and  assume 
the  obligations,  but  not  that  the  original  borrower  will  be  discharged 
from  his  obligation.    Has  that  been  considered  at  all  ? 

Mr.  von  Engelken.  It  has  not  been  considered  as  far  as  I  am  con- 
cerned, Senator,  because  I  have  been  considering  the  borrower  as 
not  much  of  a  factor  in  the  situation.  What  we  are  dealing  with  is 
what  the  borrower  has. 

Senator  Hollis.  Well,  we  have  got  to  consider  the  man  as  well. 

Mr.  von  Engelken.  But  if  he  transfers  the  debt  to  some  one  else 
the  debt  stays  with  the  property. 

Senator  Hollis.  But  there  are  men  that  none  of  us  would  loan  to, 
no  matter  what  the  security  was.  That  would  have  to  be  handled 
as  it  always  is  under  similar  circumstances.  I  do  not  think  it  is 
worth  while  to  pursue  that  further. 

Mr.  Seldomridge.  I  think  there  should  be  a  statement  in  the  bill 
requiring  the  loaning  power  to  take  into  consideration  the  character 
and  general  reputation  of  the  borrower. 

Mr.  von  Engelken.  Would  it  not  be  proper  to  inject  something  of 
this  sort :  That  in  the  event  of  a  selling  of  any  mortgaged  property 
the  bank  has  the  option  of  requiring  the  payment  of  the  mortgage; 
and  then  the  new  man  might,  in  turn,  if  he  proves  acceptable,  borrow 
again.  Again,  the  borrower  and  seller  might  go  to  the  bank  and 
say,  "  Kindly  do  not  call  this  mortgage,  because  Mr.  So-and-so  is 
buying  my  place,  and  he  is  straight  and  has  a  good  reputation,  and 
you  can  transfer  the  mortgage  to  him." 

Senator  Hollis.  That  feature  ought  not  to  be  lost  sight  of. 

Mr.  von  Engelken.  That  very  thing  strengthens,  again,  this  argu- 
ment for  a  State-unit  organization,  because  how  do  you  know  that 


RURAL    CREDITS.  367 

the  members  of  a  local-unit  organization  to-day  will  be  there  10 
years  from  now;  and  at  the  same  time  they  are  obligating  them- 
selves for  35  years,  don't  you  see?  Let  me  cite  you  a  case  that  will 
illustrate  that  very  clearly.  There  is  a  section  in  the  State  of  Florida 
which  underwent  a  considerable  boom  within  the  last  five  years,  and 
three  or  four  years  ago  land  was  actually  sold  in  that  community  for 
$2,500  an  acre. 

Senator  Hollis.  What  was  that  land  used  for  ? 

Mr.  von  Engelken.  Celery.  When  I  say  celery,  of  course  you 
know  what  I  am  talking  about.  But  the  thing  was  there  had  been  a 
tremendous  profit,  and  everybody  went  there  from  East,  West,  North, 
and  South  and  opened  up  celery  farms.  Now  they  have  gotten 
down  to  a  normal  basis.  But  the  lands  were  sold  for  $2,500  an  acre. 
Under  this  plan  why  should  not  they  have  pledged  their  property 
for  loan  purposes  for  $2,500  an  acre  without  check  ? 

That  presents  another  feature.  I  think  it  should  be  provided  that 
the  State-unit  organization,  in  conjunction  with  the  local-unit  organi- 
zations provide  a  reserve  fund  out  of  the  profits  to  take  care  of  just 
such  conditions.  It  might  be  possible  that  with  this  $2,500  land  that 
they  would  loan  on  the  basis  of  $750. 

Senator  Hollis.  Why  would  it  not  be  a  good  idea  to  provide  that 
they  shall  not  loan  more  than  so  much  for  an  acre  of  land  ?  I  think 
that  might  meet  that  situation. 

Mr.  von  Engelken.  I  think  that  would  be  a  good  idea. 

Mr.  Platt.  Would  you  say  that  the  farmers  have  got  the  best  se- 
curity in  the  world,  as  was  said  here  by  many  representatives  of  the 
farmers  ? 

Mr.  von  Engelken.  That  is  a  little  bit  difficult  to  answer.  I  say 
this,  that  land  is  the  best  security  in  the  world. 

Mr.  Platt.  Let  me  put  it  in  another  way.  Has  there  been  any 
justification,  for  instance,  for  what  has  been  called  discrimination 
against  land  loans  ?  Has  the  bank  been  at  fault  in  not  making  loans 
on  farms  to  the  same  extent  it  has  on  other  property  ? 

Mr.  von  Engelken.  I  think  there  has. 

Senator  Hollis.  You  mean  you  think  there  has  been  discrimina- 
tion? 

Mr.  von  Engelken.  No;  I  mean  I  think  there  has  been  justifica- 
tion. 

Mr.  Platt.  In  other  words,  farm  lands  have  been  the  subject  of 
speculation  as  much  as  city  property? 

Mr.  von  Engelken.  Let  me  answer  that  in  this  way :  I  think  any 
farmer  in  the  United  States  who  farms  his  property  along  business 
lines  and  injects  into  his  work  the  same  amount  of  conservatism,  in- 
telligence, organization,  etc.,  that  would  he  be  required  to  inject  into 
any  commercial  business  to  make  it  a  success,  can  get  credit,  and  his 
land  is  available  for  credit;  but  what  is  discriminated  against  is 
loans,  not  the  land  but  is  the  man  on  the  land,  and  I  think  the  man 
on  the  land  is  every  day  learning  more  about  his  business,  and  I 
think  every  day  farm  loans  are  becoming  more  secure ;  but  it  is  going 
to  require  time  and  education. 

Mr.  Platt.  But  there  are  periods  when  the  land  of  a  whole  section 
seems  to  raise  in  value  from  speculative  reasons,  and  it  looks  to  the 
people  who  are  there  and  even  to  outsiders  as  if  the  value  was  stable. 

Mr.  von  Engelken.  Yes. 


368  RURAL    CREDITS. 

Mr.  Plait.  But  the  value  of  the  lauds  for  some  reason  or  other 
has  been  decreasing,  so  that  the  experience  of  the  banks  has  been 
that  (he  land  has  not  been  good  security  compared  with  other  secur- 
ities. 

Mr.  vois  Engelkejsi.  Let  me  cite  you  the  case  of  depressed  securities 
in  Florida.  Before  the  big  freeze  we  had  a  remarkable  orange 
industry  and  you  had  to  cover  an  orange  grove  with  dollar  bills  to 
buy  it.  Then  came  the  frost  of  1895  and  it  dropped  to  $10  an  acre 
in  many  instances.  Now  it  costs  $1,000  an  acre.  Under  the  amorti- 
zation plan  a  man  having  a  reasonable  mortgage  on  his  land  could 
have  survived  that,  because  it  takes  from  three  to  five  years  to  get 
your  groves  back  to  a  bearing  state.  As  it  was  I  can  take  you  down 
where  I  live  now  and  show  you  houses  deserted,  where  the  people 
wont  away  without  locking  the  house,  with  the  furniture  and  every- 
thing else  in  there,  and  they  walked  away  because  they  did  not  have 
the  price  of  a  railroad  ticket.     You  see  it  came  overnight. 

Senator  Hollis.  Has  the  orange-growing  industry  returned  to  the 
condition  it  was  in  before? 

Mr.  von  Engelken.  Yes. 

Senator  Hollis.  It  has  caught  up,  then  ? 

Mr.  von  Engelken.  Yes;  and  it  is  now  back  much  more  safely 
than  it  was  before. 

Mr.  Seldomridge.  Do  they  use  smudge  pots  there? 

Mr.  von  Engelken.  No;  not  so  much  that,  but  they  are  banking 
the  trees.  If  the  tree  freezes  on  the  top  of  the  ground  it  leaves  a 
certain  amount  of  the  bud  which  in  three  years  will  bear  again,  which 
was  not  done  at  that  time. 

Senator  Hollis.  Who  invented  thai  ? 

Mr.  von  Engelken.  I  do  not  know.  That  was  invented  by  neces- 
sity. 

Mr.  Platt.  Would  you  say  there  are  similar  hazards  in  fruit-grow- 
ing sections?  Mr.  Seldomridge  mentioned  (aside  from  the  record) 
apple  growing  in  Colorado.  Would  you  say  it  was  true,  for  instance, 
of  apples  or  small  fruits? 

Mr.  von  Engelken.  There  is  this  hazard,  Mr.  Platt.  We  are 
building  up  in  this  country  higher  and  higher  standards  of  product. 
Our  requirements  are  getting  greater  and  greater.  We  want  finer 
apples,  we  want  a  finer  orange,  and  we  want  it  quicker,  and  all  that 
sort  of  thing.  We  weaken  the  vitality  of  the  plant  and  make  it  more 
subject  to  disease.  You  take  the  old  apple  trees  that  grew  when  I 
wTas  a  boy  stealing  apples  from  the  orchard  and  the  only  way  that  you 
could  kill  that  tree  was  with  an  ax.  But  take  these  fine  apple  trees 
that  they  have  now  in  Colorado  and  Oregon  where  they  raise 
apples  of  large  size  and  polish  them  with  a  chamois  skin  and  they 
are  fighting  day  and  night  to  keep  disease  out  of  them.  Isn't  that 
right,  Dr.  Couiter? 

Mr.  Platt.  There  are  lands  in  Colorado,  for  instance,  that  sell  for 
$5,000  an  acre  for  apple  growing  which  does  not  grow  any  better 
apples  than  the  whole  country  of  New  Hampshire  and  New  York, 
which  is  right  near  the  market.  Would  you  say  there  is  danger  of 
the  inflation  of  the  value  of  such  land? 

Mr.  von  Engelken.  The  public  is  very  fickle  in  its  demands.  The 
price  depends  on  the  demand. 

Senator  Hollis.  You  had  better  go  ahead.  We  have  led  you  quite 
a  bit  astray. 


RURAL    CREDITS.  369 

Mi\  von  Engelken.  That,  I  think,  covers  the  argument  I  wanted 
to  make  on  the  point  of  the  interest  on  the  part  of  the  Government. 

Senator  Hollis.  I  think  you  have  made  it  very  plain. 

Mr.  von  Engelken.  We  now  pass  on  to  the  question  of  deposits, 
and  I  anticipate  that  that  will  be  a  pretty  lively  discussion,  because 
I  do  not  agree  with  the  idea  of  allowing  these  little  units  to  receive 
deposits,  and  there  are  many  reasons  for  that. 

In  the  first  place,  it  seems  to  me  to  be  decidedly  to  the  advantage 
of  the  farmer  to  conduct  his  farm-mortgage  business  with  the  least 
amount  of  detail  and  expense.  The  less  expense  that  is  involved  in 
conducting  this  the  better.  This  is  just  really  a  rudimentary  busi- 
ness; it  is  simple;  there  is  nothing  complicated  about  it,  and  by 
eliminating  the  complicated  elements  you  can  get  it  done  and  cut 
down  the  expense. 

Senator  Hollis.  Right  there,  do  you  think  it  would  be  possible  to 
conduct  these  local  banks  in  the  evenings,  the  way  they  do  these  loan 
associations  ? 

Mr.  von  Engelken.  No. 

Senator  Hollis.  Or  would  they  have  to  keep  regular  banking 
hours  ? 

Mr.  von  Engelken.  Yes. 

Senator  Hollis.  That  would  be  a  great  place  to  save  expenses. 
If  you  give  them  regular  banking  rooms  and  regular  banking  hours 
and  conduct  a  regular  banking  business,  it  will  make  it  expensive. 

Mr.  von  Engelken.  But,  you  see,  eliminating  the  question  of  de- 
posits, you  can  limit  your  overhead  charges. 

Senator  Hollis.  On  the  other  hand,  I  should  be  inclined  to  think 
the  deposits  would  help  you  to  reduce  your  overhead  charges. 

Mr.  von  Engelken.  I  should  analyze  that  a  little  further.  Let  us 
take,  for  argument's  sake,  a  $10,000  bank  which  has  not  yet  loaned 
its  full  allowance  of  $150,000.  Now,  it  is  dealing  on  a  margin  of  1 
per  cent,  which  is  $1,500  if  it  has  loaned  up  to  its  capacity.  The 
question  that  I  am  trying  to  bring  out  is  this:  What  benefit  will 
accrue  to  the  farmer  through  the  simple  expedient  of  having  that 
institution  receive  his  deposits  from  the  time  he  gets  his  money  until 
he  is  in  position  to  use  it  all.  Why  not  let  him  use  the  existing  coun- 
try bank  for  that  purpose  and  not  be  burdened  with  the  expense  of 
keeping  the  checking  account?  Because  it  is  provided,  for  instance, 
that  a  $10,000  bank  can  only  receive  $5,000  of  deposits,  and  it  takes 
a  man  versed  in  the  business  to  handle  that  $5,000  as  well  as  if  he 
were  handling  $50,000. 

Senator  Hollis.  I  can  give  you  a  little  bit  of  testimony  on  that. 
I  know  a  bank  in  a  town  of  about  800  people.  It  is  a  national  bank, 
but  has  a  savings  depository.  It  gives  every  savings  depositor  a 
check  book  and  it  encourages  him  to  use  his  check  book  and  use  his 
money,  because  it  only  pays  on  the  lowest  deposit  in  three  months. 
He  encourages  the  checking  because  it  draws  it  down,  and  he  does 
not  have  to  pay  interest  on  so  large  a  balance.  I  suppose  that  is 
a  very  unusual  thing.  That  bank  has  become  immensely  profitable 
and  one  man  has  bought  up  all  the  stock. 

Mr.  von  Engelken.  You  see  there  is  a  fine  distinction  between 
savings  and  checking  deposits  in  the  amount  of  labor  involved. 

.'',7031—14 24 


370  RURAL    CREDITS. 

Senator  IIollis.  They  give  them  a  check  book  and  tell  them  to 
draw  the  balance  so  that  they  do  not  have  to  pay  much  interest,  and 
they  find  it  pays  them  to  do  it. 

Mr.  von  Engelken.  In  this  minority  report  somewhere — I  do  not 
know  just  where — we  suggest  that  the  locals  shoulu  receive  savings 
deposits.  But  when  it  comes  to  a  checking  account  it  requires  the 
services  of  a  fairly  high-priced  man,  and  I  do  not  see  where  the 
benefit  comes. 

Mr.  Platt.  You  mean  the  bookkeeping? 

Mr.  vox  Engelken.  Yes;  the  bookkeeping.     It  is  complicated. 

Mr.  Woods.  We  have  these  small  country  banks  in  these  communi- 
ties now.  What  is  the  matter  with  letting  them  take  charge  of  this 
farm-loan  business? 

Mr.  von  Engelken.  Have  you  read  our  report? 

Mr.  Woods.  Xo.    What  would  be  the  matter  with  that? 

Mr.  von  Engelken.  You  have  simply  taken  our  minority  report 
en  bloc.     That  is  the  suggestion  we  make. 

Mr.  Woods.  You  do  not  thing  they  would  take  1  per  cent  margin, 
do  you,  for  doing  business? 

Mr.  von  Engelken.  Xo;  I  do  not. 

Mr.  Woods.  I  am  confident  that  the}'  would  be  willing  to  do  it  for 
one-fourth  of  1  per  cent. 

Mr.  von  Engelken.  So  am  I. 

Mr.  Woods.  Making  that  the  limit,  and  let  these  banks  continue  to 
do  the  deposit  business. 

Mr.  von  Engelken.  Yes.  I  can  cite  you  an  illustration.  The 
farmers  in  Hastings  are  proposing  to  open  a  bank,  and  they  called 
me  in  and  asked  me  what  I  thought  about  this  farm-loan  business, 
and  I  told  them  that  we  would  have  action  on  it  in  a  short  time,  and 
to  wait.  It  is  their  purpose  to  provide  a  bank  of  their  own  to  work 
in  conjunction  with  the  farm-land  bank  to  be  organized  in  that  sec- 
tion. And  I  think  you  wTill  find  that  to  be  largely  the  case  where 
the  existing  institution  does  not  fill  the  existing  needs.  If,  on  the 
other  hand,  you  allow  the  little  local  unit  to  receive  deposits,  in  the 
first  place  you  provide  that  the  bank  shall  be  free  from  taxation; 
and  yet  the  little  country  bank  doing  practically  the  same  business 
is  not  free  from  taxation  and  there  is  a  certain  amount  of  discrimi- 
nation which  will  put  the  bank  which  is  now  there  to  a  disadvantage. 
In  the  second  place,  why  antagonize  them  ?  What  is  to  be  gained  by 
antagonizing  the  country  bank?  I  do  not  think  that  it  is  to  the 
profit  of  these  local  institutions  to  have  $5,000  worth  of  deposits, 
which  might  be  checked  out  at  any  time. 

Senator  Hollis.  That  is  the  question.  If  it  is  profitable,  we  ought 
to  give  them  a  chance,  and  if  it  is  not  we  ought  not  to  encourage  it. 

Mr.  von  Engelken.  Further,  do  you  not  think  this,  Senator  Hollis, 
that  from  the  point  of  view  of  the  investor  the  investor  might  agree 
with  us  that  the  farmer  is  able  to  appraise  land,  but  would  be  a  little 
doubtful  whether  he  is  able  to  deal  with  the  deposits? 

Senator  Hollis.  My  greatest  objection  to  it  would  be  that  the  assets 
would  not  be  liquid,  and  they  would  have  to  be  liquid. 

Mr.  von  Engelken.  If  you  allow  the  little  local  banks  to  go  into  the 
banking  business  and  take  the  limit  in  deposits  so  that  they  could  de- 
rive some  revenue,  that  would  be  a  different  matter,  but  here  vou 


RURAL    CREDITS.  371 

have  $5,000,  and  a  man  must  be  prepared  to  take  care  of  that  business, 
and  does  it  outweigh  the  advantages  accruing  to  the  farmer  by  elimi- 
nating all  you  could  and  securing  simplicity,  which  gives  confidence, 
because  talcing  away  the  checking  account  which  the  local  bank 
can  handle  just  as  well  and  which  the}7  'are  entitled  to — they  are  en- 
titled to  a  little  of  this  farmer's  business — taking  away  this  matter 
of  checking  you  reduce  it  to  its  elements,  and  the  farmers  have  noth- 
ing to  do  except  form  their  organization,  issue  the  mortgages,  and 
then  deal  with  the  State  unit  organization  for  the  purpose  of  securing 
money  when  their  funds  were  exhausted  in  exchange  for  the  mort- 
gage which  they  have  sent  out  ?  I  have  not  the  faith  in  the  farmer 
as  a  banker  that  is  evidenced  by  the  gentlemen  who  wrote  this  ma- 
jority report. 

Senator  Hollis.  I  can  not  see  where  it  is  necessary  to  have  it  a 
bank  and  keep  open  during  banking  hours.  Take  $150,000  out  in 
loans,  there  would  be  150  averaging  $1,000  or  75  averaging  $2,000, 
spreading  over  a  period  of  35  or  40  years.  There  would  only  be  about 
one  mortgage  handled  in  a  month.  I  can  not  see  the  need  for  having 
a  regular  banking  room  open  during  regular  banking  hours. 

Mr.  von  Engelken.  Unless  you  have  a  checking  account. 

Senator  Hollis.  As  I  see  it,  and  I  rather  view  it  from  what  the 
building  and  loan  association  is  doing,  and  you  could  clo  it  the  way 
the  building  and  loan  association  is  doing  and  have  them  open  in 
the  evening,  because  it  is  going  to  be  so  much  less  expensive.  Then 
a  clerk  in  the  clothing  store  could  look  after  the  details  in  extra  hours 
and  you  could  reduce  the  expense  immensely,  if  it  is  feasible  to  do  it 
that  way. 

Mr.  von  Engelken.  You  may  be  surprised  to  know,  Senator  Hollis, 
that  I  found  repeatedly  in  Germany  that  the  members  of  these  banks 
place  their  own  funds  in  the  city  banks.  That  is,  they  borrow  from 
the  bank,  but  they  would  not  put  their  money  into  it.  The  reason 
for  that  is  that  they  object  to  having  every  Tom,  Dick,  and  Harry 
know  how  much  money  they  have  on  deposit.  That  is  another  thing 
to  be  considered,  because  the  farmer  has  not  been  educated  to  that 
degree  of  silence  which  is  required  of  a  banker. 

Mr.  Coulter.  The  commission  is  working  out  a  provision  which 
says  that  they  must  not  necessarily  have  deposits,  but  they  may. 

My  own  judgment  has  been,  for  a  great  many  months  back,  and 
in  fact  I  made  a  special  report  to  the  Wisconsin  Legislature  on  that 
subject  over  a  year  ago,  that  the  little  institutions  probably  would 
not  take  the  deposits  at  all.  They  may,  but  they  would  not  probably 
find  it  profitable,  unless  they  did  more  than  the  land-mortgage  busi- 
ness. My  idea  was  that  if  you  authorized  them,  the  small  ones  never- 
theless would  not  take  deposits,  but  would  do  all  of  their  business 
with  some  local  bank,  when  the  installments  were  paid  and  when 
interests  were  paid  out  to  the  bondholders,  etc.,  that  the  business  would 
be  done  with  the  local  bank ;  that  the  farm-land  bank  would  have  an 
account  with  the  local  bank;  but  after  the  institution  got  larger,  got 
to  a  point  where  it  must  maintain  permanent  offices  and  officers,  etc., 
then  it  would  be,  I  believe,  decidedly  wrong  to  make  it  impossible 
for  them  to  look  after  their  own  mortgage  business.  In  other  words, 
let  us  say  that  the  institution  got  up  to  $50,000  of  capital,  and  when 
farmers  borrowed  they  would  want  to  leave  a  little  of  what  they 
borrowed.     Say  they  would  want  to  build  a  building,  or  were  going  to 


372 


RURAL    CREDITS. 


put  in  tile,  or  whatever  the  purpose  was.  they  probably  would  want 
part  of  it  now  and  the  rest  in  six  months,  but  they  would  want  to 
take  one  mortgage,  and  they  should  be  allowed  to  leave  the  rest  of 
it  with  the  bank  for  possibly  weeks  or  months. 

Similarly,  when  the  annual  payments  were  made  they  could  make 
those  to  the  farm-land  bank  itself.  The  farm-land  bank  itself  could 
look  after  paying  the  interest  to  the  bondholders.  After  it  had 
taken  on  sufficient  size,  etc.,  make  it  worth  while  for  it  to  do  that 
sort  of  thing.  Then  the  other  type.  I  have  spoken  of  the  type 
which  would  be  small  and  would  be  doing  only  a  mortgage  business ; 
and  second,  the  bank  of  the  type  that  would  be  a  grown-up  institu- 
tion, doing  a  considerable  amount  of  business,  one  that  could  handle 
it  own  receipts  and  payments,  etc. ;  and  the  third  type — I  have  pro- 
vided another,  which  I  do  not  know  whether  you  gentlemen  have 
noticed  or  not — providing  for  50  per  cent  interest  in  the  cost  of  oper- 
ation of  an  institution  which  would  be  allowed  to  do  a  regular  bank- 
ing business  only  with  its  members.  In  other  words,  like  the  People's 
Bank  of  Europe,  lending  only  to  its  members  and  doing  business 
only  with  its  members,  if  they  want  to  do  that,  but  prohibiting  them 
from  going  into  a  general  banking  business.  It  seems  to  me  that 
with  the  small  bank  we  could  allow  them  to  go  ahead,  and  it 
would  be  a  very  profitable  business  for  them  with  their  own  members, 
and  they  would  not  open  a  regular  bank  on  $10,000.  It  seems  to  me 
that  the  additional  profit  that  there  would  be  from  doing  business 
with  their  members  would  be  sufficient  to  pay  the  additional  overhead 
charges  and  operating  expenses,  and  it  could  go  ahead.  These  three 
types  are  as  clearly  outlined  as  possible  under  the  bill  under  con- 
sideration. 

Mr.  von  Engelken.  How  would  this  appear  to  you,  gentlemen, 
that  you  define  the  size  of  bank  which  may  receive  deposits?  By 
that  I  mean  this:  I  agree  with  Dr.  Coulter  in  a  measure,  that  we 
should  not  just  come  out  flat-footed  and  say  that  these  banks  shall 
not  receive  deposits,  but  to  eliminate  from  them  the  weakness  from 
the  investor's  point  of  view,  why  not  say  that  no  bank  may  open 
up  a  current  account  business  until  its  capital  has  reached,  say,  $25,000, 
and  when  operating  with  $25,000  they  have  sufficient  strength,  then 
let  them  open  up  a  regular  bank  and  receive  deposits. 

Mr.  Seldomridge.  What  are  you  going  to  do  in  a  community  where 
it  is  impossible  to  develop  capital  to  that  extent,  yet  there  is  a 
pressing  and  crying  need  for  short-time  rural  credit  ? 

Mr.  von  Engelken.  Mr.  Seldomridge,  I  want,  if  you  will  allow  me, 
later  on,  to  have  a  discussion  with  you  gentlemen  on  the  subject  of 
short-time  credits,  and  I  think  we  can  clear  that  up  at  that  time, 
because  I  do  not  agree  that  there  is  any  necessity  for  it  if  this  system 
is  put  into  operation. 

Mr.  Platt.  There  is  one  question  I  would  like  to  ask  you  under  the 
farm-mortgage  system  loans.  What  advantage  would  these  banks  have 
over  the  building  and  loan  association  anyway  ?  Why  could  not  the 
farmers  form  themselves  into  cooperative  associations  themselves? 
They  have  done  it  in  some  States — started  working  in  the  cities, 
perhaps.  Why  is  not  that  really  a  better  plan,  because  it  requires 
savings,  it  makes  compulsor}7  deposits  as  well  as  compulsory  payments 
on  mortgages. 


EURAL    CREDITS.  373 

Mr.  von  Engelken.  Mr.  Piatt,  I  am  not  competent  to  answer 
that,  because  I  am  entirely  unfamiliar  with  the  savings  union  busi- 
ness— I  mean  the  building  and  loan  business.  I  do  not  know  any- 
thing about  it. 

Mr.  Platt.  It  does  business  only  with  its  members.  The  savings 
and  loans  associations  only  keep  open  a  night  or  two  a  week,  some- 
times only  one  or  two  nights  a  month,  and  the  members  make  regular 
monthly  or  annual  or  semiannual  payments.  They  join,  if  they 
have  a  small  income,  even  when  they  do  not  want  to  borrow.  They 
join  and  pay  their  clues  for  an  investment,  and  then  when  they 
want  to  borrow  they  can  borrow  either  on  the  shares  that  have 
matured  or  they  can  borrow  on  their  land  as  security,  and  if  there 
is  an  amortization  plan  by  which  loans  are  usually  paid  off  in 
about  12  years,  that  could  be  arranged  to  run  along  there  just  as  well 
as  not.     It  is  a  matter  of  the  size  of  the  payment. 

Mr.  von  Engelken.  It  seems  to  me  that  the  principles  of  the  two 
plans  are  practically  identical. 

Mr.  Platt.  The  only  difference  is,  it  seems  to  me,  I  may  be  wrong 
about  this,  the  chief  difference  is  that  the  savings  and  loan  associa- 
tions gather  their  capital  from  their  members  in  the  first  place  by 
getting  them  as  members  and  having  them  make  regular  payments, 
the  dues  of  the  building  and  loan  association  coming  along  like  a  bill, 
and  the}^  are  paid  regular  and  the  people  are  saving  money  that  they 
would  not  save  at  all  otherwise,  probably. 

Mr.  von  Engelken.  This  plan  serves  the  great  purpose  of  pro- 
viding an  avenue  for  taking  the  money  where  it  is  and  putting  it 
where  it  is  not. 

Mr.  Platt.  There  is  something  in  that,  I  admit.  That  is  what 
I  am  trying  to  bring  out. 

Mr.  Coulter.  There  are  but  a  few  parts  of  the  country  that  could 
use  the  building  and  loan  idea. 

Mr.  Platt.  That  is  right.  The  capital  would  have  to  come  in 
from  the  outside.  The  building  and  loan  association  is  more  of  a 
cooperative  plan  than  these  banks. 

Mr.  Coulter.  Unless  they  are  made  cooperative. 

Mr.  Platt.  Unless  they  are  made  cooperative. 

Mr.  von  Engelken.  I  think  you  will  find  when  this  gets  into  oper- 
ation your  corn-belt  States  and  your  better  agricultural  States  will 
probably  take  less  advantage  of  it,  because  they  have  less  necessity 
for  it;  don't  you  see? 

Mr.  Seldomridge.  You  will  have  to  go  into  the  matter  of  short- 
time  credits  very  clearly  in  order  to  demonstrate  to  me  that  it  is  not 
necessary  in  the  sparsely  settled  portions  of  the  country,  where  land 
has  not  yet  reached  a  value  to  justify  the  formation  of  these  mort- 
gage banks. 

Senator  Hollis.  I  wish  you  would  discuss  that.  Start  on  it  now. 
We  might  not  be  able  to  get  so  many  members  of  the  committee  to- 
gether this  afternoon. 

Mr.  von  Engelken.  Let  me  answer  your  question  then  by  this: 
How  can  you  demonstrate  to  me  that  a  man  in  the  newly  settled  sec- 
tions of  the  country,  who  is  not  now  a  subject  of  credit,  can,  under 
any  system  that  is  not  eleemosynary,  be  made  a  subject  of  credit? 
How  are  you  going  to  legislate  credit  to  him  ? 

Mr.  Seldomridge.  He  is  a  subject  of  credit  to  a  limited  extent. 


374  RURAL    CREDITS. 

Mr.  von  Engelken.  I  said  I  did  not  recognize  the  necessity  at  this 
time  for  a  short-time  credit.  There  are  many  reasons  in  my  mind 
for  making  that  statement.  In  the  first  place  I  think  it  is  highly 
dangerous  at  this  time  or  even  in  the  next  two  or  three  years  to  touch 
upon  the  question  of  governmental  action  in  the  matter  of  short- 
time  credits.  To  this  farm-land  business,  in  the  minds  of  those  who 
are  not  familiar  with  it,  will  bear  a  certain  degree  of  relation.  Many 
people  who  do  not  analyze  the  situation  will  fail  to  distinguish  what 
is  the  difference  between  this  system  and  a  system  for  short-time 
credits.  This  is  the  simplest — it  is  the  easiest  to  put  into  effect  and 
the  safest.  If  you  organize  now,  side  by  side  with  this  same  system, 
short-time  credits,  which  I  tell  you  now  is  loaded,  and  they  fail,  you  are 
going  to  injure  this.  This  is  the  greatest  need  that  stands  before  the 
American  farmer  to-day,  because  if  a  farmer  having  a  mortgage 
running  for  three  years,  we  will  say,  can  transfer  it  to  a  mortgage 
running  35  years,  it  will  simply  mean  this,  that  if  the  mortgage  is 
for  $3,000,  instead  of  having  to  pay  $1,000  a  year  out  of  his  earn- 
ings as  now  is  the  case  he  can  pay  about  $50,  and  on  an  earning  basis 
of  $1,000  a  year  leave  $950  of  his  own  money  for  his  own  operation. 
And  I  think  the  farmer  who  really  learns  something  about  his  own 
business  with  his  own  money  is  the  man  who  is  most  worthy  of  your 
help. 

Mr.  Seldomridge.  But  the  cry  is  coming  up  to  the  committee  from 
the  South  from  the  men  who  are  in  the  grasp  and  grip  of  the  store 
keeper,  so-called,  who  is  advancing  them  money  at  an  extravagant 
rate  of  interest  and  not  only  holding  them  up  for  heavy  interest 
charges,  but  also  taking  advantage  of  them  and  of  his  ownership  of 
them  to  the  extent  of  forcing  high  prices  upon  them  for  the  neces- 
sities of  life  and  equipment.  We  are  seeking  to  relieve  that  condi- 
tion and  to  relieve  the  condition  of  the  man  who  is  trying  to  develop 
and  settle  up  portions  of  our  country  and  who  needs  a  little  capital 
to  tide  him  over  a  season  of  reverse  perhaps  to  a  year  of  plenty. 
He  needs  to  purchase  a  few  cows  or  dairy  stock  or  something  of  that 
kind,  and  there  is  an  appeal  to  me  in  the  necessity  and  urgency  of 
that  nature,  and  if  you  do  not  provide  in  some  way  to  reach  that 
condition  this  legislation,  I  believe,  will,  in  a  certain  sense,  "be 
charged  as  being  ineffective. 

Mr.  vox  Engelken.  I  have  read  a  good  deal  of  what  you  mention. 
I  have  been  reading  the  farm  papers  of  our  local  and  the  other  papers, 
and  it  seems  to  me  that  there  underlies  all  this  cry  a  certain  idea 
of  getting  hold  of  some  easy  money.  You  will  fiend.  Mr.  Seldom- 
ridge—— 

Mr.  Seldomridge  (interposing).  It  is  not  a  question  of  getting 
hold  of  easy  money:  it  is  a  question  of  getting  money  at  all,  in  a 
great  many  instances. 

Mr.  von  Engelken.  It  must  be  easy  money  if  a  man  can  go  along 
all  these  years  and  can  not  get  credit  and  can  get  credit  under  this 
system  which  you  would  provide. 

Mr.  Seldomridge.  There  are  no  banking  facilities  in  this  country. 

Mr.  vox  Exgelken.  It  has  been  the  experience  in  this  country  that 
where  there  was  business  enough  in  a  community  to  enable  a  man  to 
open  a  bank  there  has  been  a  bank  opened.  Let  us  look  at  that  question 
a  little  bit  from  the  bankers'  point  of  view.  I  do  not  hear  any 
question  here  made  of  the  country  bank,  which  has  been  really  one 


RURAL   CREDITS.  375 

of  the  greatest:  friends  the  farmer  has  had,  in  so  far  as  it  was  possi- 
ble for  it  to  be.  But  consider  the  fact  that  the  farmer  has  been  labor- 
ing under  conditions  which  in  themselves  practically  eliminate  him 
from  the  field  of  credit.  His  land  was  eliminated.  Again,  as  Sena- 
tor Fletcher  pointed  out  here  before  this  committee,  the  farmer  could 
not  borrow  from  the  bank  for  his  short-time  requirements  for  the 
banker  realized  that  the  farmer  was  borrowing  money  on  his  land 
from  an  individual  who  would  be  apt  to  turn  him  out  if  something 
happened,  you  see,  and  his  principal  payment  being  so  large  that 
the  risk  was  augumented,  that  banker  could  not  possibly  lend  the 
farmer  any  more  money  than  he  has  done,  and  you  will  find  in  many 
of  these  country  banks  they  have  given  the  farmer  more  credit 
than  he  was  justified  in  getting  under  the  conditions  under  which 
he  was  laboring.  Remove  that  under  a  bill  of  this  kind  and  you  will 
find  that  this  will  be  the  case,  that  the  country  banker  will  be  the  first 
man  to  realize  upon  how  much  better  basis  the  farmer  has  been 
placed,  and  will  realize  it  quicker  than  the  farmer  himself.  There  is 
money  in  the  short-time  business  for  the  country  banker,  and  he  is 
going  to  take  advantage  of  it  just  as  sure  as  we  are  here,  particularly 
as  the  gentlemen  have  said,  since  he  can  rediscount  that  paper  in 
six  months. 

Mr.  Wood.  You  spoke  of  a  $3,000  loan.  How  valuable  would  that 
farm  need  to  be  in  order  for  a  man  to  borrow  $3,000? 

Mr.  von  Engelken.  Do  you  mean  in  my  community? 

Mr.  Wood.  Anywhere  under  this  system  proposed  by  the  com- 
mission. 

Mr.  von  Engelken.  Oh,  under  this  system  proposed  by  the  com- 
mission? I  think  the  appraised  value  of  that  property  should  be 
$6,000. 

Mr.  Woods.  The  actual  value? 

Mr.  von  Engelken.  The  appraised  value ;  yes. 

Mr.  Woods.  That  would  give  him  $3,000  in  cash  to  invest,  would 
it  not? 

Mr.  von  Engelken.  Yes. 

Mr.  Woods.  How  much  personal  property  in  the  way  of  cattle  and 
machinery  would  he  need  in  order  to  farm  that  ? 

Mr.  von  Engelken.  That  is  a  very  difficult  question  to  answer. 

Mr.  Woods.  On  the  average. 

Mr.  von  Engelken.  For  this  reason :  $6,000  in  my  country,  where 
I  am  located  now,  would  buy  about  30  acres  of  land,  and  yet  the  gen- 
tleman who  testified  yesterday,  I  think,  said  you  could  buy  almost 
a  section  in  his  country  for  that  amount  of  money — 640  acres. 

Mr.  Woods.  In  other  words,  a  man  who  could  borrow  $3,000  under 
this  scheme  would  not  need  help. 

Mr.  von  Engelken.  No. 

Mr.  Woods.  He  is  pretty  well  fixed? 

Mr.  von  Engelken.  He  is  pretty  well  fixed. 

Mr.  Woods.  But  the  man,  the  tenant,  is  paying  from  2  to  5  per 
cent  a  month  and  will  never  be  able  to  buy  a  farm  unless  he  can  save 
some  expenses  in  the  way  of  interest. 

Mr.  von  Engelken.  Yes. 

Mr.  Woods.  It  seems  to  me  that  that  is  the  kind  of  a  man  we  want 
to  help  in  order  to  assist  him  and  encourage  him.  He  gets  discour- 
aged.   He  closes  up  everything,  throws  up  his  business,  and  moves 


876  RURAL    CREDITS. 

to  town,  and  it  seems  to  me,  through  associations,  we  ought  to  be 
able  to  provide  a  way  that  would  certainly  encourage  him  to  hope 
that  he  would  get  better  rates,  and  in  a  way  he  would  get  better 
rates. 

Mr.  von  Engelken.  Do  you  not  think  that  this  is  the  case?  It 
has  been  my  experience  where  I  am  located  that  the  greatest  draw- 
back to  my  section  as  a  farming  section  was  the  fact  that  we  have  had 
too  many  men  come  into  that  section  and  try  to  farm  without  a 
dollar.    That  is  what  we  call  shoe-string  farming. 

Mr.  Woods.  That  would  apply  to  only  a  few  sections. 

Mr.  von  Engelken.  Let  us  take  the  viewpoint  of  a  tenant.  A  ten- 
ant, to  buy  a  farm  under  this  system,  must  have  sufficient  money  to 
pay  at  least  half  of  it,  unless  he  gets  a  second  mortgage. 

Mr.  Woods.  He  does  not  need  Government  aid  very  much  in  any 
shape  or  form. 

Mr.  von  Engelken.  I  don't  know. 

Mr.  Woods.  Any  man  who  has  sufficient  money  to  pay  50  per  cent 
down  does  not  need  Government  aid. 

Mr.  von  Engelken.  Would  you  favor  a  system  whereby  tenants 
having  nothing  can  become  landowners? 

Mr.  Woods.  Some  such  system.  We  ought  to  establish  an  incentive 
tli ere  for  them  to  save  by  not  paying  2  to  5  per  cent  a  month. 

Mr.  von  Engelken.  I  can  answer  that  by  saying  that  throughout 
the  entire  European  trip  we  asked  the  question,  "  Is  there  any  sys- 
tem whereby  a  man  having  nothing  but  his  muscle  and  his  brain  can 
become  a  landowner?  "  and  the  answer  universally  was  "  No." 

Mr.  Woods.  There  is  nothing  to  that  answer,  because  I  had  noth- 
ing but  my  muscle  and  brains,  but  I  am  a  landowner.  There  is 
nothing  to  that  at  all. 

Mr.  von  Engelken.  You  were  not  made  a  landowner  overnight? 

Mr.  Woods.  No;  neither  will  these  tenants  become  landowners 
overnight.  We  have  to  provide  ways  and  means  so  that  in  time  they 
will  become  landowners  and  will  not  become  discouraged. 

Mr.  BrLKLEY.  What  you  mean  is  that  such  a  man  could  not  be- 
come a  landowner  ultimately.  You  mean  there  is  no  way  he  could 
borrow  under  this  plan. 

Mr.  Woods.  Yes;  and  get  out  of  the  tenant  class  and  into  the  land- 
owner class. 

Senator  Hollis.  That  is,  you  do  not  mean  to  say  that  we  should 
help  a  man  who  would  just  walk  in  and  give  his  name  and  say  "  I 
want  to  own  a  farm,"  and  lend  him  the  money? 

Mr.  Woods.  There  is  no  though  of  that  at  all. 

Senator  Hollis.  Now,  I  am  trying  to  get  the  issue  between  you. 
He  wants  to  be  brought  in  contact  with  your  idea  so  he  can  give  us 
some  judgment  on  it,  if  you  will  explain  a  little  more  in  detail  what 
you  mean. 

Mr.  Woods.  I  think  the  best  explanation  I  can  give  would  be 
found  in  this  book  you  people  produced. 

Mr.  Bulkley.  What  book  do  you  refer  to  ? 

Mr.  Woods.  I  think  it  is  214  or  314.  Provision  was  made  in 
Germany  along  that  line,  where  tenants  borrowed  money  through  as- 
sociations, and  I  see  no  reason  why  provision  should  not  be  made 
somewhat  along  this  line,  only  applicable  to  this  country,  to  assist 
tenants  with  such  legislation  that  it  at  least  would  encourage  them 


KURAL    CREDITS.  377 

to    form    mutual    associations    so    they    could    unitedly    get    money 
cheaper. 

Mr.  yon  Engelken.  I  can  see  the  force  of  your  argument,  but  I 
do  not  seem  to  be  able  to  see  its  practicability  of  carrying  it  into 
practice. 

Mr.  Coulter.  May  I  ask  a  question  there?  The  point  was  given 
probably  as  much  attention  by  the  commission  as  any  other  point 
and  that  was  the  reason  that  we  put  in  that  clause  which  provided 
that  the  farm-land  bank  cooperative  may,  for  and  with  their  stock- 
holders or  their  members,  also  do  and  transact  the  business  now 
possessed  and  exercised  by  national  banks  under  the  laws  of  the 
United  States,  under  such  rules  and  regulations  as  may  be  prescribed 
by  the  commissioner  of  farm-land  banks.  We  do  say  that  a  tenant 
may,  by  taking  ownership  of  stock,  become  a  member  of  a  farm-land 
bank.  To  be  sure,  he  hasn't  any  land,  but  he  is  a  member  of  the  bank 
if  he  owns  a  share  of  stock — he  is  a  member  of  the  institution.  He 
may  save  his  few  dollars  as  he  goes  along  and  deposit  them  there. 
He  may  even  buy  a  bond  or  two  issued  by  the  same  institution  as  he 
saves  his  money.  During  the  growing  season,  as  a  member  of  the 
bank,  having  his  little  deposits  there,  he  may  also  borrow  from  the 
institution.  He  is  supervised  by  his  own  institution.  And  as  he 
goes  a  little  further  ahead  with  his  savings,  in  getting  his  cheaper 
money  that  way;  that  is,  getting  money  as  cheap  as  the  institution 
could  lend  to  its  members,  he  would,  in  the  course  of  a  few  years, 
be  able  to  actually  make  the  first  payment  on  a  farm  and  become  the 
owner  of  it.  That  one  -ection  was  put  into  this  bill  with  that  specific 
end  in  view. 

Mr.  Seldomridge.  In  our  section  men  are  landowners.  That  is,  they 
are  practically  landowners.  They  have  taken  the  lands  up,  and  they 
need  the  means  to  develop  them.  The  minute  they  can  develop  the 
property  it  immediately  adds  value  to  the  country,  because  they  be- 
come abiding  citizens  there,  and  it  tends  to  settle  the  country,  and  you 
are  immediately  giving  value  to  the  land  by  putting  these  men,  in  a 
certain  sense,  in  a  position  to  use  the  land  and  develop  it.  It  is  the 
same  sort  of  organization  that  might  occupy  the  same  relation  to  the 
national  banks  that  the  savings  department  does  to-day,  as  we  pro- 
vided originally  in  our  bill,  that  we  might  have  two  separate  and 
distinct  organizations,  and  we  could  provide  means  for  supplying 
the  needs  of  the  country  in  the  matter  of  short-time  credit  and  so 
stop  these  usurious  methods.  The  State  organization,  if  we  had  one, 
could  simply  serve  notice  on  them  that  if  they  do  not  meet  the  needs 
in  a  fair  and  just  manner  we  will  see  that  they  are  provided  for  by 
some  system  of  organization  that  will  supply  the  need  for  short-time 
credits  to  the  farmers. 

Mr.  Coulter.  Would  not  these  farm-land  banks  provided  for  in 
this  section  make  that  specific  provision,  that  the  members  could,  if 
they  felt  that  they  were  not  going  to  get  a  good  rate  of  interest,  go 
ahead,  with  their  members,  and  do  a  personal  credit  business,  but 
only  with  their  members?  I  think  Mr.  von  Engelken  will  bear  me 
out  in  this  statement.  Throughout  Europe  there  are  these  institu- 
tions which  do  business  only  with  their  own  members. 

Mr.  von  Engelken.  Yes. 

Mr.  Coulter.  And  doing  business  with  their  own  members,  they  do 
exercise  a  good  deal  of  supervision  over  each  other.    That  is  to  say, 


378  RURAL   CREDITS. 

everybody  knows  and  the  members  know  what  the  others  are  doing, 
and  only  in  so  far  as  the  farmers  are  willing  to  submit  to  thai  should 
they  probably  get  much  more  credit  than  they  are  getting.  In  other 
words,  the  farmer  who  can  not  get  credit  in  this  bank  probably  does 
not  deserve  much  unless  he  is  willing  to  have  his  other  neighbor 
farmers  know  what  he  is  doing,  and  have  their  judgment  on  top  of 
his  own  judgment.  It  was  our  idea  in  providing  that  the  institution 
might  do  that  with  their  own  members  if  they  wanted  better  credit 
facilities;  if  there  were  small  farmers,  if  they  had  capital  enough, 
they  would  be  willing,  in  order  to  get  the  better  treatment  and  accom- 
modations, would  go  ahead  and  submit  to  that  additional  supervi- 
sion, and  would  get  it  in  that  way. 

Mr.  Platt.  They  must  first  save  up  enough  to  make  the  initial 
payment. 

Nil-.  Coi  lter.  Yes;  they  must  make  the  initial  payment  of  $12.50. 
I  believe  that  they  will  be  able  to  do  that.  Anyway,  if  they  can  not 
scrape  up  that  much,  they  are  pretty  hard  off;  they  can  not  start 
at  all. 

Mr.  Seldomridge.  No. 

Mr.  Coulter.  They  had  better  go  out  and  work  as  hired  laborers 
or  serve  an  apprenticeship  and  save  $25. 

Mr.  Seldomridge.  A  good  many  of  them  would  do  that  very  thing, 
Mr.  Coulter. 

Mr.  Coulter.  I  know;  and  I  have  worked  as  a  hired  man  myself. 
Having  gotten  75  cents  a  day.  I  know  what  it  is. 

Senator  Hollis.  But  Mr.  Seldomridge's  query  arises  from  condi- 
tions in  the  West,  where  land  is  open  to  entry  and  a  man  goes  and  gets 
it  and  he  is  there  with  his  family  and  he  has  got  title  to  the  land,  and 
Mr.  Seldomridge  feels  that  he  is  not  getting  the  accommodation  that 
he  is  clearly  entitled  to  with  his  chances  for  success. 

Mr.  Collter.  And  he  should  have  this  sort  of  provision  so  that 
he  can  get  into  the  institution  on  a  par  with  landowners.  He  has  not 
an v thing  to  mortgage;  therefore,  as  a  member,  he  can  only  take 
advantage  of  the  personal-credit  feature. 

Mr.  Seldomridge.  If  you  would  eliminate  from  the  "West  farmers 
who  have  made  a  success  even  under  our  present  method  and  condi- 
tions— those  who  went  onto  the  land  without  a  dollar — you  would 
probably  take  a  great  percentage  of  the  farmers  away  from  that 
section. 

Mr.  Coulter.  And  you  would  from  my  home  district,  too.  When 
I  was  born  we  were  25  miles  away  from  a  railroad  and  had  simply 
no  access  to  the  outside  at  all. 

Mr.  Seldomridge.  But  you  let  a  man  go  on  there,  and  he  is  a  man 
that  is  in  the  wealthy  class  to-day. 

Mr.  Coulter.  He  is  thoroughly  worthy,  and  there  should  be  some 
such  provision  in  here.  T  wonder  if  Mr.  von  Engelken  has  thought  of 
that  suggestion? 

Mr.  Platt.  This  is  a  class  of  homesteaders  who  have  not  got  title? 

Mr.  Si.  loom  ridge.  Not  altogether. 

Mr.  Platt.  If  they  have  got  title,  they  can  borrow  on  mortgage. 

Mr.  Seldomridge.  I  beg  pardon. 

Mr.  Platt.  If  they  have  got  title,  then  they  can  borrow  on  mort- 
gage. 


RURAL    CEEDITS.  379 

Mr.  Seldomridge.  Yes;  but  title  to  the  land  does  not  necessarily 
give  them  very  much  capital  for  the  immediate  time  being  to  develop 
the  land. 

Mr.  Platt.  They  can  borrow  on  mortgage  under  this  system. 

Mr.  von  Engelken.  Let  us  put  it  in  this  way,  Mr.  Seldomridge: 
That  you  buy  a  farm  and  you  pay  all  the  money  that  you  have  got, 
or,  we  will  say,  half  of  it,  and  you  have  not  got  a  dollar  left,  and  you 
borrow  from  one  of  these  banks  for  35  years.  Xow,  you  have  an 
equity  there  on  which  you  can  borrow  from  a  banker,  because  he  is 
satisfied  that  you  are  conducting  your  business  along  lines  which 
promise  some  degree  of  success. 

Mr.  Seldomridge.  But  I  understand  before  you  can  borrow  from  a 
bank  on  second  mortgage 

Mr.  von  Engelken  (interposing).  I  am  talking  now  about  per- 
sonal credit  without  the  mortgage  feature.  We  found  it  to  be  the 
case  that  even  men  working  on  farms  for  wages,  where  they  have 
indicated  by  their  actions  and  by  their  evidences  of  thrift,  etc.,  that 
they  are  worthy  of  a  loan,  that  they  have  gotten  loans  from  bankers, 
and  they  have  been  doing  that.  I  know,  in  many  communities. 

I  want  to  say  this,  that  there  are  in  this  country,  I  am  sorry  to  have 
to  say,  thousands  of  farmers  who  can  not  possibly  be  benefited  by  any 
system  that  you  gentlemen  can  devise,  because  they  are  too  far  gone; 
but  we  want  to  pave  the  way  for  the  next  man,  so  that  he  will  not  go 
through  the  same  harrowing  experience. 

Mr.  Seldomridge.  I  think  if  we  can,  by  legislation,  transfer  a  large 
number  of  tenant  farmers  and  those  who  have  not  accumulated  land 
into  that  other  class  we  are  accomplishing  a  great  good. 

Mr.  von  Engelken.  Take,  for  instance,  the  Government  of  Prus- 
sia :  it  is  picking  up  these  large  estates  and  is  selling  them  out  to 
the  young  farmers,  and  giving  them  all  sorts  of  assistance  to  get 
started,  selling  the  land  practically  without  any  cash  payment,  you 
see,  absolutely  on  mortgage. 

Mr.  Seldomridge.  I  am  just  as  strong  as  you  are  for  providing 
the  most  rigorous  rules  and  regulations  for  the  short-time  business, 
but  I  can  not  see  why  the  banks,  properly  supervised  and  con- 
trolled, could  not  engage  in  that  business  to  great  benefit  to  the  farm- 
ing communities. 

Mr.  von  Engelken.  Would  it  be  your  idea  to  combine  that  with 
this  or  make  it  a  separate  and  distinct  section? 

Mr.  Seldomridge.  I  should  combine  it  with  this.  I  would  not 
like  to  make  it  a  separate  system. 

Mr.  von  Engelken.  I  rather  agree  with  the  attitude  taken  by  the 
gentlemen  who  wrote  this  report,  that  this  is  largely  a  matter  for 
the  States.  I  think  that  the  State  of  Colorado  could  very  properly 
taken  action  to  encourage  the  inauguration  of  such  banks,  because 
that  is  almost  entirely  a  local  issue.  The  money  that  these  little  local 
banks  would  get  to  lend  to  the  farmers  must  come  from  that  locality. 
But  this  other  is  a  national  issue,  and  properly  so,  because  it  affects 
all  of  the  people. 

Mr.  Seldomridge.  The  difficulty  is  that  local  banks  can  not  go  into 
these  communities  and  make  any  profit  on  the  investment  in  the 
short-time  loan  business,  because  there  it  must  be  done  at  a  tre- 
mendous rate  of  interest  in  order  to  bring  any  profit.  Here  we  are 
trying  to  organize  an  institution  where  the  profit  element  is  more 


o80  RURAL    CREDITS. 

or  less  eliminated,  and  Ave  have  the  mutual,  and  we  provide  for  the 
expense.  If  they  can  transact  a  moderate,  safe,  and  conservative 
short-time  business,  it  seems  to  me  that  we  are  meeting  a  need,  and 
it  is  not  only  in  one  section,  but  in  many  sections,  on  a  cooperative 
basis,  where  they  wish  to  do  it,  and  where  they  are  federated  to- 
gether, and  when  they  know  each  other's  conditions,  and  can  do  that 
sort  of  thing.  I  do  not  see  why  we  should  not  make  it  possible  for 
them  to  do  it. 

Mr.  von  Engelken.  I  am  willing  to  yield  to  that  opinion,  but  I 
can  not  say  that  I  can  agree  with  the  idea  of  combining  these  two, 
because  they  do  not  seem  to  have  anj^thing  in  common. 

Mr.  Platt.  I  notice  in  the  minority  report  you  state  something 
about  failures  of  a  short-time  credit  association  in  Europe,  two  banks 
in  which  they  do  business  as  a  central  organization. 

Mr.  vox  Engelken.  Yes,  sir. 

Mr.  Platt.  What  brought  about  those  failures? 

Mr.  von  Engelken.  Well,  one  failure  mentioned,  the  one  at  Darm- 
stadt— I  attended  a  meeting  at  Heidelberg  of  the  Raeffeissen  bank- 
ers— let  me  get  that  clear. 

Mr.  Coulter.  I  am  glad  that  comes  up,  because  it  is  the  only  one 
that  has  happened  in  a  century,  and  it  is  not  the  failure  of  a  co- 
operative.   So  I  am  particularly  interested  in  it. 

Mr.  aon  Engelken.  That  system  at  Darmstadt  was  built  around 
one  individual,  a  man  bjr  the  name  of  Haas,  who  really  kept  it  on 
its  feet  long  after  it  would  have  keeled  over,  but  for  his  assistance, 
through  bad  management.  When  Haas  died  the  inevitable  occurred, 
and  the  thing  broke. 

But  there  again  comes  this  question  of  cooperation.  Even  in  Eu- 
rope cooperation  is  not  what  you  are  led  to  belieATe  it  is,  because  it 
is  not  an  organization  Avorking  from  the  bottom  upward,  but  they 
are  almost  invariably  guided  and  controlled  by  some  man  of  ex- 
perience. 

Mr.  Coulter.  That  is,  the  centrals  are. 

Mr.  vox  Engelken.  I  know;  but  the  centrals  are  the  life  of  the 
locals. 

Mr.  Coulter.  They  give  instructions  and  suggestions  to  the  locals. 

Mr.  Platt.  Have  those  Raffeisens  sprung  up  spontaneously  or 
have  they  been  started  from  the  top? 

Mr.  Coulter.  Have  they  not  universally  started  from  the  bottom? 

Mr.  von  Engelken.  No;  they  haA'e  not  universally  started  from 
the  bottom. 

Mr.  Coulter.  But  under  the  supervision  and  direction  of  some 
strong  man  in  the  community,  and  they  have  spread  to  form  their  cen- 
trals and  form  the  Raffeisen.  They  started  the  little  Raffeisen 
Society,  and  there  were  hundreds  of  little  ones,  and  they  formed  cen- 
trals, and  when  there  got  to  be  enough  centrals  they  formed  these 
central-  which  started  out  these  little  locals,  and  a  large  number  of 
similar  locals  started  under  this  same  suggestion,  and  then  these  little 
locals:  and  they  have  their  guidance,  their  big  central;  but  they  all 
started  Avith  one  or  two  little  locals  under  the  suggestion  of  some 
verv  strong  man  who  stood  back  of  them  and  taught  them  how. 

Mr.  von  Engelken.  Is  not  this  a  fact,  Doctor,  that  where  those 
little  banks  exist  and  there  has  been  no  such  individual,  that  they 
have  been  brought  into  life  from  the  top? 


RURAL    CREDITS.  381 

Mr.  Coulter.  Then  when  the  central  has  gotten  started  the  central 
has  uniformly  taught  other  communities  how  to  start  them,  and  they 
are  all  attached  to  that  central.  That  is  particularly  so  through 
Austria,  where  they  have  started  8,000  in  the  last  20  years.  It  has  all 
come  from  that  sort  of  encouragement  and  guiding  hand. 

Mr.  von  Engelken.  The  weakness  of  the  system  has  been  the  fail- 
ure of  the  farmers  themselves  to  take  but  little  interest.  They  have 
left  them  entirely  to  the  men  on  top,  and  when  these  men  on  top  fail 
them  it  is  chaos. 

Mr.  Platt.  It  is  cooperative  where  the  people  are  all  one  homoge- 
neous nationality  and  belong  to  one  church  and  you  have  no  dividing 
lines  at  all.    They  do  not  cooperate  as  much  as  we  are  led  to  believe. 

Mr.  von  Engelken.  No. 

Mr.  Woods.  What  is  the  French  system  of  personal  credit  estab- 
lished in  1894? 

Mr.  von  Engelken.  I  would  rather  you  would  ask  Dr.  Coulter 
that,  because  I  did  not  conduct  any  investigation  in  France  and  he 
did. 

Senator  Hollis.  It  is  now  1  o'clock,  and  we  will  take  a  recess  until 
2  o'clock. 

(Thereupon  the  committee  took  a  recess  until  2  o'clock  p.  m.) 

AFTER    RECESS. 

The  committees  reassembled  at  the  expiration  of  the  recess. 
Mr.   Bulkley.  Mr.   von  Engelken,  you  may  proceed   with  your 
statement. 

STATEMENT  OF  F.  J.  H.  VON  ENGELKEN— Continued. 

Mr.  von  Engelken.  I  have  covered  a  good  deal  of  ground  this 
morning ;  and  if  it  is  possible  I  would  like  now  to  have  the  members 
of  the  committee  ask  me  questions,  so  that  we  may  have  some  dis- 
cussion on  the  matter,  because  there  is  only  one  point  I  have  not 
touched  upon,  and  that  is  the  question  of  whether  there  should  be 
one  commissioner  or  more  than  one — and  I  made  some  remarks  upon 
that  yesterday. 

Mr.  Bulkley.  Perhaps  you  had  better  proceed  with  whatever  you 
have  to  say  now,  and  the  members  of  the  committees  can  question 
you  later. 

Mr.  von  Engelken.  What  I  had  in  mind  in  regard  to  the  com- 
missioner is  that  in  the  bill  one  commissioner  is  provided  for  at  a 
salary  of  $6,000  a  year:  but  it  seems  to  me  that  at  the  time  of  the 
inception  of  a  system  of  this  sort  more  help  should  be  provided  for 
purposes  of  inauguration.  It  is  going  to  take  a  good  deal  of  work 
to  get  these  various  locals  started,  and  the  matter  will  have  to  be 
helped  and  pushed  and  encouraged  and  advice  given:  and  it  seems 
to  me  a  board  of  three  or  five  or  even  seven  men  familiar  with  the 
subject,  and  having  the  prestige  of  coming  from  here,  would  facili- 
tate this  movement  very  largely ;  and  then,  as  the  system  grows  and 
becomes  more  solid  and  flows  along  more  easily,  that  commission  can 
be  reduced  in  number;  because,  eventually,  when  you  have  arrived  at 
a  degree  of  confidence  on  the  part  of  the  investor  and  general  public 


382  RURAL    CREDITS. 

that  it  is  a  sound  system,  one  man  can  probably  handle  the  situation 
very  readily. 

I  see  that  Senator  Fletcher  provided  in  his  bill  for  nine  commis- 
sioners.    The  number  of  men  provided  in  this  bill,  I  think,  is  correct. 

Senator  Hollis.  Senator  Hitchcock  told  me  that  he  was  receiving 
some  letters  from  parties  who  were  opposed  to  the  general  terms  of 
the  Fletcher-Moss  bill ;  have  you  any  idea  whether  anyone  is  insti- 
gating such  letters,  or  whether  they  come  naturally  from  the 
farmers  ? 

Mr.  vox  Engelken.  I  know  nothing  that  would  indicate  to  my 
mind  that  anyone  was  instigating  a  movement  of  that  kind. 

Senator  Hollis.  I  have  not  received  any  such  letters  myself,  but 
I  know  some  remarks  were  made  at  the  hearings  about  the  way  those 
letters  were  being  sent  out.  and  I  wondered  if  you  could  tell  us  any- 
thing about  it? 

Mr.  Platt.  Have  not  the  farm  journals,  or  a  good  many  of  them, 
opposed  the  plan;  or,  at  least,  have  they  not  indorsed  their  own 
plans — plans  for  direct  loans,  for  instance,  by  the  Government? 

Mr.  von  Engelken.  The  only  journal  with  which  I  am  familiar 
which  has  given  this  matter  a  good  deal  of  publicity  is  one  of  the 
Orange  Judd  publications,  and  they  had  various  schemes  proposed 
in  the  beginning,  until  this  bill  came  out ;  and  now  I  notice  that  they 
have  gotten  on  the  band  wagon,  but  they  are  still  advocating  this 
question  of  credit  unions. 

Mr.  Woods.  Do  they  not  request  the  farmers  or  their  subscribers 
to  send  in  a  printed  slip  ? 

Mr.  von  Engelken.  Yes. 

Mr.  Woods.  Advising  Members  of  Congress  to  support  this  meas- 
ure ? 

Mr.  von  Engelken.  Yes. 

Mr.  Woods.  Well,  it  seems  to  me  that  that  is  as  much  of  a  con- 
spiracy as  it  was  charged  existed  on  the  other  side,  is  it  not? 

Mr.  von  Engelken.  Well,  they  have  changed  now.  I  saw  a  clip- 
ping this  morning,  which  is  very  moderate  compared  with  what  came 
out  in  that  paper  a  month  or  two  ago.  A  month  or  two  ago  this  man 
Myrick  had  a  plan  all  worked  out.  In  fact,  according  to  him  there 
was  no  use  in  holding  these  hearings,  because  he  had  the  matter 
solved:  and  he  suggested  the  farmers  writing  to  Members  of  Con- 
gress, requesting  the  approval  of  this  Myrick  plan.  The  farmer  had 
nothing  to  do  but  to  sign  his  name.  Now,  since  this  bill  has  been 
introduced  the  other  has  been  dropped,  and  now  they  are  encourag- 
ing the  farmers  to  write  to  their  Representatives  and  sustain  this  bill. 

Senator  Holms.  Can  you  tell  us,  very  briefly,  how  the  Myrick  plan 
differed  from  the  Fletcher-Moss  plan? 

Mr.  von  Engelken.  I  can  not,  because  I  did  not  take  the  trouble 
to  read  it. 

Senator  Hollis.  I  did  not,  either.  That  is  why  I  wanted  to  get  it 
from  you. 

Mr.  Platt.  You  spoke  this  morning,  Mr.  von  Engelken,  about  shoe- 
string fanning,  and  rather  implied  that  in  cases  where  loan  agents 
or  loan  -harks,  or  whatever  you  call  them,  would  sell  a  man  a  farm 
and  take  a  mortgage  for  the  whole  amount,  that  was  done  often  for 
the  explicit  purpose  of  getting  the  farm  back  again  on  foreclosure, 
with  the  improvements  on  it.    Ts  that  being  done  now? 


KUEAL    CREDITS.  383 

Mr.  von  Engelken.  Yes;  that  is  very  largely  the  case.  It  has 
come  to  my  attention  repeatedly,  where  a  man  opening  up  a  tract 
of  land  would  sell  a  piece  of  land  to  an  investor  and  let  the  mortgage 
cover  the  entire  purchase  price,  and  let  the  buyer  take  what  money 
he  had  and  make  improvements,  and  then  make  the  time  limit  on 
the  mortgage  one,  two,  or  three  years,  and  then  foreclose  the  mort- 
gage every  time  there  was  even  a  hesitancy  on  the  part  of  the  buyer 
to  pay — take  that  property  from  him,  with  the  improvements  and  the 
added  value  that  he  had  put  on  it,  and  do  the  same  thing  over  again. 

Mr.  Platt.  This  plan  proposed  in  the  bill  would  stop  that  sort  of 
thing,  would  it  not? 

Mr.  von  Engelken.  Absolutely;  this  bill  with  the  amortization 
feature  would  absolutely  stop  that. 

Mr.  Platt.  But  at  the  same  time  it  would  not  enable  the  man  who 
did  not  have  a  margin  of  50  per  cent  of  the  purchase  price  to  buy  a 
farm  at  all? 

Mr.  Woods.  I  do  not  see  how  the  bill  would  stop  that  practice. 

Mr.  Platt.  Well,  the  buyer  would  have  to  have  50  per  cent  of  the 
purchase  price  himself  in  order  to  buy  a  farm. 

Mr.  Woods.  This  bill  would  not  apply  to  his  case  if  he  did  not 
have  that. 

Senator  Hollis.  There  is  nothing  proposed  here  to  prevent  a  man 
borrowing  from  somebody  who  would  lend  him  the  whole  value  of 
the  farm,  of  course. 

Mr.  Platt.  No;  of  course  not. 

Senator  Hollis.  Did  you  discuss  all  you  cared  to  the  feature  of 
direct  loans  from  the  Government  to  the  borrower? 

Mr.  von  Engelken.  I  touched  on  that. 

Senator  Hollis.  I  did  not  hear  you  on  that,  and  I  would  like  to 
hear  your  views  on  the  question. 

Mr.  von  Engelken.  I  do  not  approve  of  that  at  all. 

Senator  Hollis.  Well,  we  would  like  your  reasons  for  that. 

Mr.  von  Engelken.  I  can  not  see  any  reason  for  the  contention 
that  the  Government  should  dip  its  hands  into  the  Treasury  for  the 
benefit  of  the  farmers,  for  several  reasons.  In  the  first  place,  if  you 
treat  farmers  that  way,  the  next  man  who  will  want  to  dip  his 
hands  into  the  Treasury  is  the  man  in  the  city  who  owns  a  house  and 
lot.  And  it  would  redound  to  the  benefit  of  the  farmer  infinitely 
more  if  he  was  compelled  to  work  out  his  OAvn  salvation.  He  has  the 
assets;  there  is  no  question  about  that;  it  is  just  a  matter  of  making 
them  available  and  presenting  them  to  the  investing  public  in  a 
safe,  impersonal  way. 

Mr.  Platt.  The  argument  that  has  been  made  here  is  that  agri- 
culture is  the  basic  industry  on  which  everything  else  depends,  and 
therefore  if  we  help  the  farmer  we  help  everybody,  and  that  only  a 
small  portion  of  the  lands  of  the  United  States  are  now  under  cul- 
tivation, and  if  you  could  give  the  farmer  loans  at  a  low  rate  from 
the  United  States  Treasury  you  would  add  greatly  to  the  productive- 
ness of  the  country.    Would  that  be  true? 

Mr.  von  Engelken.  No,  sir ;  it  would  not.  We  are  having  now,  as 
we  progress,  a  good  many  basic  industries.  A  railroad  is  a  basic 
industry.  If  you  eliu  mate  all  railroads  from  this  country  to-day, 
what  would  we  do?  It  is  almost  as  basic  as  farming  is — and  a  great 
many  other  things  are  the  same,  and  I  do  not  see  that  the  distinction 


384  RUBAL   CBBDITS. 

between  farming  and  certain  other  lines  of  industry  is  fine  enough 
to  admit  of  anything  of  that  sort.  And  why  really  should  the  Gov- 
ernment take  upon  itself  the  burden  of  saying  to  the  farmer,  "Now, 
because  you  are  a  farmer  we  are  going  to  act  in  the  guise  of  a  father 
and  help  you  do  what  you  need.  You  come  to  us  and  we  will  furnish 
you  the  money." 

Mr.  Platt.  Would  it  be  possible,  if  the  Government  should  do  that, 
for  it  to  get  the  money  back? 

Mr.  von  Engelken.  That  brings  up  something  that  happened  to 
me  in  Europe.  I  was  talking  with  a  German  who  was  a  director  of 
a  federation  of  land-mortgage  banks  subsidized  by  the  Government. 
This  was  in  the  Duchy  of  Baden.  And  he  told  me  that  the  Govern- 
ment had  recently  called  upon  him  for  the  return  of  $2,500,000  of  the 
money  that  he  had  been  loaned  at  24  per  cent  interest,  whereupon 
he  told  them  that  if  they  persisted  in  trying  to  call  his  loan  he  would 
see  to  it  that  they  were  politically  undone,  and  the  call  was  called  off. 

In  other  words,  the  European  experience  indicates  that  a  loan  once 
made  from  the  Government  is  a  fixed  loan;  that  it  is  the  most  diffi- 
cult thing  in  the  world  to  ever  have  that  money  returned;  it  is  prac- 
tically impossible. 

Mr.  Bulkley.  Do  you  mean  to  say  that  on  an  amortization  system 
they  would  not  pay  anything  at  all  if  the  Government  made  the  loan? 

Mr.  von  Engelken.  Do  you  mean  if  the  Government  made  the 
loan  directly  to  the  farmer  on  the  amortization  plan  \ 

Mr.  Bulkley.  Yes. 

Mr.  von  Engelken.  Well,  T  was  unable  to  find  anything  that 
would  guide  me  in  arriving  at  a  conclusion  on  that,  because  I  did  not 
find  that  it  was  done. 

Mr.  Bulkley.  You  were  talking  about  calling  loans;  of  course  if 
you  have  an  amortization  plan  there  is  no  question  about  calling  the 
loan. 

Mr.  von  Engelken.  Well,  it  was  an  organization  of  the  farm  banks 
that  was  getting  money  from  the  Government,  not  the  individual 
farmer:  but  the  organization  was  being  subsidized  by  the  Govern- 
ment in  order  to  start  it  and  keep  it  going. 

Mr.  Bulkley.  Well,  when  you  say  ••subsidized,"  tell  us  just  what 
you  mean. 

Mr.  vox  Engelken.  They  actually  loaned  millions  of  dollars  to 
this  organization,  practically  without  security,  at  24  per  cent  interest. 

Mr.  Bulklkv.  At  24  per  cent? 

Mr.  vox  Engelken.  Yes:  and  when  the  Government  was  in  need 
of  money  and  tried  to  get  this  money  back  it  was  impossible  for 
it  to  get  it.  because  the  Government  had  really  loaned  the  money  to 
the  people,  and  the  people  decided  that  the  Government  was  the  peo- 
ple: that  they  had  been  borrowing  their  own  money,  and  why  should 
thev  pay  it  back?     And  they  did  not. 

Mr.  Bulkley.  Did  the  Government  have  any  trouble  in  collecting 
its  24  pei-  rent  interest  from  time  to  time? 

Mr.  von  Engelken.  No;  the  interest  of  24  per  rent  was  paid. 

Mr.  Pi. \tt.  Suppose  the  Government  should  loan  money  on  the 
amortization  plan  in  a  Western  State,  where  after  a  series  of  pros- 
perous years,  a  series  of  droughts  should  come  along,  and  the  farmers 
found  'it  hard   work-  in  mnke  the  payments  which   would  be  higher 


RURAL    CREDITS.  385 

than  interest  on  account  of  amortization,  would  it  be  possible  for  the 
Government  to  foreclose  on  those  farms? 

Mr.  von  Engelken.  Well,  the  Government  can  do  almost  anything 
it  likes  along  certain  lines.     I  think  the  Government  could  foreclose. 

Mr.  Platt.  What  would  be  the  result  to  the  Congressmen  who 
represent  those  districts?     [Laughter.] 

Mr.  von  Engelken.  That  is  a  matter  that  Congressmen  are  better 
able  to  pass  on  than  I ;  but  you  can  imagine  what  it  would  bo. 

Senator  Hollts.  When  this  matter  comes  up  for  discusion  in  either 
House  of  Congress  it  will  be  argued  that,  under  the  general  banking 
and  currency  law,  the  Federal  reserve  act,  the  Government  has  in- 
directly helped  the  commercial  banks  by  providing  that  the  Secretary 
of  the  Treasury  may  deposit  funds  of  the  Government  with  the  Fed- 
eral reserve  banks. 

Mr.  von  Engelken.  Yes. 

Senator  Hollis.  And  the  idea,  of  course,  is  that  the  Secretary  will 
deposit  funds;  the  act  is  drawn  in  that  way  so  that  he  will  not  be 
obliged  to  do  so  if  the  Treasury  needs  the  money  for  other  purposes. 

Now,  it  will  be  said  that  as  long  as  we  have  extended  help  to  the 
commercial  system  of  banks  we  ought  to  extend  some  help  to  this 
system.  Can  you  think  of  any  way  in  which  the  Government  could 
help  out  this  system? 

Mr.  von  Engelken.  It  might  be  possible  in  this  way :  Of  course  you 
must  not  lose  sight  of  the  fact  that  you  are  going  to  make  these  bonds 
eligible  for  postal  savings  deposits.  The  Government  can  take  its 
postal  savings  deposits  and  buy  these  farm-mortgage  bonds  with 
them,  which  is  a  perfectly  legitimate  transaction,  because  the  farm- 
mortgage  bonds  pay  a  higher  rate  of  interest  than  the  Government 
pays  to  the  depositors  of  the  savings'  fund,  and  there  is  a  profit  in  it 
to  the  Government,  to  which  it  is  entitled. 

Now,  if  it  is  desired,  it  can  be  further  provided  that  if  it  is  found 
that  the  demand  at  the  beginning  for  these  bonds  is  not  sufficient  to 
keep  them  at  par,  the  Government  may  step  in  and  buy  a  sufficient 
quantity  of  them  temporarily  to  sustain  the  stability  of  the  security; 
T  can  see  no  objection  to  that. 

Mr.  Bulkley.  Do  you  see  any  clanger  of  those  societies  refusing 
to  pay  their  bonds  en  account  of,  the  Government  owning  them  ? 

Mr.  von  Engelken.  It  is  unnecessary  for  the  society  to  know 
which  of  the  bonds  the  Government  owns,  as  far  as  I  can  see. 

Mr.  Platt.  This  bill  provides  that  postal-savings  funds  may  be 
deposited  in  these  banks,  does  it  not,  under  conditions  ? 

Mr.  von  Engelken.  I  object  to  that  provision. 

Mr.  Platt.  I  was  going  to  ask  you  whether  they  would  be  safe 
depositaries  for  the  Government  bonds? 

Mr.  von  Engelken.  I  think  the  only  use  that  should  be  made  of 
postal-savings  funds  or  trust  funds  is  in  the  purchase  of  the  bonds 
issued  under  Government  supervision — not  to  be  deposited  as  cash  in 
these  banks. 

Senator  Hollis.  What  would  be  your  objection  to  that? 

Mr.  von  Engelken.  Because  I  have  not  the  confidence,  as  I  said 
this  morning,  that  the  farmers  are  sufficiently  good  bankers  to  make 
it  safe;  and  trust  funds  and  postal-savings  funds  should  be  utilized 
only  for  the  very  best  available  security — particularly  trust  funds. 

37031—14 25 


386  RURAL    CREDITS. 

Senator  Hollis.  T  think  it  was  stated  in  these  hearings  that  the 
postal  funds  now  amount  to  about  $40,000,000? 

Mr.  von  Engelken.  Yes. 

Senator  Hollis.  Do  you  think  that  the  friend  of  this  measure 
would  consider  that  that  would  be  a  sufficiently  large  amount  to  give 
this  system  fair  treatment,  as  compared  with  the  Government  de- 
posits^ which  are  supposed  to  be  about  $200,000,000  in  the  Federal 
reserve  banks? 

Mr.  vox  Exgelkex.  Well,  I  do  not  know  as  to  that;  but  I  feel 
this,  that  $40,000,000  of  postal-savings  money  would  go  a  very  long 
way  toward  achieving  the  result  that  I  indicated  a  few  moments  ago, 
lifting  up  and  maintaining  the  stability  of  these  bonds  as  near  as 
possible  to  par,  or  perhaps  above  par.  And  you  must  bear  in  mind 
that  unless  you  can  sell  these  bonds  at  par,  the  whole  thing  is  going 
to  collapse ;  it  is  all  predicated  upon  selling  these  bonds  as  nearly  as 
possible  at  par. 

Senator  Hollis.  You  heard  Mr.  Breitung  testify  before  us  yester- 
day about  the  chance  of  selling  the  bonds  in  Europe.  Does  it  seem 
to  you  that  there  would  be  much  of  an  outlet  for  them  there? 

Mr.  vox  Exgelkex.  Yes;  I  believe  there  will  be.  I  had  some  ex- 
perience while  I  was  in  Europe  along  that  line.  I  find  this,  that  the 
only  objection  that  the  European  bankers  made  to  our  real  estate  se- 
curity was  that  it  was  inaccessible  to  them,  in  a  measure.  Of  course, 
what  I  had  in  mind  was  something  infinitely  smaller  than  what  you 
have  in  mind.  But  they  were  quite  willing  to  accept  that  security  if 
underwritten  by  some  house  known  to  them;  do  you  see  what  T 
mean? 

Senator  Hollis.  Yes. 

Mr.  vox  Exgelkex.  At  a  fraction  of  1  per  cent;  and  I  imme- 
diately suggested  Lloyds,  and  with  the  Lloyds  underwriting  of  these 
bonds  they  would  take  them  at  any  time.  And  I  may  say  that  they 
would  take  those  bonds  at  5  per  cent.  A  land-mortgage  bond  is  a 
very  favored  security  in  Europe. 

Mr.  Bulkley.  Did  you  agree  to  the  suggestion  made  this  morning 
that  there  should  be  a  limit  to  the  amount  that  could  be  borrowed  on 
any  1  acre  of  land? 

Mr.  vox  Engelken.  Yes. 

Mr.  Bulkley.  What  do  you  think  that  limit  should  be? 

Mr.  vox  Exgelkex.  Well,  I  would  suggest  that  the  limit  should 
be  $100  or  less. 

Mr.  Bulkley. .Not  more  than  $100  should  be  loaned  on  any  one 
acre  of  land  ? 

Mr.  vox  Engelken.  Not  more  than  $100  on  any  one  acre. 

Mr.  Bulkley.  Do  you  believe  in  a  limit  on  the  amount  that  any 
one  man  can  borrow  ? 

Mr.  von  Exgelkex.  Yes. 

Mr.  Bulkley.  At  what  would  you  place  that  limit? 

Mr.  vox  Engelken.  Well,  I  think  that  the  stipulation  made  in 
this  bill  is  about  as  good  as  you  could  devise — that  he  could  only 
borrow  20  per  cent,  or,  rather,  that  the  bank  can  only  loan  20  per 
cent  of  its  capital  to  any  individual. 

Mr.  Bulkley.  That  is  a  limitation  upon  the  bank  and  not  upon 
the  borrower,  who  may  borrow  more  money  from  another  bank:  or,  in 


RURAL    CREDITS.  387 

case  of  a  very  large  bank,  an  individual  could  borrow  a  very  large 
amount  from  it. 

Mr.  von  Engelken.  Do  you  believe  that  it  would  be  possible 
through  legislation  to  restrict  the  individual  in  that  respect? 

Mr.  Bulkley.  Well,  you  could  restrict  the  total  amount  that  he 
could  get  from  any  banks  operating  under  Federal  charter. 

Mr.  von  Engelken.  Yes. 

Mr.  Bulkley.  Of  course,  what  he  did  outside  of  that  you  would 
not  have  any  control  over.  But  if  we  provide  an  easy  way  to  get 
certain  funds  we  certainly  could  limit  the  amount  of  benefit  that 
could  go  to  any  one  individual  if  we  see  fit  to  do  so. 

Mr.  von  Engelken.  Why  would  it  not  be  possible  to  do  this:  To 
say  that  no  bank  or  no  individual  shall  be  loaned  from  any  one  bank 
of  this  system  more  than  a  certain  amount,  except  by  the  authority 
of  the  commissioner  of  farm-land  banks  in  Washington? 

Mr.  Bulkley.  That  is  a  suggestion  which  we  might  consider. 

Mr.  von  Engelken.  Because,  while  we  are  primarily  trying  to 
help  the  small  man,  there  is  no  reason  why  we  should  cut  the  large 
man  out  entirely. 

Mr.  Bulkley.  The  idea  is  that  there  will  be  plenty  of  demand 
from  the  smaller  farmer. 

Mr.  von  Engelken.  Yes. 

Mr.  Bulkley.  And  if  we  are  trying  to  do  a  public  service  here  we 
want  to  help  as  many  men  as  we  can. 

Mr.  von  Engelken.  Yes.  I  think  you  will  find  it,  as  a  rule,  now 
to  be  the  case  that  the  large  farmer  is  not  the  man  who  needs  any 
financial  assistance. 

Mr.  Bulkley.  That  is  what  we  thought. 

Mr.  von  Engelken.  But  it  is  the  little  man  who  needs  to  be  helped. 

Mr.  Bulkley.  Almost  every  witness  who  has  appeared  here  has 
agreed  that  we  ought  to  have  some  such  limit;  but  they  have  differed 
as  to  what  the  amount  of  the  limit  should  be. 

Mr.  von  Engelken.  You  mean  the  limit  that  anj^  one  man  may 
borrow  ? 

Mr.  Bulkley.  Yes. 

Mr.  von  Engelken.  That  is  a  hard  question  to  answer,  because  it 
depends  upon  widelv  varying  conditions.  You  take  conditions  in  the 
West,  where  they  have  farms  of  10,000,  15,000,  or  20,000  acres,  and 
then  compare  conditions  there  with  those  in  Florida,  where  we  have 
farms  of  2  acres. 

Mr.  Bulkley.  I  suppose  that  if  a  man  has  a  farm  of  15,000  or 
20,000  acres  he  could  get  credit  without  regard  to  anything  that  we 
might  do  here. 

Mr.  von  Engelken.  That  is  what  I  had  in  mind. 

Mr.  Bulkley.  So  that  we  do  not  need  to  concern  ourselves  very 
much  with  him. 

Mr.  von  Engelken.  Except  that  this  condition  might  arise :  You 
may  find  one  of  these  lands  companies  spring  up  all  over  the 
country  now,  that  might  want  to  use  this  institution  as  a  vehicle 
for  securing  funds. 

Mr.  Bulkley.  I  do  not  think  you  will  find  it  very  popular  in 
Congress  to  make  it  easy  for  corporations  to  own  the  land;  I  think 
they  want  individual  owners. 


388  RURAL    CREDITS. 

Mr.  von  Engelken.  Could  they  not  borrow  on  that  land  through 
one  of  their  individual  owners?  They  might  transfer  the  land  to 
the  individual — deed  the  land  to  the  individual  for  the  purpose  of 
securing  money  through  this  bank. 

Mr.  Bilkley.  Well,  if  Ave  decided  to  make  a  limitation  as  to  the 
amount  an  individual  may  borrow,  and  if  Ave  desired  to  limit  those 
loans  to  actual  owners  of  the  land  mortgaged,  Ave  would  see  that  the 
law  is  drawn  stiff  enough  so  that  there  will  be  penalties  attached  to 
any  deception  in  the  matter. 

Mr:  vox  Engelken.  Yes.  Still,  I  do  not  see  why,  if  all  the  people 
in  this  room,  for  instance,  OAvn  a  tract  of  land  and  all  of  you  deed 
it  to  me — I  am  the  owner  of  it;  there  no  getting  around  that; 
what  ever  contract  I  may  make  with  you  as  to  Avhat  shall  be  re- 
turned can  not  have  any  effect  on  my  ownership.  I  am  the  actual 
owner  of  that  land  in  the  eyes  of  the  law,  because  it  has  been  deeded 
to  me.  Now,  I  come  along  and  want  to  borrow  $50,000  or  $60,000 
on  that  land. 

Mr.  Bulkley.  Yes;  you  would  have  the  legal  title,  but  if  Ave 
deeded  it  to  you  in  trust  you  would  not  have  the  equitable  interest  in 
it.  It  is  quite  possible  to  so  draw  this  bill  as  to  coATer  both  the 
equitable  title  and  the  legal  title. 

Mr.  von  Engelken.  It  was  with  that  in  mind  that  I  made  the 
suggestion  that,  in  order  to  protect  worthy  cases,  it  be  made  possible 
to  borroAv  more  money  than  the  limit  set  in  the  bill,  but  only  with  the 
.  permission  of  the  commissioner  of  farm-land  banks. 

Mr.  Bulkley.  I  suppose  if  Ave  set  a  limit  it  Avill  be  based  on  the 
land  that  any  one  man  or  any  one  family  can  take  care  of  them- 
selves. 

Mr.  von  Engelken.  Yes. 

Mr.  Platt.  There  is  one  thing  about  setting  a  limit,  and  that  is 
that  we  might  shut  ourselves  out  from  a  Avhole  neighborhood. 

Mr.  Bulkley.  That  depends  upon  whether  you  are  setting  up  your 
system  for  the  purpose  of  providing  for  the  investment  of  funds 
or  for  the  purpose  of  enabling  people  to  buy  lands  and  to  improve 
lands  which  they  OAvn;  I  think  the  purpose  is  clearly  the  latter. 

Mr.  Platt.  Well,  if  you  borrowed  from  a  bank  in  a  neighborhood 
where  the  farms  are  very  large,  you  may,  by  that  act.  prevent  those 
lands  from  being  divided  up  into  small  farms. 

Mr.  Bulkley.  Not  by  that  act;  by  limiting  the  amount  which 
could  be  loaned  to  any  one  man  you  would  promote  the  dividing  up 
into  small  farms. 

Mr.  von  Engelken.  That  is  a  question  that  has  a  good  deal  of 
hearing  on  this,  and  it  is  a  very  interesting  one.  and  I  do  not  see  just 
what  is  the  best  way  to  get  at  it.  I  think  that  this  committee 
could 

Mr.  Bulkley  (interposing).  No;  I  did  not  intend  to  ask  you  how 
to  do  it.  What  I  intended  to  ask  you  Avas  Avhether  you  would  be  in 
favor  of  any  limitation  of  that  character,  and  if  so,  Iioav  much  in 
dollars  the  amount  should  be.  You  can  leave  it  to  us  to  figure  out 
a  legal  way  to  do  it. 

Mr.  von  Engelken.  I  belie ve  in  a  limitation,  but  I  do  not  believe 
I  would  be  competent  to  say  what  the  amount  should  be. 

Mr.  Platt.  I  want  to  ask  a  question  or  two  about  the  matter  of 
foreclosures:  something  about  the  German  laws  on  that  subject,  and 


RURAL    CREDITS.  389 

whether,  as  a  matter  of  fact,  the  expense  of  foreclosures  has  not  got 
a  good  deal  to  do  with  the  high  rates  of  interest  in  this  country  and 
the  risk  on  them  ? 

Mr.  von  Engelken.  It  is  undoubtedly  a  fact  that  the  foreclosure  ex- 
perience in  this  country  has  been  one  of  the  most  determining  fact  his 
in  making  farm-land  security  no  more  attractive  than  it  is:  because  it 
is  a  matter  of  great  difficulty  in  this  country  to  foreclose  a  farm  mort- 
gage. It  involves  litigation  that  might  be  dragged  on  for  two  or 
three  years;  whereas,  in  Germany,  the  Landschaften  and  like  organi- 
zations are  exempt  from  the  foreclosure  provision ;  they  are  the  court 
of  last  resort  and  can  step  in  overnight  into  a  man's  property  and 
put  him  out.  That,  of  course,  simplifies  their  transactions  wonder- 
fully. An  the  question  has  occurred  to  me,  whether  it  would  not  be 
advisable,  and  serve  the  double  purpose  of  acting  as  a  check  upon 
the  borrower,  the  enthusiasm  of  the  farmers,  if  you  injected  into  this 
bill  some  provision  making  it  easier  for  the  banks  to  secure  the  prop- 
erty of  a  borrower  in  case  of  failure  than  it  would  be  for  outsiders. 

Mr.  Woods.  Of  course,  under  this  plan  the  matter  of  foreclosure 
is  not  so  much  involved,  because  the  investors  do  not  buy  the  mort- 
gages; they  buy  the  bonds. 

Mr.  von  Engelken.  Yes;  I  understand  that. 

Mr.  Woods.  So  that  it  would  not  be  so  material  to  the  investor. 

Mr.  Platt.  Well,  it  would,  too.  perhaps;  it  might  affect  the  whole 
solvency  of  the  banks,  possibly,  if  they  had  every  once  in  a  while  to 
go  to  high  expense  on  foreclosure. 

Mr.  von  Engelken.  Yes;  it  might  be  very  advantageous  to  the 
united  locals  and  the  State  unions,  if  you  paved  the  way  for  them  to 
secure  easily  the  property  which  had  failed  to  meet  its  interest  and 
amortization;  is  that  not  right? 

Mr.  Platt.  Certainly. 

Mr.  Bulkley.  It  was  suggested  the  other  day  that  we  provide 
that  mortgagors  should  pay  all  costs  and  attorneys'  fees  under  fore- 
closure. 

Mr.  Platt.  Would  it  not  be  possible  to  require  the  State  in  which 
these  banks  were  organized  to  allow  the  banks  to  take  the  property 
without  foreclosure,  just  as  they  do  in  Germany?  Would  not  that 
be  a  thing  that  would  make  the  whole  system  successful,  if  you  could 
get  it  through  the  States? 

Mr.  Bulkley.  I  do  not  believe  if  would  be  a  very  popular  propo- 
sition. 

Mr.  von  Engelken.  How  would  this  plan  appeal  to  you.  Mr. 
Bulkley?  Instead  of  allowing  the  farm-land  bank  to  accept  mort- 
gages, let  them  accept  deeds  of  trust;  that  may  not  be  the  exact 
phrase,  but  if  some  one  will  correct  me 

Mr.  Bulkley.  (interposing).  Well,  I  understand  the  distinction, 
but  without  a  very  careful  examination  of  the  lavs  of  all  the  States 
of  the  Union  in  that  respect,  I  would  not  feel  sure  that  that  would 
solve  the  problem.  In  other  words,  I  know  there  are  some  States 
where  a  deed  of  trust  can  be  operated  so  as  to  extinguish  the  title 
of  the  borrower  pretty  rapidly.  I  am  not  sure  that  that  would 
be  true  in  every  State. 

Mr.  Platt.  There  is  one  State  in  this  Union,  I  understand,  where,  if  a 
mortgage  runs  for  10  years,  even  if  the  interest  is  paid  on  it  year  after 
year,  that  mortgage  becomes  outlawed  at  the  end  of  10  years.     Now, 


390  RURAL    CREDITS.  | 

thai  law  would  have  to  be  changed;  we  could  not  do  business  there 
until  it  was  charged. 

Mi-.  Woods.  I  think  that  statement  i>  somewhat  erroneous.  Mr. 
Piatt. 

Mr.  Platt.  Well.  I  will  not  he  sure  of  it. 

Mr.  Woods.  I  think  it  is  if  the  mortgage  is  past  due  10  years. 

Mr.  Platt.  If  it  is  past  dwv  10  years,  but  the  interest  is  paid  on 
it  right  along  it  is  absolutely  a  live  mortgage.  I  am  not  sure  about 
the  terms  of  the  law,  but  I  think  that  is  the  case  in  South  Dakota. 

Mr.  Woods.  Well,  if  the  mortgage  runs  for  20  years,  it  is  not  past 
d\w  until  the  20  years  have  expired;  but  if  the  mortgage  is  due  in  20 
years  and  then  runs  30  years  it  is  10  years  past  due  and  it  ceases  to 
be  a  lien  on  the  real  estate. 

Mr.  Platt.  We  could  not  do  business  under  that  law  with  the 
bank^. 

Mr.  Bulklev.  Well,  I  hope  they  would  not  let  anything  run  for 
10  years  past  due. 

Mr.  Woods.  Well,  under  the  amortization  plan.  I  suppose  it  would 
not  be  past  due. 

Mr.  Platt.  It  would  not  be  past  due;  perhaps  we  could  get  around 
it  that  way. 

Mr.  von  Exgelkex.  Now.  in  our  State,  we  have  the  homestead 
exemption,  and  any  mortgage  issued  or  given  which  does  not  waive 
that  homestead  exemption  is  not  worth  the  paper  it  is  written  on. 

Mr.  Bulklev.  Well,  I  do  not  think  Congress  is  ready  to  under- 
take, even  if  it  had  the  right  to  do  so,  to  interfere  with  State  laws 
controlling  titles  to  real  property. 

Mr.  Platt.  By  the  way,  this  matter  of  foreclosure  makes  a  dis- 
tinction between  farm  security  and  other  classes  of  security,  because 
other  classes  of  security  can  be  taken  instantly  for  a  debt  and  at  no 
expense.  They  are  actually  put  up  in  the  vaults  of  the  bank  as 
collateral. 

Mr.  Bulklev.  Of  course,  you  are  now  referring  to  State  laws? 

Mr.  Platt.  Yes. 

Mr.  Bulklev.  I  do  not  think  we  want  to  interfere  with  the  State 
laws,  especially  about  real  estate. 

Mr.  Sri  dder.  Mr.  Chairman,  may  I  suggest  a  solution  to  that 
question? 

Mr.  Bulklev.  We  would  be  glad  to  hear  from  you. 

Mr.  Scudder.  Congress  would  not  take  any  direct  action  to  force 
States  to  pass  uniform  foreclosure  laws,  yet  in  a  bill  of  this  kind  it 
could  provide,  especially  if  the  Government  bought  the  bonds,  that 
the  bonds  would  not  be  a  proper  investment  for  Government  postal- 
saving  funds  unless  they  complied  with  this  and  that  rule. 

Mr.  vox  Engelken.  Ye-. 

Mr.  Scudder.  Such  as  prompt  foreclosure. 

Mr.  Platt.   Yes;  that  could  be  done. 

Mr.  Scudder.  Exemption  from  taxation  and  all  those  rules  that 
are  accessary  to  make  that  bond  gilt-edged. 

Mr.  lit  i.Ki.r.v.  That  would  be  possible,  I  think. 

Senator  lb n. lis.  Mr.  von  Engelken.  Senator  Hitchcock  listened 
with  interest  to  what  you  had  to  say  and  he  made  this  suggestion: 
That  the  Federal  reserve  banks  be  authorized  to  purchase  and  sell  these 


RURAL    CREDITS.  391 

debenture  bonds  to  be  issued  by  the  farm-loan  banks  or  an  associa- 
tion of  farm-loan  banks. 

The  situation  would  be  this:  Federal  reserve  banks  are  not  per- 
mitted to  deal  generally  in  what  are  called  open-market  securities; 
that  is,  open-market  operations  generally  are  prohibited  to  them. 
They  are  allowed  to  buy  and  sell  certain  classes  of  securities  and 
bullion  and  gold  and  so  on. 

Now.  if  they  were  permitted  to  buy  and  sell  these  debenture  bonds, 
without  guaranteeing  them,  they  could  have  their  agents,  who  will 
be  situated  in  different  localities  all  over  the  country,  look  them  up, 
inspect  them,  and  pass  on  those  that  they  think  are  safe;  they 
could  buy  and  sell  them ;  and  they  would  have  facilities  for  selling 
them  in  this  country  and  abroad.  You  will  readily  see  the  advantage 
of  that.    Have  you  any  comments  to  make  on  that? 

Mr.  von  Engelken.  I  may  reiterate  here  that  the  more  confidence 
the  Government  shows  in  these  bonds  the  more  confidence  investors 
will  have  in  them.  But  let  me  inject  here  into  the  record  a  very 
interesting  scheme  that  was  proposed  by  the  gentleman  at  my  right 
[Mr.  Moss]  while  we  were  in  Europe ;  I  do  not  know  what  has  become 
of  it;  but  it  was  this:  All  banks  are,  I  believe,  supposed  to  keep  a 
reserve,  are  they  not? 

Senator  Hollis.  Yes. 

Mr.  von  Engelken.  Why  not  allow  those  banks  to  keep  that  re- 
serve in  the  shape  of  farm-land  bonds? 

Senator  Hollis.  The  reason  that  that  that  could  not  oe  done  is 
very  clear;  the  reserves  must  be  the  most  liquid  thing  there  is,  and 
they  must  be  immediately  available. 

Mr.  von  Engelken.  I  see. 

Senator  Hollis.  That  is  what  reserves  are  for,  for  quick  action; 
so  that  plan  would  not  work.  It  would  not  work  for  the  same  reason 
that  commercial  banks  are  not  allowed  to  loan  money  on  long-time 
securities. 

Mr.  von  Engelken.  Yes.  Well,  that  practically  covers  what  I 
can  volunteer  on  this  subject;  I  shall  be  glad  to  answer  any  questions. 

Mr.  Woods.  Was  it  your  intention  under  the  plan  you  proposed, 
that  national  bank  examiners  should  examine  the  local  banks  as  well 
as  the  State  banks? 

Mr.  von  Engelken.  I  am  not  prepared  to  answer  that,  because  the 
plan  as  written  here,  while  it  is  the  work  of  Mr.  Jones  and  myself, 
Mr.  Jones  who  will  appear  before  you  later  is  much  more  qualified 
as  a  banker  to  answer  those  technical  questions  than  I  am.  I  am 
afraid  I  would  be  in  a  position  of  doing  more  or  less  guessing. 

Mr.  Platt.  Instead  of  having  a  State  central  bank  to  issue  bonds, 
would  it  not  be  possible  to  have  State  appraisers  who  could  appraise 
the  value  of  the  land;  who  could  be  sent  to  the  various  little  banks 
in  the  State  to  appraise  the  land  so  that  the  local  barrowers  should 
not  do  their  own  appraising? 

Mr.  von  Engelken.  What  would  you  gain  by  that  ? 

Mr.  Platt.  Well,  would  you  not  gain  something  in  saving  the 
charges  of  an  additional  bank? 

Mr.  von  Engelken.  Do  not  let  us  lay  too  much  stress  upon  the 
saving  that  you  are  going  to  make  to  the  farmer  in  his  interest  rates, 
because  it  is  impossible  to  derive  any  benefit  from  any  system,  or  in 
any  way,  without  paying  for  it.     This  thing  is  going  to  benefit  the 


392  RURAL    CREDITS. 

farmer  tremendously,  and  he  certainly  must  be  prepared  to  pay  for 
l  lie  benefit  he  is  to  receive. 

Now,  when  you  get  to  the  local  unit  issuing  bonds,  you  see  you 
get  back  to  where  we  were  this  morning,  and  that  is  to  the  degree  of 
confidence  which  the  investor  is  going  to  have  in  that  local,  and 
that  really  is  the  keystone  of  the  entire  arch,  because  what  you  are 
going  to  try  to  reach  is  not  the  farmer,  but  the  investor. 

Mr.  Platt.  Well,  if  an  appraiser  were  designated  for  the  whole 
State — if  it  were  known  that  the  bonds  of  every  bank  in  that  State 
were  based  upon  real  estate  appraised  by  a  central  authority,  would 
not  that  give  confidence  in  the  bonds? 

Mr.  von  Engelken.  That  is  what  you  provide  in  this  central  au- 
thority, in  this  State  union  organization.  It  is  this  appraisal — if  you 
choose  to  make  that  appraiser  a  State  official,  well  and  good. 

Mr.  Platt.  What  I  mean  is  having  this  State  officer  appraise  the 
lands  without  having  the  central  bank  organization. 

Mr.  von  Exgelkex.  There  you  would  again  throw  this  hetero- 
geneous mass  of  bonds  on  the  market  without  any  system;  you  would 
be  getting  back  to  the  very  question  of  a  selling  agency.  How  can 
all  these  little  banks  in  a  State  each  one  open  up  a  selling  agency? 
Just  imagine  what  would  happen. 

Mr.  Platt.  It  seems  to  me  that  a  central  bank  would  be  of  some 
service  there,  unquestionably.    But  I  am  not  sure  that 

Mr.  von  Engelken  (interposing).  It  is  really  a  clearing  house, 
is  it  not  ? 

Senator  Hollis.  Xot  in  the  sense  in  which  we  use  the  term  "  clear- 
ing house."  A  clearing  house  is  an  institution  for  adjusting  the 
balances  between  banks,  you  know.  This  would  perform  the  func- 
tions of  a  bank  of  issue;  if  we  might  call  this  a  form  of  currency, 
this  would  be  a  bank  of  issue.  This  is  the  counter  where  you  sell 
your  goods. 

Mr.  vox  Exgelkex.  You  see  there  is  another  function  of  the  State 
organization.  The  State  organization  has  a  larger  capital,  by  far, 
than  any  one  unit.  Xow,  let  us  say  that  any  one  unit  happens  to  have 
a  more  rapid  call  than  another.  That  unit  does  not  have  to  wait 
until  it  can  sell  its  bonds  in  the  open  market.  It  simply  gets  money 
from  the  State  organization  in  exchange  for  its  mortgages  and 
expedites  its  business  very  materially  in  that  way. 

If  that  little  unit  had  to  wait  until  it  sold  its  bonds,  then  there  is 
no  telling  how  long  it  would  take  to  sell  those  bonds,  and  then  you  do 
not  know  whether  you  would  get  par  for  them  or  not.  And  it  looks  to 
me  as  a  farmer,  and  from  what  business  experience  I  have  had,  as  ii 
you  would  be  very  much  more  apt  to  get  par  for  bonds  issued  from 
a  State  organization  than  from  bonds  issued  by  some  little  unit  in 
a  State. 

Mr.  Platt.  Suppose  that  a  State  official  had  appraised  the  value 
of  the  lands  on  which  those  bonds  were  based,  would  not  the  local 
banks  take  them — would  not  the  local  banks  of  that  State  take  them 
very  readily;  the  savings  banks,  or  the  State  banks,  or  even  national 
banks,  perhaps? 

Mr.  vox  Engelken.  Why  should  the  savings  banks  take  the  bonds 
when  they  can  go  right  out  in  the  open  market  and  place  their  money 
on  mortgages  at  a  higher  rate  of  interest  ?  You  are  not  going  to  clear 
the  field  by  this  system  of  the  savings  institutions  that  are  now  in 


RURAL    CREDITS.  393 

the  mortgage  field.  You  will  find  in  Europe,  side  by  side  with  a  sys- 
tem of  this  sort,  independents  who  are  actively  engaged  in  the  same 
business  in  the  same  field. 

Senator  Hollis.  Well,  Mr.  Piatt's  suggestion  would  work  in  my 
section  of  the  country.  We  can  not  get  as  many  first-rate  real  estate 
loans  even  on  a  basis  of  two-thirds  or  three-fourths  of  the  value  of 
the  land  as  we  would  like;  so  Ave  invest  our  deposits  in  stocks  and 
bonds,  and  in  western  mortgages,  and  I  think  our  bank  would  be 
very  glad  to  have  a  line  of  these  bonds.  We  do  not  want  to  get  too 
many  of  these  eggs  in  one  basket. 

Mr.  Platt.  Yes ;  I  think  that  is  correct. 

Senator  Hollis.  And  I  think  a  5  per  cent  or  even  a  4  per  cent 
bond  would  be  very  attractive  to  our  New  England  savings  banks, 
if  they  were  supervised  by  some  State  authority. 

Mr.  von  Engelken.  That  is  what  I  mean.  But  would  you  not, 
us  a  banker  in  that  locality,  rather  deal  with  an  organization  in  a 
State  that  covers  the  entire  State  than  with  a  little  unit? 

Senator  Hollis.  Undoubtedly  so.  As  it  is  now  we  have  some 
agents  in  the  West  that  we  buy  some  farm  loans  from.  I  remember 
that  we  have  an  agent  at  Topeka,  Ivans. ;  we  have  one  at  Minneapolis; 
and  we  depend  on  those  men;  they  have  always  done  us  good  service; 
and  we  have  an  agent  go  out  and  visit  these  sections  where  the  mort- 
gages are  made.  But  if  we  could  do  that  through  the  State  Farm 
Land  Bank  of  Minnesota,  or  of  Kansas,  for  instance,  I  think  we 
would  be  very  glad  to  do  it;  I  think  we  would  take  half  a  million 
dollars  of  those  bonds. 

Mr.  Platt.  Would  not  your  banks  do  that,  if  it  was  not  a  central 
organization,  but  simply  a  State  official  whose  business  it  was  to 
nppraise  the  land? 

Senator  Hollis.  Yes;  I  think  we  would  buy  them  just  as  quickly 
then. 

Mr.  von  Engelken.  But  you  are  getting  away  from  this  point : 
Suppose  that  your  bank  buys  our  bonds  at  Hastings,  and  our  lands 
have  been  appraised  by  this  State  official,  and  we  have  had  three  or 
four  -years  crop  failures.  We  are  going  to  have  trouble  in  meeting 
our  amortization.  Then  you  are  dealing  directly  with  us;  it  is  the 
personal  equation.  Now,  if  you  are  dealing  with  a  State  organiza- 
tion, you  do  not  care  whether  there  is  a  crop  failure  in  one  particular 
section  or  not,  because  the  balance  of  the  State  is  going  to  see  to  it 
that  this  organization  is  helped  through  its  troubles,  in  order  to  main- 
tain the  standard  of  the  bonds  throughout  the  entire  State.  They 
can  not  afford  to  let  the  small  units  suffer. 

Mr.  Platt.  There  is  a  good  deal  in  that  argument. 

Senator  Hollis.  I  would  rather  buy  the  bonds  through  (he  agent 
of  the  Florida  State  Farm  Land  Association  than  through  the  John 
Smith  Mortgage  Co.,  of  Kansas. 

Mr.  von  Engelken.  Yes;  I  think  so. 

Mr.  Platt.  I  would  like  to  know  what  Mr.  Moss  would  have  to 
say  in  answer  to  that  argument. 

Senator  Hollis.  Yes;  let  us  hear  from  Mr.  Moss.  Mr.  Moss,  Mr. 
Platt  suggests  that  he  would  like  to  hear  you  in  answer  to  that 
argument. 

Mr.  Moss.  Yes;  I  was  going  to  ask  for  permission  to  come  before 
the  committee  again  and  present  some  matters  in  a  more  precise  form 


394  KURAL    CREDITS. 

than  I  can  to-day.  I  would  like,  however,  to  answer  briefly  now  what 
1  have  been  thinking  about  while  sitting  here  Listening  to  the  dis- 
cussion. 

The  liability  that  the  hank  assumes  is  not  in  the  bonds  which  it 
issues;  it  is  in  the  mortgages  which  it  accepts.  The  loan  on  the 
mortgage  is  the  real  liability.  If.  as  a  matter  of  fact,  the  loan  is 
well  placed 

Senator  Hollis  (interposing).  Now.  the  asset  which  underlies  the 
mortgage  is  a  thing  of  importance,  is  it  not? 

Mr.  Moss.  I  recognize  that;  but  if  you  will  let  me  finish  my 
statement  I  think  yon  will  see  my  point.  I  sav  that  under  the  gov- 
ernmental supervision,  if  the  loan  itself  is  well  placed,  so  that  the 
loan  is  repaid  promptly  to  the  bank,  the  bank  has  its  funds  to  redeem 
its  bonds:  but  if  the  mortgage  is  badly  placed,  then  the  bank  itself 
has  no  funds  with  which  to  redeem  its  bonds,  and  therefore  that  is 
the  reason  I  say  that  the  real  liability  is  in  the  loaning  on  the 
mortgage. 

Most  of  the  discussion  that  I  have  heard  around  the  table  to-day, 
and  indeed  most  of  the  discussion  in  this  whole  matter,  has  been 
upon  the  question  of  making  the  bond  good. 

My  first  impression  that  I  got  of  this  subject  was  through  Am- 
bassador Herrick,  and  I  will  get  my  notes  and  see  just  what  that 
conversation  was.  And  Mr.  Herrick  outlined  practically  the  nucleus 
of  every  plan  that  I  have  seen  about  having  successive  organizations 
that  passed  on  the  bond. 

It  is  impossible  that  under  this  system  successive  organizations 
of  capital  can  add  anything  to  the  value  of  the  bond  unless  at  the 
same  time  they  add  greater  prudence  to  the  borrower  or  the  bank 
at  the  source  at  the  time  the  bank  places  its  money  on  the  farm. 

A  central  bank,  unless  it  is  going  to  have  its  own  appraisers  and 
follow  out  its  appraisements — or  if  the  supervising  authority  does 
not  have  the  power  to  control  the  loaning — then  the  central  authority 
will  add  no  safety  to  the  system. 

I  do  not  care  how  many  names  are  written  on  the  bond.  If,  as  a 
matter  of  fact,  the  central  bank  is  the  one  that  is  going  to  make  the 
appraisement  and  control  the  loan,  then  it  is  true  that  these  local 
banks  are  not  anything  more  than  agencies.  They  have  lost  their 
initiative  altogether.  So  that  you  have  got  to  do  either  one  of  two 
things. 

You  have  either  grot  to  give  the  locals  the  right  to  make  the  ap- 
praisement of  the  land  and  to  make  the  loan:  and  if  you  do  that 
you  have  no  need  of  a  central  bank.  Xow.  T  admit  that  there  is  a 
question  in  regard  to  the  appraisement,  but  the  real  difficulty  about 
this  proposition  is  the  same  difficulty  that  any  man  has  when  he  goes 
out  to  buy.  as  Senator  Hollis  has  suggested,  any  real  estate  mort- 
gages. It  is  a  question  whether  the  loan  has  been  well  made,  and 
that  is  the  whole  question  on  that. 

I  have  given  this  subject  more  careful  study,  because  it  is  the 
kernel  upon  which  the  whole  thing  depends:  and  T  believe  it  will 
be  found  that  when  you  put  this  system  into  operation  that  that 
system  which  confines  the  loans  down  to  the  locality  where  the  ap- 
praiser is  best  known — on  the  lands  which  he  appraises — is  the  one 
that  is  going  to  give  the  soundest  appraisement:  and  you  can  take 


RURAL    CREDITS.  395 

any  system  that  has  ever  been  devised  and  find  some  ways  by  which 
it  can  be  abused.    There  is  no  doubt  about  that  proposition. 

It  seems  to  me  that  if  you  make  the  association  itself  responsible 
m  a  business  way  its  reputation  is  at  stake  about  the  matter.  Let 
us  take  Senator  Hollis's  illustration  that  he  used  a  few  moments 
ago.  He  said  that  the  people  in  his  section  now  depend  upon  an 
agent  in  buying  these  loans,  and  it  was  that  agent's  judgment  that 
was  used  in  the  matter.  If  you  were  buying  under  these  local  asso- 
ciations, the  management  of  that  bank  and  the  general  reputation 
of  the  management  of  the  bank  itself  would  be  just  as  great  a  guar- 
anty as  to  the  amount  of  business  it  does  as  would  be  the  case  if  you 
had  a  great  central  authority.  I  think  you  will  agree  with  me"  on 
that. 

Now,  if  it  was  so  that  the  central  authority  could  add  any  greater 
guaranty — if  the  central  authority  brought  independent  capital  into 
the  enterprise,  then  I  could  see  how  it  would  be  an  advantage.  But 
I  want  to  call  your  attention  to  the  fact  that  for  every  bond  that  is 
issued  there  is  a  mortgage  that  is  outstanding  against  it;  and  if  there 
is  a  bad  loan  made  by  any  association  there  will  be  a  deficit  of  that 
amount,  and  the  most  you  can  do  by  an  association  is  to  take  out  of 
the  net  profits  of  all  of  them  a  sufficient  amount  to  make  up  the  bad 
loan  of  any  one  of  them.  The  real  difficulty  of  getting  up  such  an 
association  is  to  compel  the  banks  to  go  into  it.  If  you  have  a  central 
organization  and  then  say  that  all  the  banks  must  go  into  it.  that  no 
bank  shall  form  under  this  system  unless  they  subscribe  stock  in  the 
central  institution  and  assume  a  joint  insurance,  those  banks  will  at 
once  take  up  and  decide  the  question  whether  or  not  they  will  do 
business  under  State  laws  or  under  the  national  law.  If  the  State 
law  were  to  exempt  mortgages  from  taxation,  and  the  State  can  give 
just  as  liberal  a  law  as  the  Nation  does,  I  can  readily  understand  how 
a  bank  would  go  under  the  State  law  in  order  to  avoid  having  to  go 
into  these  associations;  and,  as  a  matter  of  fact,  that  has  been  the 
greatest  stumbling  block  in  the  system — to  compel  banks  to  mutually 
insure  each  other's  loans.  I  can  readily  see,  also,  that  if  you  make 
a  central  bank  you  have  added  to  the  administration  charges. 

Now,  if  the  State  were  to  free  all  mortgages  from  taxation,  the 
private  lender  would  have  the  advantage  of  1  per  cent,  which  under 
the  bill  goes  to  the  bank  for  administration — or  whatever  the  bank 
charges;  therefore  the  savings  banks  and  others  would  have  a  great 
advantage  over  the  Government  bank,  because  they  would  be  out 
from  under  the  administration  charge. 

In  Germany,  while  the  local  associations  had  brought  their  admin- 
istration charges  down  as  low  as  0.15  per  cent.  yet.  as  a  matter  of 
fact,  the  savings  banks  have  loaned  and  are  loaning  as  much  money 
to-day  on  rural  real  estate  in  Germany  as  all  the  landschaften  asso- 
ciations put  together. 

Now,  I  would  like  to  present  that  in  a  more  condensed  form  after 
I  have  had  a  little  more  time  to  consider  this  particular  matter. 

But  that  is  the  real  thought  I  have,  and  what  I  would  like  to  call 
attention  to — that  the  kernel  of  this  whole  system  is  the  making  of 
the  loan;  it  is  not  in  the  issuing  and  guaranteeing  of  the  bonds.  If 
you  fix  it  so  that  the  loans  are  safe  the  whole  system  is  safe. 


396  RUEAL    CREDITS. 

Senator  Hollis.  It  seems  to  me  that  the  success  of  the  system  will 
be  not  alone  in  making  the  loans  safe,  but  very  largely  in  making 
the  investors  believe  that  the  loans  are  safe. 

Mr.  vox  Engelken.  That  is  the  kernel  of  it. 

Mr.  Platt.  Yes. 

Senator  Hollis.  And  I  personally  have  more  faith  in  a  State  in- 
stitution, formed  by  an  association  of  various  banks,  than  I  would 
in  one  bank,  or  in  any  one  private  corporation.  Tt  seems  to  me  that 
it  does  dignify  it  and  give  it  more  currency.  That  is  the  way  it 
strikes  me. 

Mr.  Moss.  That  was  the  argument  that  Ambassador  Herrick  used. 
But  Ambassador  Herrick  went  further  and  wanted  a  national  asso- 
ciation by  successive  organizations.  But  the  weakness  of  that  propo- 
sition, it  seems  to  me.  comes  from  the  fact  that  by  assessing  the  lower 
bank  and  taking  the  capital  away  from  the  lower  bank  your  aggre- 
gate capital  is  not  increased  the  least  bit — your  aggregate  income  is 
not  increased  the  least  bit.  What  you  have  increased  has  been  your 
administration  charges,  without,  in  any  sense  of  the  word,  adding  any 
element  of  safety,  unless  it  is  the  prudence  of  the  man  that  makes 
the  loan. 

Senator  Hollis.  It  seems  to  me  that  you  would  not  increase  your 
administration  charges  very  much.    That  is  the  way  it  impresses  me. 

Mr.  vox  Exgelken.  Senator  Hollis,  I  have  said  a  good  deal  on  this 
subject,  and  Mr.  Moss  and  I  do  not  seem  to  be  able  to  get  together 
at  all  on  it. 

Mr.  Moss  directs  attention  to  this  question  of  prudence  at  the 
source,  and  says  that  if  the  State  organization  is  going  to  check  the 
loans  that  the  local  bank  is  nothing  but  an  agent. 

Now.  I  do  not  agree  with  that  in  any  particular.  The  local  must 
make  the  loan.  All  that  the  State  organization  does  is  to  say  to  the 
local.  "  Be  careful:  do  not  lend  more  money  on  this  real  estate  than 
is  perfectly  safe,  because  if  you.  in  the  judgment  of  the  man  who  is 
to  pass  on  the  values  designated  by  us  collectively,  have  loaned  more 
on  John  Smith's  farm  than  John  Smith's  farm  is  entitled  to  you  will 
be  required  to  make  up  to  the  State  organization  sufficient  collateral 
yourselves  to  make  that  loan  good." 

In  your  bill,  Mr.  Moss,  you  have  provided  absolutely  no  check 
upon  the  appraisement  of  the  land  between  the  bunch  of  three 
farmers,  for  example,  and  the  man  in  New  York  or  New  Hampshire, 
who  is  to  buy  the  bonds. 

Furthermore,  you  speak  of  the  security  of  the  bond.  It  is  not  a 
question  of  the  security  of  the  bond.  The  whole  question  is  con- 
servatism of  appraisement.  You  have  the  agent  now.  the  appraiser 
of  the  State  unit.  Then  comes  the  Government;  it  steps  in  and 
makes  a  further  appraisement,  I  will  tell  you  this,  that  if  you  have 
50  appraisements,  your  bonds  will  be  50  times  as  attractive  to  the 
investing  public  as  they  would  be  if  you  had  only  one  appraisement. 
The  investing  public  has  confidence  in  the  security  of  land.  What 
you  must  give  them  now  is  confidence  that  conservatism  and  good 
judgment  is  going  to  be  used  in  deciding  how  much  of  that  security 
is  behind  loans  that  are  going  to  be  sold  to  the  public;  that  is,  the 
crux  of  the  question.  Now,  we  get  to  the  locals  making  the  loans. 
The  locals  do  make  the  loans  in  every  sense  of  the  word. 

Mr.  Moss.  I  was  speaking  of  the  appraisement. 


RURAL    CREDITS.  397 

Mr.  von  Engelken.  I  know;  but  I  was  just  making  comments  on 
what  you  said. 

Then  we  come  to  the  question  of  administrative  charges,  and  there 
we  are  widely  apart  again.  I  do  not  see  that  the  administration 
charges  are  going  to  be  materially  enhanced  if  they  are  enhanced  at 
all,  because  you  congregate  the  administrative  charges  into  one  spot, 
that  otherwise  would  be  scattered  among  the  local  units. 

You  take,  for  instance,  your  local  unit;  it  has  an  administrative 
charge  for  its  own  office  expenses,  etc.,  whatever  that  may  be.  Then 
comes  the  expense  for  a  fiduciary  agent  of  the  local.  Then  comes 
the  expense  for  inspection  or  examination;  and  then  comes  the  ex- 
pense for  providing  a  market  for  these  bonds.  Now.  you  have  the 
expense  of  the  fiduciary  agent  that  each  local  is  subject  to  in  this 
bill :  the  expense  of  the  examination  and  the  expense  of  the  selling  of 
the  bond ;  and  if  you  take  that  away  from  the  local  and  bunch  it  at 
the  central  organization.  I  will  almost  guarantee  that  you  can  do  it 
cheaper  than  the  local  can  do  it,  and  can  cut  down  your  administra- 
tion expenses  rather  than  enhance  them. 

Mr.  Platt.  It  might  be  that  the  marketing  of  the  bonds  alone 
would  be  so  much  more  cheaply  done  as  to  make  up  any  other  in- 
creased expense? 

Mr.  von  Engelkbn.  Yes.  Now  here  is  another  element.  Mr.  Moss; 
take  this  into  consideration:  If  your  locals  make  a  loan  and  the 
farmer  once  gets  his  hands  on  the  money,  and  if  the  bonds  that  that- 
local  would  then  issue  do  not  sell  at  par,  who  is  going  to  put  up  the 
margin  on  them?     It  has  got  to  come  out  of  the  one  local,  has  it  not? 

Mr.  Moss.  I  guess  so. 

Mr.  von  Engelken.  Now,  if  through  an  organization  you  bring 
your  bonds  nearer  par,  do  you  not  see  where  that  would  strengthen 
the  situation?  And  take  Senator  Hollis's  statement  that  as  an  in- 
A'estor  he  would  prefer  to  pay  par  for  a  bond  backed  by  an  organiza- 
tion of  a  State  than,  perhaps,  to  pay  90  for  a  bond  of  a  local  organi- 
tion — and  if  a  local  organization  ever  has  to  sell  a  bond  at  90  it  is 
gone- 


Mr.  Moss  (interposing).  We  have  in  our  State  of  Indiana  what  we 
call  the  "  3-mile  law."  That  is.  under  that  law  50  freeholders  may  pe- 
tition to  have  a  road  built  which  does  not  exceed  3  miles  in  length. 
And  a  great  quantity  of  roads  that  have  been  built  in  Indiana  are 
built  under  what  we  call  the  3-mile  law.  That  means  that  there  is  a 
vast  amount  of  small  issues  of  bonds;  and  you  can  hardly  pick  up  a 
newspaper  in  the  State  of  Indiana  to-day  without  finding  an  adver- 
tisement of  such  an  issue  of  bonds.  Those  bonds  are  promptly  taken 
up,  and  nearly  always  by  local  capital.  And  when  you  want  to  build 
a  schoolhouse  now  in  our  State,  and  I  presume  in  other  States,  we 
have  found  out  there  that  it  is  better  to  issue  those  bonds  and  then 
tax  the  people  to  pay  them  rather  than  tax  them  in  advance  to  build 
the  schoolhouse.  Therefore,  when  a  bridge  or  a  schoolhouse  is  to  be 
built,  the  bond  itself  is  always  advertised  and  sold. 

Now,  in  the  case  of  those  bonds  the  investors  come  from  the  imme- 
diate locality.  I  have  very  little  confidence  in  a  proposition  that  has 
to  go  far  away  from  home  to  get  the  money.  There  are  some  locali- 
ties in  the  United  States  where  you  have  to  do  that;  and  the  very 
weakness  of  this  central  system  lies  in  that  one  point,  and  I  want  to 
call  attention  to  it: 


398  RURAL    CREDITS. 

Under  the  bill  that  the  commission  suggested  the  persons  who  are 
forming  the  bank  are  permitted  practically  to  underwrite  the  bonds 
with  a  large  credit  capital,  if  they  care  to,  and  each  bank  can  assume 
its  own  measure  of  credit  capital. 

Now.  taking  the  instance  we  had  at  Colorado  Springs,  Colo. — and 
I  wish  to  say  that  these  banks  will  not  be  formed  by  farmers;  at 
least  not  necessarily  so — here  is  a  community  where  they  want  to 
develop  the  agricultural  industries,  and  the  reason  they  wrant  to  de- 
velop the  agricultural  industries  is  because  that  will  improve  the 
business  of  the  whole  country.  So  that  the  question  of  public  spirit 
comes  in — people  have  faith  in  the  system.  So  they  form  an  associa- 
tion or  bank,  and  recognizing  their  disadvantage  from  a  lack  of  large 
capital  at  the  present  time,  they  decide  to  make  that  up  through  the 
assumption  of  a  large  credit  capital.  So  here  is  a  bank  that  has  been 
formed  with  reputable  stockholders,  business  men,  farmers,  and  oth- 
ers, and  they  issued  $150,000  of  bonds  with  a  $10,000  capital.  But 
they  assume,  we  will  say.  a  $40,000  credit  liability  if  they  want  to, 
assuming  that  this  is  precisely  Mr.  Breitung's  proposition.  Then,  if 
they  are  going  away  from  home  to  get  their  funds,  they  say,  "  Here 
is  an  organization  formed;  we  have  a  land-mortgage  bank;  we  have 
a  capital  of  so  much ;  we  have  a  credit  liability  of  so  much  behind  the 
bonds:"'  and  we  sell  the  bonds  of  that  guaranty,  and  the  United 
States  Government  buys  them  and  holds  them  on  our  guaranty. 

My  judgment  is  that  that  will  assist  the  bonds  on  the  market;  I 
may  be  mistaken. 

Now.  against  that,  this  central  proposition  proposes  that  in  a  given 
area,  whether  it  be  a  State  or  a  larger  area,  you  shall  compel  a  bank 
before  it  enters  the  system  to  practically  underwrite  or  assist  in  un- 
derwriting the  whole  business.  Take  the  instance  which  has  been 
cited  here,  where  the  Missouri  River  divides  the  State  into  two  sec- 
tions, and  where  they  recognize  that  the  interest  rate  shall  be  1  per 
cent  higher  on  one  side  of  the  river  than  it  is  on  the  other,  as  a  legal 
requirement  you  would  find  extreme  difficulty  in  putting  that  into 
operation  if  you  had  all  the  banks  in  one  central  organization  such 
as  that.    I  think  you  will  find  a  difficult}^  there. 

I  would  not  want  to  say  the  last  word  on  this  subject  to-day,  be- 
cause I  want  to  bring  together  some  facts  for  the  benefit  of  the  com- 
mittee :  but  I  have  not  been  able  to  convince  myself  that  an  elaborate 
organization  will  be  successful.  And  there  is  one  very  marked  dif- 
ference between  mortgage  securities  and  those  of  ordinary  commer- 
cial banks,  and  that  is  this: 

Suppose  a  commercial  bank  is  doing  business  largely  upon  deposits, 
and  there  is  in  this  section  over  here  [indicating]  a  time  in  the  year 
when  people  are  depositing  more  money  than  they  are  drawing  out: 
and  there  is  a  time  when  these  people  over  here  [indicating]  are 
drawing  out  mere  money  than  they  are  depositing.  That  being  true, 
the  commercial  bank.-,  dealing  in  deposit.-,  if  they  can.  take  measures 
to  strengthen  themselves  by  the  deposits  in  one  section  to  meet  the 
demands  in  the  other,  and  that  is  true,  I  think  you  will  find,  in  all  of 
the  other  systems.  But  in  mortgage  credit  there  is  not  any  element 
of  that  kind,  because  the  moment  you  have  an  asset  there  you  incur 
a  liability,  and  there  is  not  any  mean-  by  which  they  can  strengthen 
the  financial  solvency  of  the  bank,  except  by  the  plan  of  joining  a 
number  of  them  together,  and  then  you  can  only  do  that  out  of  the 


RUEAL    CREDITS.  399 

net  earnings  of  the  whole  institution.  There  is  not  any  other  way 
to  meet  these  requirements,  except  the  net  earnings,  because  there  are 
just  as  many  bonds  outstanding  as  there  are  mortgages,  and  it  makes 
no  difference  whether  you  have  only  one  bank  or  a  hundred  together 
the  same  conditions  prevail;  one  exactly  balances  the  other. 

Senator  Hollis.  Well,  you  recognize  the  value  of  the  insurance 
feature,  where  you  have  a  crop  failure  in  one  section  and  no  crop 
failure  in  the  other  sections,  do  you  not? 

Mr.  Moss.  I  would  not  recognize  the  insurance  feature  in  any  way 
excepting  this:  Here  is  a  block  of  bonds  on  which  the  interest  has 
not  been  paid.  There  is  not  any  way,  unless  you  maintain  a  reserve 
fund,  by  which  they  can  get  that  interest  back  again;  and  how  could 
you  do  it  unless  you  have  maintained  a  reserve  fund?  And  under 
this  plan,  each  bank  maintaining  a  reserve  fund  of  5  per  cent  is  just 
as  good  as  if  they  all  have  a  reserve  behind  them 

Senator  Hollis  (interposing).  Excuse  me.  but  I  want  to  ask  you 
a  question  there. 

Mr.  Moss.  Yes;  that  is  a  part  that  1  would  like  to  discuss  with  you 
further. 

Senator  Hollis.  Assume  that  you  have  a  local  land  bank? 

Mr.  Moss.  Yes. 

Senator  Hollis.  And  that  one  of  its  mortgage.'-  is  defaulted;  the 
bank  has  to  make  it  up  out  of  its  capital,  unless  it  has  a  surplus. 
That  is  what  the  capital  is  for,  to  "  chink  up  "  from.  And  so,  if  one 
bank  should  fail,  suppose  the  mortgages  generally  in  that  locality 
became  defaulted,  then  that  would  have  to  be  paid  out  of  the  State 
association's  capital.  I  do  not  see  that  there  is  any  distinction  in 
there. 

Mr.  Moss.  Well,  just  take  these  four  sections  of  land  of  which  I 
have  drawn  a  sketch  here  [indicating] — sections  1,  '2,  3,  and  4.  If 
all  of  the  mortgages  in  this  section  [indicating]  default  in  their  inter- 
est because  of  crop  failure,  and  these  three  sections  pay,  the  whole 
association  is  not  going  to  have  enough  income  to  pay  its  interest. 

Senator  Hollis.  That  is  true. 

Mr.  Moss.  And  unless  they  have  reserve  funds  to  draw  upon  the}* 
must  commence  to  draw'  upon  their  capital? 

Senator  Hollis.  Yes. 

Mr.  Moss.  Now,  if  they  draw*  upon  their  capital,  they  can  only  do 
that  by  an  assessment  on  their  stockholders,  because  under  the  terms 
of  any  bill  they  would  be  prohibited  from  reducing  their  capital, 
because  they  must  keep  it  at  the  ratio  of  1  to  15,  and  if  they  have 
issued  bonds  to  the  full  amount  they  can  not  take  it  from  the  capital 
which  is  paid  in;  they  can  only  do  it  by  an  assessment  upon  their 
stockholders. 

Now,  the  question  comes  up,  Will  the  people  in  sections  1,  2,  and 
4  be  willing  to  submit  to  an  assessment  to  make  up  the  deficit  which 
has  occurred  by  a  crop  failure  in  section  3  ? 

Mr.  Bulkley.  Well,  what  happens  if  they  do  not? 

Mr.  Moss.  The  question  would  be,  under  this  proposition,  that  if 
they  would  not  do  it,  of  course,  this  interest  would  not  be  paid.  The 
way  to  meet  that  situation,  however,  is  to  collect  a  reserve  fund,  to  be 
prudent,  to  hold  back  the  interest,  and  if  5  per  cent  reserve  is  not 
enough  make  it  10  per  cent,  or  whatever  reserve  you  want  to  carry. 
Of  course,  I  recognize  that  if  you  have  a  5  per  cent  reserve  on  all 


400  RURAL    CREDITS. 

of  these  banks  in  an  association  which  can  be  used  in  case  of  loss  by 
any  one  bank,  you  have  the  advantage  of  aggregating  them  together, 
but  you  are  still  drawing  upon  your  reserve  fund. 

Senator  ITollis.  It  seems  to  me.  Mr.  Moss,  that  under  the  supposi- 
tion of  a  State  association  you  distribute  or  thin  out  that  assessment, 
spread  it  more  widely,  and  therefore  it  would  be  less  of  a  burden  on 
any  one  bank. 

Mr.  Moss.  That  is  true. 

Senator  Mollis.  And  I  think  when  you  have  a  crop  failure  in 
section  3,  to  use  your  illustration,  if  they  can  not  reach  out  to  sections 
1,  2,  and  4  for  help,  it  looks  as  if  they  would  have  to  close  their  shop. 

Mr.  Moss.  But  there  is  another  question  that  you  are  forgetting. 
First,  the  reserve  power  of  the  farmer  to  pay  his  debt;  the  matter  of 
fact  is  that  the  average  farmer  who  goes  into  debt  can  meet  his 
obligations,  where  they  are  out  upon  a  long  term,  by  some  sacrifice; 
and,  after  all,  that  is  going  to  be  the  safety  of  the  whole  proposition, 
the  sacrifice  that  the  American  farmer  himself  can  make,  the  reserve 
capital  that  he  himself  is  able  to  pay  upon  the  debt  when  necessary. 
The  mere  fact  that  there  has  been  a  crop  failure  in  one  year  is  not 
going  to  cause  him  to  fail  to  pay  his  interest,  because  under  this  plan 
a  man  is  only  borrowing  50  per  cent  of  what  he  is  worth  and  he  has 
within  himself  a  much  larger  reserve  than  you  can  have  in  any  one 
of  your  banks. 

Senator  Hollis.  Yes. 

Mr.  Moss.  And  the  safety  of  the  system  is  that  it  has  stood  for 
more  than  100  years  in  Europe,  through  all  of  the  crop  failures  and 
all  of  the  devastations  of  war,  and  at  the  same  time  they  have  been 
able  to  meet  their  payments  when  the  loans  have  spread  out  over  a 
long  period  of  time.  So  I  say  that  after  all  the  safety  of  the  proposi- 
tion is  going  to  be  in  the  individual  farmer  meeting  the  debt  when 
it  is  due;  and  I  am  going  to  have  some  statistics  which  I  will  lay 
before  the  committee  to  show  that  there  have  been  no  failures  of 
the  kind  you  are  anticipating,  resulting  from  the  failure  of  the 
farmer  himself  to  pay  his  obligation. 

Mr.  von  Engelken.  I  do  not  see  yet,  Mr.  Moss,  although  I  have 
tried  to  listen  pretty  carefully  to  the  discussion,  where  you  have  pre- 
sented any  argument  against  the  organization.  I  think  you  have 
swung  right  around,  as  a  matter  of  fact,  in  your  argument,  in  favor 
of  that  question. 

Mr.  Bulkley.  Mr.  Moss,  do  you  agree  with  what  Mr.  Breitung 
said  yesterday,  that  a  farm  loan  in  the  United  States  is  a  greater 
risk  than  a  farm  loan  in  Europe? 

Mr.  Moss.  No;  I  do  not,  excepting  in  the  frontier  section;  and  I 
have  not  very  much  acquaintance  with  the  frontier  section.  I  speak 
of  that  part  of  the  country  which  I  know,  and  there  the  mortgages 
are  the  safest  loans  you  can  have. 

Mr.  Bulkley.  Well,  do  you  ever  have  any  crop  failures  or  depre- 
ciation of  land  values? 

Mr.  Moss.  I  have  only  a  knowledge  of  50  years  in  one  locality;  I 
have  lived  in  one  locality  for  50  years.  I  have  seen  crop  failures, 
and  have  farmed  when  we  did  not  raise  anything,  and  I  think  my 
father  was  always  in  debt.  But  when  the  time  came  to  pay  his  in- 
terest, he  always  sold  something  that  had  been  saved  from  a  previous 
year  and  paid  his  interest;  and  any  other  good  business  man,  and 


RURAL    CREDITS.  401 

the  farmer  preeminently  of  all  other  men,  would  do  just  that  very 
thing.  I  know  of  no  landowner,  and  I  could  not  conceive  of  a  man 
who  was  a  landowner,  who  would  not  have  absolutely  enough  cash 
to  pay  his  debts.    I  can  not  conceive  of  that  condition  as  arising. 

And  in  my  own  section  I  do  not  know  of  a  man  who  has  ever  lest  any 
money  in  loaning  to  the  farmer,  except  where  a  man  has  practical  ly 
loaned  the  entire  value  of  the  farm.  Here  comes  a  man,  for  instance, 
without  anything  to  pay  down,  and  gives  a  mortgage  upon  it.  Then 
he  very  likely  begins  to  improve  the  land  and  he  even  adds  to  his 
debt;  and  where  a  man  is  carrying  a  very  large  loan  of  that  kind, 
unless  he  is  a  good  business  man,  it  sometimes  happens  that  there  is 
a  foreclosure,  but  not  often;  and  I  must  confess  that  I  have  never 
heard  of  a  case  where  the  loan  itself  was  prudently  made  where 
there  was  a  failure  to  pay  the  loan.  Of  course  there  is  always  a 
chance  for  loans  to  be  imprudently  made,  and  I  do  not  know  of 
any  possible  system  that  is  not  subject  to  abuse.  But  I  would  think 
that  a  system  organized  under  Government  supervision,  with  the 
degree  of  prudence  and  responsibility  that  any  man  would  have  be- 
fore he  become  a  director  of  a  bank,  that  there  would  be  very  little 
danger- 


Mr.  Bulkley  (interposing).  Are  there  not  greater  fluctuations  in 
values  in  this  country  than  there  are  in  Europe? 

Mr.  Moss.  I  could  not  say  as  to  that;  I  do  not  know.  In  the  Mid- 
dle West  there  have  been  practically  no  fluctuations  in  value  except 
in  cases  of  this  kind. 

A  man  may  go  out  in  Indiana  in  some  sections  where  nobody  wants 
to  sell  lands,  and  if  you  get  a  farm  you  would  have  to  give  more  for 
it  than  the  people  in  the  neighborhood  recognize  the  farm  is  worth, 
because  nobody  wants  to  sell.  But  when  a  man  wants  to  sell  a  farm, 
you  will  find  that  the  price  compares  very  favorably  with  what  the 
land  could  have  brought  in  any  year  for  a  number  of  years  past. 
And  I  think  you  will  agree  with  me  that  that  has  been  also  true  in 
Ohio.  I  had  an  illustration  of  that.  There  are  80  acres  of  land 
adjoining  a  piece  of  land  which  I  own,  and  that  land  came  upon  the 
market.  A  man  had  been  renting  it  for  some  years,  and  he  wanted 
to  buy  it.  The  owner  put  a  price  of  $125  an  acre  upon  it,  and  four 
people  wanted  to  buy  that  land,  and  the  owner  decided  that  he  would 
let  them  take  their  turn;  if  the  renter  could  raise  the  money,  he 
would  have  the  first  choice;  if  not  the  man  whose  land  adjoined  that 
land  would  have  the  second  choice,  and  that  happened  to  be  myself; 
then,  if  I  did  not  buy  it,  the  third  man  would  have  the  choice,  and 
then  the  fourth.  But  the  man  who  rented  the  land  borrowed  the 
money  and  bought  it,  as  he  ought  to  have  done.  Now,  that  land  20 
years  ago  was  offered  to  me  at  $50  an  acre,  and  I  did  not  have  the 
money  at  that  time  to  buy  it.  But  there  was  not  any  time  after  the 
land  was  offered  to  me  at  $50  an  acre  that  it  would  not  have  sold  for 
more  than  it  was  offered  for. 

Mr.  Platt.  Mr.  Moss,  you  were  speaking  a  moment  ago  of  the 
bonds  issued  in  your  section  under  the  3-mile  road  law.  You  would 
not  say  that  those  bonds  would  sell  at  a  better  price  than  county  or 
State  bonds,  would  you  ? 

Mr.  Moss.  No;  they  sell  at  just  as  good  prices,  I  would  say. 

3T031— 14 26 


402  RURAL    CREDITS. 

Mr.  Platt.  Can  not  the  larger  unit  borrow  money  at  a  lower  rule 
than  the  smaller  unit? 

Mr.  Moss.  I  can  not  say  as  to  that  in  Indiana,  because  Indiana  has 
not  sold  any  bonds  for  a  long  time.  We  sell  county  bonds  in  our 
State.  But  these  township  bonds  are  really  sold  as  county  bonds, 
and  I  will  give  you  the  reason  for  that;  it  is  not  because  they  sell 
better  in  that  way;  it  is  because  of  the  fact  that  Indiana  has  a  2 
per  cent  constitutional  limitation  against  debt.  And  if  a  township 
wants  to  go  into  debt  for  the  purpose  of  building  a  road,  it  can  go 
into  debt  to  a  very  small  amount  under  that  limitation ;  but  a  county 
being  a  larger  unit,  that  gives  an  opportunity  to  issue  a  larger 
amount  of  bonds  for  that  purpose.  We  also  have  drainage  districts 
in  our  section.  They  are  very  small  districts.  I  suppose  you  know 
that  the  northern  half  of  Indiana  was  originally  very  swampy  and 
wet,  and  it  had  to  be  drained  out. 

Mr.  Platt.  Yes. 

Mr.  Moss.  And  that  has  been  done  entirely  by  drainage  districts 
and  drainage  bonds.  Since  those  bonds  have  been  free  from  taxa- 
tion, they  have  been  selling  at  as  good  a  rate  in  the  market  as  county 
bonds  would.  I  do  not  think  Indiana  has  sold  any  State  bonds  for 
a  good  many  years,  and  I  could  not  say  what  they  would  bring.  It 
would  not  be  unreasonable,  however,  to  suppose  that  the  State  of 
Indiana  could  borrow  at  a  lower  price  than  a  county,  for  instance, 
because  the  State  would  probably  want  to  borrow  a  larger  amount. 

Mr.  Platt.  Would  you  not  think  that  a  central  organization,  for 
instance,  could  save  money  in  brokerage — in  the  selling  agency? 

Mr.  Moss.  I  would  say  that  that  would  seem  to  be  reasonable ;  if, 
on  the  other  hand,  it  was  not  dissipated  by  the  expense  of  inspec- 
tion and  of  appraisement.  I  doubt  very  much,  Mr.  Platt,  if  the 
central  organization  is  issuing  bonds  based  upon  mortgage  taken 
by  the  local  associations  without  any  central  appraisement  what- 
ever, the  local  appraiser  doing  the  work  altogether — I  doubt  very 
much  whether  that  would  give  them  any  advantage  in  the  market. 

Mr.  von  Engelken.  No. 

Mr.  Platt.  I  think  it  would. 

Mr.  Moss.  I  am  inclined  to  think  that  a  State  appraiser — and  1 
want  to  say  that  in  nearly  all  of  the  European  countries  the  State 
does  make  the  State  appraisement  and  the  banks  do  have  to 
accept  the  appraisement — that  is  a  very  common  custom  in  Europe 
for  the  State  itself  to  make  the  appraisement  of  the  real  estate  and 
that  State  appraisement  must  be  accepted  by  all  the  banks  making 
the  loan,  and  one  bank  can  not  compete  against  another  by  giving 
a  higher  appraisement. 

Mr.  von  Engelken.  I  do  not  think  that  an  appraisement  by  a 
State  official  would  appeal  to  our  farmers  at  all,  for  the  very  reason 
that  Dr.  Coulter  mentioned  yesterday,  that  whenever  they  wanted 
the  real  value  of  the  land  they  would  have  to  say  to  the  farmer  first 
of  all  that  they  would  not  give  the  appraisement  to  the  tax  collector; 
but  here  would  be  the  State  official  coming  in  and  appraising  this 
land  for  loaning  purposes  and  he  could  give  the  information  to  the 
tax  collector. 

Senator  HolLis.  As  a  matter  of  fact.  I  think  it  is  held  generally 
that  the  appraisal  for  purposes  of  taxation  is  not  admissible  in  court 
as  a  measure  of  value.     I  know  that  is  true  is  my  State.     I  do  not 


EURAL    CREDITS.  403 

know  how  far  the  principle  goes.  I  think  those  matters  are  usually 
looked  on  with  more  or  less  suspicion,  so  they  are  no  really  a  basis 
for  taxation  purposes,  and  probably  the  appraisement  for  the  pur- 
pose of  a  loan  would  not  be  considered  a  basis  for  taxation. 

Mr.  Moss.  There  is  a  good  deal  of  favoritism  in  that. 

Senator  Hollis.  The  reason  of  that  is  that  when  an  appraisement 
is  made  for  taxation  or  any  other  purpose  there  is  no  opportunity  to 
cross-examine  or  to  produce  evidence  on  the  other  side,  and  it  is  a 
judgment  issued  to  them  under  the  sanction  of  the  court,  and  no 
other  judgment  is  admissible  unless  it  is  the  judgment  of  a  court  of 
record.  That  is  the  reason  for  it,  and  I  think  it  is  a  very  good  rea- 
son. I  do  not  think  we  will  have  any  trouble  along  that  line.  I 
should  not  pay  much  attention  to  that. 

Mr.  Platt.  In  the  minority  report  of  the  American  commission 
it  says : 

It  might  be  found  advisable  to  even  provide  the  central  with  a  larger  capitali- 
zation than  the  aggregate  amount  to  be  taken  by  the  dii'i'eieut  locals.  In  that 
case  provision  could  be  made  for  selling  founders'  shares,  similar  to  the  plan 
working  most  excellently  in  Hungary.  Such  shares  could  lie  made  preferred, 
if  deemed  advisable,  or  could  be  placed  upon  an  equality  with  the  shares  owned 
by  the  locals.  This  might  be  found  necessary  in  order  that  the  country  bankers  and 
farmers  might  have  desirable  financial  assistance  and  strong  connections  in 
the  recognized  financial  center  of  their  State  in  assisting  to  establish  a  market 
for  the  securities. 

Would  there  be  any  objection,  in  the  case  of  an  organization  of 
central  banks  to  handle  these  mortgages,  to  having  outside  capital 
coming  in  ? 

Mr.  von  Engelken.  It  seems  to  me.  Mr.  Chairman,  that  the 
greatest  objection  that  could  be  raised  to  Mr.  Moss's  argument  is  that 
it  is  really  an  Indiana  argument.  Now,  Mr.  Moss  is  very  fortunate 
in  living  in  Indiana  as  a  farmer,  because  he  is  living  in  one  of  our 
best  farming  States.  And  with  locals  independently  all  over  the 
country  issuing  bonds  he  would  sell  10  bonds  where  I  would  not  sell 
any — and  I  need  the  money  more  than  he  does. 

Senator  Hollis.  You  want  the  opportunity  to  sell  these  bonds  in 
New  Hampshire  ? 

Mr.  von  Engelken.  Yes;  if  I  can. 

Senator  Hollis.  And  you  want  to  make  them  attractive  so  that 
we  will  buy  them? 

Mr.  von  Engelken.  Yes;  but  I  want  to  sell  on  a  more  equitable 
basis  than  would  be  possible  if  Mr.  Moss  and  I  were  merely  each 
members  of  individual  locals;  unless  our  interest  rate  is  abnormally 
higher  than  is  natural  the  investor  would  say — 

Well,  I  do  not  know  anything  about  Florida,  but  Indiana  is  one  of  our  best 
agricultural  States,  and  I  prefer  Indiana. 

Where  do  I  get  off?  And  it  is  really  those  sections  of  the  country 
which  are  going  to  profit  more  by  this  system  and  will  benefit  the 
country  at  large  more  by  being  developed  in  this  way. 

Mr.  Moss.  I  was  struck  by  one  thing  which  I  observed  in  Europe, 
and  I  merely  mention  it  to  show  that  the  local  influences  sometimes 
rise  above  other  influences  in  the  rates  on  money.  In  Austria  farm- 
ers' associations,  purely  local  associations,  of  which  there  are  450 
in  a  little  county  in  Austria,  are  organized  for  the  purpose  of  loaning 
money  among  themselves,  and  they  had  a  surplus  of  money  to  loan 


404  RURAL    CREDITS. 

at  4£  per  cent  interest.  Now,  the  national  banking  rate  of  interest 
in  Austria  at  that  time  was  6  per  cent;  the  banks  in  Vienna  were 
giving  5  per  cent  for  deposits,  and  the  National  Government  of 
Austria  had  floated  some  millions  of  dollars  of  bonds  here  in  the 
United  States  at  6^  per  cent  interest. 

Now,  there  you  have  a  condition  that  is  an  absolute  fact,  and  here 
were  those  farmers,  having  an  absolute  faith  in  their  own  manage- 
ment of  their  own  local  affairs,  contributing  their  own  deposits, 
d<  ing  their  own  business  at  a  rate  of  interest  below  the  rate  of  the 
Imperial  Bank,  and  they  were  loaning  money  to  each  other  at  a 
lower  rate  than  the  banks  in  Vienna.  I  know  that,  because  I  went  to 
the  largest  banks  in  Vienna,  and  I  had  the  secretary  of  the  American 
embassy  with  me.  and  I  found  that  they  were  giving  5  per  cent  on 
deposits  and  were  loaning  for  6  per  cent  or  6^  per  cent  on  the  best 
com  :  ercial  paper.  There  you  have  an  illustration  of  what  local 
influences  will  do  in  finance  to  overcome  this  general  cost  that  you 
speak  about.    That  is  an  actual  fact;  there  is  no  question  about  that. 

And  yet  we  are  here  gravely  speaking  about  organizing  a  central 
which  will  overlook  the  local  influences  and  the  local  conditions. 
If  anybody  can  tell  me  how,  in  Indiana  or  in  any  other  section  of 
the  country  where  there  is  a  large  amount  of  capital  that  has  been 
accumulated  and  is  in  possession  of  the  people,  and  where  the  local 
banks  have  actually  more  money  than  they  can  loan  to  the  local 
people — if  anybody  can  tell  me  how  you  can  overcome  those  ad- 
vantages by  any  law  that  you  can  make  here  in  Congress  which  will 
take  those  advantages  away  from  them,  it  is  something  that  I  would 
like  to  know. 

As  a  matter  of  fact,  if  Indiana  and  all  of  those  sections  will  leave 
the  tax  off  of  mortgages,  I  should  say  in  more  than  half  the  counties 
in  Indiana  a  man  could  borrow  money  at  4  per  cent  interest  upon 
his  land  individually.  The  best  farmers  will  borrow  money  at  4 
per  cent  interest  without  any  question  of  the  organization  of  a  cen- 
tral bank  at  all.  And  I  think  that  most  of  this  discussion  is  based 
upon  the  thought  of  trying  to  take  capital  to  some  more  undeveloped 
sections  of  the  country  and  trying  to  create  a  national  rate  of  interest. 

Mr.  vox  Exgelken.  No,  sir. 

Mr.  Mess.  A  uniform  rate  of  interest.  If  that  be  true,  I  think  the 
Government  can  do  that,  but  I  doubt  if  you  can  do  it  by  an  organiza- 
tion. 

Mr.  Platt.  That  case  that  you  spoke  about  in  Austria.  Mr.  Moss, 
was  a  special  case — where  the  commercial  banks  paid  a  higher  rate 
of  interest  and  the  Government  borrowed  at  more  than  6  per  cent 
interest — and  was  due  to  the  Balkan  War  and  to  the  shortness  of 
money  in  commercial  centers,  and  also  to  the  desire  of  the  Austrian 
Government  to  get  some  money  from  outside  sources  without  dis- 
turbing local  conditions,  was  it  not? 

Mr.  Moss.  But  here  is  the  proposition :  If,  as  a  fact,  the  commercial 
banks  in  Vienna — not  the  Government — were  paying  5  per  cent 
interest  on  deposits,  and  the  central  banks  of  these  associations  were 
■  ted  in  Vienna,  in  the  same  city,  and  the  merchant  had  to  go  to 
his  commercial  bank  to  borrow  money,  because  they  could  not  get 
money  from  the  farmers'  banks,  which  only  loan  money  to  the  mem- 
bers of  those  associations;  and  that  merchant  had  to  pay  6  or  6£ 
per  cent  interest,  and  the  farmer  could  go  to  his  local  bank  and  bor- 


RURAL    CREDITS.  405 

row  money  at  4  or  44  per  cent  at  the  same  time — there  you  have  got 
a  condition  that  has  no  reference  to  the  National  Government. 

Mr.  von  Exgelken.  Let  me  suggest  to  the  committee  that  you 
ought  not  to  confound  European  conditions  and  peoples  with  our 
conditions  and  peoples,  because  we  have  absolutely  nothing  in  common 
with  them,  except  physical  construction. 

Mr.  Bulkley.  What  do  you  think  about  the  proposition  that  a 
farm  loan  is  a  greater  risk  in  this  country  than  it  is  in  Europe? 

Mr.  von  Engelken.  I  would  like  to  answer  that  pretty  carefully. 

Mr.  Bulkley.  Do  you  understand  the  question? 

Mr.  von  Engelken.  Yes.  I  think  a  farm-land  loan  has  been  a 
bigger  risk  in  this  country  than  in  Europe  for  one  reason,  and  that  is, 
the  availability  in  Europe  of  the  markets  to  the  producer,  and  the 
greater  certainty  of  his  income. 

You  will  find  in  Europe  almost  universally  that  few,  if  any,  farmers 
are  out  of  reach  of  large  markets.  There  is  no  such  thing  as  send- 
ing produce  from  one  end  of  the  country  to  the  other,  and  putting 
it  in  the  hands  of  some  commission  man  as  we  have  to  do  in  this 
country;  and  the  certainty  of  selling  his  produce,  if  he  can  raise  it, 
is  infinitely  greater  in  Europe.  The  land  is  not  as  good  in  Europe, 
on  the  average,  as  it  is  in  this  country.  You  have,  however,  a 
stability  of  population  in  Europe  which  outweighs  that  advantage, 
and  you  have  also  the  advantage  of  accessibility  to  markets. 

All  the  farmer  in  Europe  has  to  do  is  to  raise  the  produce;  and 
I  know  of  cases  in  this  country  where  the  produce  has  been  raised, 
and  it  has  been  of  splendid  quality,  and  it  has  not  brought  back 
anything  to  the  farmer  when  he  ships  it,  except  a  bill  for  freight 
charges. 

Mr.  Platt.  Would  you  not  say  also  that  there  has  been  a  great 
deal  more  speculation  in  this  country  and  a  great  deal  more  fluctua- 
tion in  the  value  of  lands  ? 

Mr.  von  Engelken.  There  is  practically  no  speculation  in  the  value 
of  farm  lands  in  Europe ;  that  is,  from  our  standard. 

Mr.  Platt.  Yes. 

(Thereupon,  at  4  o'clock  p.  m.,  the  committees  adjourned  until 
Tuesday,  March  3,  1914,  at  10.30  o'clock  a.  m.) 


TUESDAY,    MARCH   3,    1914. 

United  States  Senate, 

Washington,  D.  C. 
The  subcommittee  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Henry  F.  Hollis  presiding. 

Present :  Representatives  Bulkley.  Stone.  Seldomridge,  Ragsdale, 
Hayes,  Woods,  and  Piatt. 

STATEMENT  OF  CLARENCE  OUSLEY,  EDITOR  OF  THE  FORT 
WORTH  RECORD,  FORT  WORTH,  TEX. 

Senator  Hollis.  You  live  in  Fort  Worth,  Tex.,  do  vou  not,  Col. 
Ousley? 

Mr.  Ousley.  Yes,  sir;  I  am  editor  of  the  Fort  Worth  Record. 

Senator  Hollis.  And  you  came  to  Washington  for  the  purpose  of 
appearing  before  the  committee  ? 

Mr.  Ousley.  Yes,  sir. 

Senator  Hollis.  We  have  been  referring  to  Senate  bill  4246,  in- 
troduced in  January  by  Senator  Fletcher  and  introduced  at  the 
same  time  in  the  House  by  Mr.  Moss,  and  it  provides  for  a  national 
farm-land  bank  system,  for  the  creation  of  depositaries  for  postal 
savings  and  other  public  funds,  and  other  purposes,  and  we  shall  be 
glad  to  have  your  views  on  that  bill  and  the  general  subject  covered 
by  it, 

Mr.  Ousley.  May  I  ask  if  that  is  the  same  measure  that  is  in  this 
Senate  document  [indicating  paper  in  witness's  hand]  ? 

Senator  Hollis.  Yes ;  that  is  the  one. 

Mr.  Ousley.  I  wanted  to  be  sure  that  I  had  the  right  bill. 

Gentlemen,  I  want  to  say  at  the  outset  that  I  am  not  before  this 
committee  as  an  expert  on  rural  finance,  or  on  finance  at  all.  I  did 
make  some  observations  on  the  subject  in  the  tour  that  I  made  with 
other  American  citizens,  Mr.  Moss  among  them;  but  I  specialized 
rather  on  the  subject  of  distribution  of  farm  products  than  on  the 
question  of  rural  finance,  and  such  conclusions  as  I  have  come  to 
concerning  the  question  of  rural  credits  are  rather  tentative  and  I 
fear  are  not  definite  enough  to  be  of  very  much  value  to  the 
committee. 

And  I  wish,  rather  than  to  try  to  give  advice  to  the  committee,  to 
suggest  some  of  the  difficulties  that  are  to  be  encountered  in  the  solu- 
tion of  this  problem. 

And  I  will  speak  of  some  points  that  I  have  observed  in  this  bill. 

I  notice  that  the  bill  provides  that  no  stockholder  shall  own  more 
than  10  per  cent  of  the  shares  of  the  capital  at  any  time,  and  I  would 
like  to  inquire  why  that  limitation  is  put  in  the  bill '. 

406 


RURAL    CREDITS.  407 

Senator  Hollis.  Mr.  Moss  can  answer  that  question. 

Mr.  Ousley.  Yes ;  I  should  like  to  know  why  the  limitation  of  10 
per  cent  was  put  in  the  bill. 

Mr.  Moss.  That  limitation  is  the  same  as  that  contained  in  the 
national  banking  act;  the  limitations  in  this  bill  on  individual  stock 
ownership  and  the  making  of  loans  to  individuals  are  precisely  the 
fame  as  in  the  national  banking  act. 

Mr.  Ousley.  But  this  provides  that  no  stockholder  shall  own  more 
than  10  per  cent  of  the  stock. 

Mr.  Moss.  You  will  find  that  same  provision  in  the  national  bank- 
ing act. 

Mr.  Ousley.  And  you  are  simply  conforming  this  bill  to  that  act? 

Mr.  Moss.  Yes.  I  may  say,  Mr.  Ousley,  that  in  all  of  these  ad- 
ministrative features  this  pill  was  made  to  conform  to  the  national 
banking  act  as  nearly  as  it  might  be  made  so. 

Mr.  Ousley.  Yes. 

Mr.  Moss.  As  that  was  entirely  familiar  to  the  American  public 
and  had  been  tried  for  many  years ;  and  we  presumed  that  the  same 
reason  for  the  limiting  of  ownership  in  one  bank  would  apply  to 
the  other  bank. 

Senator  Hollis.  That  is  to  prevent  it,  so  far  as  possible,  from 
being  a  one-man  bank,  I  suppose. 

Mr.  Ousley.  Well,  this  thought  entered  my  mind  in  that  connec- 
tion: There  are  many  landowners  in  my  State,  many  large  land- 
owners, who  would  like  to  break  up  their  holdings  if  they  could 
fund  their  property ;  and  it  occurs  to  me  that  it  would  be  very  wise 
if  you  could  allow  a  large  farmer  to  take  a  considerable  part  of  the 
stock  in  this  bank.  I  submit  that  thought  for  the  consideration  of 
you  gentlemen  who  are  going  to  perfect  this  legislation.  I  am  merely 
presenting  to  you  the  conditions. 

Mr.  Moss.  Yes. 

Mr.  Ousley.  A  man  has  a  large  farm,  some  5,000  or  6,000  acres, 
which  he  is  very  anxious  to  break  up  and  sell,  but  he  can  not  get  pur- 
chasers for  it  at  a  fair  price  under  these  conditions.  Now,  it  just 
occurs  to  me  that  if  that  man  could  take  a  large  part  of  the  stock  in 
this  bank  he  could  organize  one  of  those  banks,  practically.  What 
would  be  the  objection  to  having  such  a  man  organize  such  a  bank 
under  those  conditions,  with  his  neighbors  and  friends  associated 
with  him?  He  could  take  50  or  75  per  cent  of  the  stock  of  such  a 
bank.  I  simply  present  that  to  the  committee  to  consider  as  one  of 
the  problems  which  I  fear  you  are  not  going  to  meet  with  this  legis- 
lation. I  am  afraid  you  are  going  to  exclude  with  that  limitation 
many  men  who  would  put  their  property  in  liquidation,  so  to  speak, 
and  into  separation. 

Now,  coming  a  little  further,  to  the  basis  of  the  loan,  the  bill  pro- 
vides, on  page  14 — 

That  such  loans  do  not  exceed  50  per  cent  in  amount  in  the  case  of  improved 
farm  lands,  and  do  not  exceed  40  per  cent  in  amount  in  other  cases,  of  the 
value  of  the  said  lands,  to  be  determined  by  an  appraiser,  as  provided  in 
this   act. 

My  judgment  is  that  that  ought  to  be  a  flexible  basis  of  valuation. 
Farm  lands  in  north  Texas,  around  Dallas  and  Fort  Worth,  are 
perfectly  safe  at  66|  to  75  per  cent  of  their  value.  Farm  lands  in 
west  Texas,  for  instance,  where  the  land  has  not  been  so  thoroughly 
developed,  where  the  conditions  are  still  somewhat  experimental  and 


408  RURAL    CREDITS. 

uncertain,  and  where  there  is  more  or  less  of  a  speculative  spirit, 
perhaps,  might  not  be  safe  at  50  per  cent,  because  I  have  seen  those 
lands  out  there  decline  in  value  during  the  last  20  years — advance 
and  decline,  never  back  to  the  point  of  the  original  price,  but  decline 
sometimes  as  much  as  50  per  cent — as  the  result  of  the  long  droughts. 
Then,  at  other  times  people  get  excited,  and  they  put  the  price  too 
high. 

Senator  Hollis.  Where  would  you  place  that  discretion  as  to  the 
percentage  of  value  which  could  be  loaned  ? 

Mr.  Ousley.  That  is  what  I  am  trying  to  develop.  I  think  there 
ought  to  be  some  discretion.  I  think  there  ought  to  be  some  flexi- 
bility. 

Senator  Hollis.  Where  would  you  place  that  discretion;  in  what 
official ? 

Mr.  Ousley.  I  would  not  place  it  in  the  directors  of  the  bank, 
because  they  are  located  there  where  the  loan  is  made,  and  they 
share  the  same  spirit  of  hopefulness  and  anticipation. 

Senator  Hollis.  Do  you  think  it  might  be  desirable  to  have  some 
association  of  banks  with  some  State  organization,  say,  and  put  the 
discretion  in  the  State  organization  or  its  officials?  Do  you  think 
that  would  work  ? 

Mr.  Ousley.  I  think  there  ought  to  be  a  relation  between  the 
officer 

Senator  Hollis  (interposing).  The  commissioner  of  farm-land 
banks? 

Mr.  Ousley.  Yes;  I  think  there  ought  not  to  be  an  appraisal  in 
the  State,  if  you  are  going  to  allow  discretion,  for  the  reason  that 
the  State  organization  might  itself,  in  a  small  State,  share  this 
general  spirit  of  hopefulness  and  speculative  anticipation.  I  do 
think  that  that  ought  to  be  flexible,  because,  as  I  have  illustrated, 
those  north  Texas  lands  now  selling  at  $50  to  $125  an  acre  are  just 
as  stable  as  gold,  and  it  is  perfectly  safe  to  lend  on  them  up  to  75 
per  cent.  They  are  increasing  in  value  at  the  rate  of,  perhaps,  20 
per  cent  a  year. 

Senator  Hollis.  It  might,  perhaps,  be  left  to  the  commissioner  of 
farm-land  banks  to  make  some  regulations  and  place  the  apprais- 
ing power  with  some  representative  to  have  control  of  it  nationally, 
might  it  not  ? 

Mr.  Ousley.  I  do  not  think  the  local  organization  ought  to  have 
any  control  of  it. 

Senator  Hollis.  Yes. 

Mr.  Ousley.  Perhaps  the  national  commissioner  ought  to  have 
only  a  veto  power  over  it,  not  the  power  to  fix  the  amount,  but 
merely  to  have  a  veto  power  on  it. 

Mr.  Hayes.  Excuse  me,  Mr.  Ousley,  but  is  there  not  a  danger 
that  we  would  hamper  the  local  organization  in  that  way,  by  refer- 
ring the  matter  to  the  central  authority,  because  those  banks  must 
always  be  local  in  their  dealings  or  they  can  not  do  business. 

Mr.  Ousley.  I  am  assuming  that  the  national  commissioner  will 
be  a  man  of  fair  intelligence,  and  with  the  desire  to  promote  the 
system.    He  would  not  deliberately  smother  it. 

Mr.  Hayes.  True;  but  it  will  take  a  long  time  in  California,  or  in 
Texas,  for  instance,  for  it  to  reach  him ;  to  begin  with  he  would  have 
to  have  independent  information  on  the  loan. 


RURAL    CREDITS.  409 

Mr.  Ousley.  I  would  not  have  him  pass  on  the  appraisement  for 
each  separate  loan. 

Mr.  Hayes.  Oh,  that  is  not  your  idea,  then? 

Mr.  Ousley.  No;  I  would  only  have  him  fix  the  percentage  for 
that  area,  that  section,  that  State.  For  instance,  he  might  say  to  the 
bank  in  north  Texas  that  upon  certain  kinds  of  land  they  can  loan 
up  to  66f  per  cent. 

Mr.  Hayes.  I  see  your  idea. 

Mr.  Ousley.  While  upon  certain  lands  in  west  Texas,  they  could 
only  loan  up  to  40  or  50  per  cent,  as  this  bill  provides  for  unimproved 
land. 

Mr.  Hayes.  Yes. 

Senator  Hollis.  That  is,  he  would  establish  rules  and  regulations  ? 

Mr.  Ousley.  Yes;  he  would  establish  zones,  so  to  speak,  of  farm- 
land values. 

Senator  Hollis.  Yes. 

Mr.  Ousley.  Just  like  the  taxing  boards  do  in  many  States;  they 
fix  a  basis  for  taxing  all  lands  in  a  certain  area  or  section,  to  be  ap- 
praised at  a  certain  rate. 

There  is  another  point  that  has  occurred  to  me.  I  notice  that  the 
bill  provides  that  the  loan  may  be  paid  off  at  any  interest  period, 
after  five  years;  and  I  do  not  remember  whether  the  bill  provides 
that  that  shall  be  done  by  the  purchase  of  bonds,  as  they  do 

Mr.  Moss  (interposing).  Either  way;  by  the  purchase  of  bonds, 
or  by  the  paying  of  cash,  the  option  being  with  the  debtor. 

Senator  Hollis.  And  the  bank  having  the  right  to  call  an  equal 
number  of  bonds,  if  necessary;  that  is,  in  order  to  maintain  the 
equilibrium. 

Mr.  Ousley.  Yes ;  that  is  the  point  that  I  wanted  to  ask  about. 

Senator  Hollis.  You  think  it  is  desirable,  do  you  not,  to  allow  the 
debtor  to  pay  off  the  debt  at  any  interest  period,  as  provided  in  the 
bill? 

Mr.  Ousley.  Decidedly. '  The  only  thing  was  that  I  did  not  want 
to  embarrass  the  bank. 

Senator  Hollis.  Well,  these  bonds  that  the  banks  put  out  are  all 
subject  to  call — or  probably  will  be  so. 

Mr.  Ousley.  That  is,  so  that  the  banks  can  retire  the  bonds  if 
necessary  ? 

Senator  Hollis.  Yes. 

Mr.  Ousley.  There  is  one  question  I  would  like  to  ask  in  that 
connection.  Will  the  making  of  those  bonds  subject  to  call  interfere 
with  the  market  for  them?  What  would  be  the  attitude  of  pur- 
chasers in  view  of  that  provision  ? 

Senator  Hollis.  I  suppose  that  would  interfere  slightly  with  the 
market ;  but  it  is  such  a  valuable  privilege  that  it  is  probably  worth 
any  difference  in  price  that  would  result, 

Mr.  Ousley.  Yes. 

Senator  Hollis.  You  feel  that  way  about  it,  do  you  not,  Mr.  Moss? 

Mr.  Moss.  Yes,  sir.  The  investment  in  those  bonds  is  always  sure 
to  be  protected  as  long  as  they  pay  interest,  and  then  the  man  who 
holds  the  bond  gets  par  value  of  his  bond  at  the  time  that  it  is 
called. 

Mr.  Ousley.  Yes. 


410  RURAL    CREDITS. 

Senator  Hollis.  But  I  believe  that  the  average  man  investing  in 
these  loans  will  be  more  concerned  to  find  that  they  will  be  paid  at 
some  time,  than  that  they  are  to  be  paid  too  soon.  I  should  think  it 
would  work  that  way. 

Mr.  Ousley.  Yes.  It  does  not  occur  to  me  that  there  is  assurance 
enough;  certainly  there  is  not  enough  assurance  in  this  bill;  and  I 
do  not  know  what  other  prospect  you  have — as  to  a  market  for 
these  bonds,  Mr.  Moss.  I  notice  that  you  provide  that  they  may  be 
security  for  the  deposit  of  postal  savings  funds,  and  also  as  a  legal 
investment  for  time  deposits  of  national  banking  associations,  and 
as  a  legal  investment  for  trust  funds  in  the  States,  under  the  charge 
of  any  court  of  the  United  States.  It  does  not  seem  to  me  that  those 
provisions  are  going  to  provide  a  sufficient  market  for  those  bonds. 

Senator  Hollis.  Well,  we  want  every  possible  suggestion  that  you 
can  give  us  along  that  lino. 

Mr.  Ousley.  Yes. 

Senator  Hollis.  We  want  to  be  sure  to  make  a  good,  broad  market, 
and  anything  you  have  to  suggest  upon  that  point  we  will  be  glad 
to  hear. 

Mr.  Ousley.  That  is  the  great  problem  in  the  system.  It  is  going 
to  be  very  difficult  to  sell  these  bonds,  in  my  judgment,  because  our 
people  are  not  accustomed  to  invest  in  securities  of  that  kind,  as  they 
are  in  Europe. 

Mr.  Hayes.  I  do  not  know  how  it  will  affect  other  people,  but  as 
we  have  been  discussing  this  matter  I  have  thought  this:  I  some- 
times have  a  little  money  to  invest,  and  I  have  made  up  my  mind 
that  I  would  buy  some  of  those  bonds  in  my  home  bank. 

Mr.  Ousley.  Well,  you  have  studied  the  question  closely.  If  I 
had  any  money  to  invest,  I  would  like  to  invest  in  them;  I  think  they 
would  be  safe. 

Mr.  Hayes.  Absolutely  safe. 

Mr.  Ousley.  But  I  think  it  will  take  a  long  time  to  get  the  xVmer- 
ican  people  up  to  buying  these  bonds. 

Senator  Hollis.  Well,  what  can  we  do  to  hasten  that?  We  want 
to  encourage  them  to  do  that. 

Mr.  Ousley.  I  can  not  give  you  any  remedy,  or  any  positive  assur- 
ance of  a  method  that  will  do  it.  I  am  just  raising  the  question.  1 
think  that  is  the  biggest  problem  in  the  bill. 

Mr.  Ragsdale.  Do  you  not  think  that  that  provision  in  the  bank- 
ing and  currency  act,  by  which  loans  are  permitted  to  be  made  by 
the  national  banks  for  five  years,  secured  by  real  estate  mortgages, 
will  have  a  tendency  of  itself  to  make  a  market  for  those  bonds,  be- 
cause that  of  itself  will,  through  this  system  of  national  banks,  edu- 
cate the  public  as  to  the  value  of  mortgages  as  security  ? 

Mr.  Ousley.  It  will  have  that  tendencv;  but  you  provide  in  this 
bill  for  a  very  small  bank,  $25,000. 

Mr.  Bulkley.  No;  as  low  as  $10,000. 

Mr.  Ousley.  Yes;  $10,000. 

Senator  Hollis.  But  we  hope  that  they  will  be  bigger. 

Mr.  Ousley.  Yes;  that  is  the  minimum. 

Senator  Hollis.  Yes;  the  minimum. 

Mr.  Ousley.  But  you  are  going  to  start  with  small  banks.  Sup- 
pose we  start  a  small  bank  at  Fort  Worth,  Tex.,  and  we  offer  the 


BUBAL   CBEDITS.  411 

bonds  of  that  bank  on  the  market;  suppose  you  have  got  no  postal 
savings  funds  to  let  us  have ;  suppose  there  are  no  trust  funds  which 
we  can  get  the  benefit  of,  and  we  have  got  to  sell  those  bonds  on  the 
open  market.  It  is  not  my  judgment  that  we  can  sell  those  bonds  in 
the  city  of  Fort  Worth,  or  in  my  State  of  Texas. 

Mr.  Hayes.  At  any  price? 

Mr.  Ousley.  At  any  price — oh.  yes;  we  could  sell  them  at  some 
price,  but  not  at  any  price  that  would  relieve  the  farmer. 

Mr.  Ragsdale.  They  could  be  sold  at  a  price  at  which  the  rate  of 
interest  would  be  attractive  and  the  security  would  be  good,  but  not 
at  a  price  that  would  relieve  the  farmer? 

Mr.  Ousley.  Yes;  that  is  it.  You  are  contemplating  that  these 
bonds  shall  have  a  low  rate  of  interest,  because  you  desire  to  furnish 
the  farmers  money  at  a  low  rate  of  interest. 

Mr.  Seldomridge.  Do  you  think  there  would  be  any  stimulus  to 
the  city  dweller  to  make  an  investment  in  a  security  that  would  con- 
tribute to  the  increase  of  agricultural  wealth  in  the  country  immedi- 
ately surrounding  the  city  ? 

Mr.  Ousley.  Not  in  my  city. 

Mr.  Seldomridge.  Do  you  think  there  would  be  no  appeal  to  busi- 
ness interests  to  respond  to  the  needs  of  agriculture  in  that  neigh- 
borhood ? 

Mr.  Ousley.  Not  by  taking  5  per  cent  interest  when  a  man  can 
get  8  per  cent  on  his  money. 

Mr.  Seldomridge.  Do  you  think  that  the  city  man  would  not 
realize  an  indirect  benefit  that  might  give  a  larger  return  to  him  than 
even  the  difference  in  interest? 

Mr.  Ousley.  No,  sir.  The  man  that  lends  money  for  interest  is 
going  to  get  his  8  per  cent  if  he  can,  or  he  is  going  to  get  his  10 
per  cent  if  he  can. 

Mr.  Hayes.  But  bear  in  mind 

Mr.  Ousley  (interposing).  We  have  no  5  per  cent  money  to  lend 
in  my  country. 

Mr.  Seldomridge.  Nor  in  mine. 

Mr.  Platt.  Would  not  these  bonds  bear  &  per  cent  interest  then? 

Mr.  Ousley.  If  they  did  that,  what  relief  have  you  afforded  the 
farmer — except  the  long  time  which  he  can  get?  You  have  only 
given  him  then  the  benefit  of  the  amortization  plan. 

Mr.  Ragsdale.  Your  idea  is  that  there  shall  be  some  Govern- 
ment guaranty  behind  the  bonds,  in  order  to  make  these  bonds  sale- 
able throughout  the  United  States? 

Mr.  Ousley.  Very  reluctantly  I  have  come  to  that  conclusion. 

Mr.  Platt.  How  about  having  a  central  guarantee  association, 
and  listing  the  bonds  on  the  New  York  Stock  Exchange? 

Mr.  Ousley.  That  is  an  aspect  of  the  problem  that  I  have  not 
considered  at  all:  but  I  have  come  to  the  conclusion,  as  I  said  a 
moment  ago,  very  reluctantly,  that  we  will  not  be  able  to  establish 
a  system  of  rural  credits  without  some  kind  of  Government  aid. 

Mr.  Bulkley.  Why  do  you  say  "  very  reluctantly "  ? 

Mr.  Ousley.  Because  I  do  not  like  to  see  the  Government  go 
into  that  kind  of  business. 

Mr.  Ragsdale.  Why  should  not  the  Government  go  into  it  in 
America  when  all  the  European  countries  have  done  so? 


412  RURAL    CREDITS. 

Mr.  Hayes.  Oh.  they  have  not  done  so. 

Mr.  Ragsdale.  Nearly  all  of  them  do  it. 

Mr.  Ousley.  Yes;  nearly  all  of  them. 

Mr.  Hayes.  Well,  a  good  many  of  them  do  not. 

Mr.  Ragsdale.  It  is  a  fact,  I  think,  that  Norway  is  handling 
bonds,  without  security,  for  the  first  five  years  not  requiring  any 
payment  of  either  principal  or  interest,  and  after  that  letting  them 
have  the  money  at  2  per  cent  on  long-time  bonds.  I  heard  a  lec- 
turer explain  that  system  recently  at  the  Belasco  Theater. 

Mr.  Ousley.  I  think  Mr.  Moss  will  sustain  me  in  the  statement 
that  there  would  not  be  a  system  of  rural  credits  in  Europe  to-day, 
without  Government  aid. 

Mr.  Ragsdale.  I  am  convinced  of  that. 

Mr.  Hayes.  No;  the  only  system  they  have  is  the  Landschaften 
system;  they  have  not  Government  aid. 

Mr.  Ousley.  If  not  Government  aid,  then  Government  privileges 
which  amount  to  Government  aid. 

Senator  Hollis.  Mr.  Moss,  I  would  like  to  hear  you  upon  that 
subject. 

Mr.  Moss.  If  Col.  Ousley  means  by  Government  aid  that  the 
Government  guarantees  the  bonds,  or  furnishes  a  market  for  the 
bonds,  or  that  the  Government  furnishes  the  money  to  loan  to  the 
farmer,  I  can  not  agree  with  his  statement. 

Mr.  Ragsdale.  Will  you  please  repeat  that  statement,  Mr.  Moss? 

Mr.  Moss.  I  will  ask  the  stenographer  to  read  my  statement. 

(Here  the  stenographer  read  the  last  preceding  statement  of  Mr. 
Moss.) 

Mr.  Moss.  That  is  true  in  Austria,  and  it  is  true  in  nearly  every 
country  of  Europe,  that  loans  are  furnished  for  the  purpose  of 
acquiring  a  homestead,  where  a  man  has  no  land  of  his  own,  and 
where  he  can  not  get  land  except  by  Government  aid;  that  is  fur- 
nished in  order  to  establish  homesteads ;  and  I  think  that  Mr.  Rags- 
dale's  observation  in  regard  to  Norway  means  precisely  that;  that 
he  was  speaking  about  the  acquiring  of  homesteads. 

Mr.  Ragsdale.  Yes.   • 

Mr.  Moss  (continuing).  And  not  loaning  money  to  persons  who 
already  own  land. 

Mr.  Ragsdale.  Yes ;  that  is  true,  but  has  not  the  effect  been,  by  the 
Government  rendering  aid  in  acquiring  homesteads,  that  has  in  itself 
naturally  resulted  in  creating  a  market  for  this  class  of  bonds,  and 
it  has  put  the  public  in  a  position  to  purchase  those  that  were  not 
issued  for  the  purpose  of  acquiring  homesteads? 

Mr.  Moss.  I  should  not  think  so,  because  in  France  the  aid  for 
homesteads  has  just  been  granted,  whereas  the  loans  on  the  bonds  had 
been  selling  for  15  years  before  aid  was  granted,  and  in  Germany 
land  bonds  had  been  selling  for  at  least  100  years  before  the  Govern- 
ment began  giving  aid  to  the  homesteaders. 

Mr.  Ragsdale.  Now,  what  do  you  mean  by  "  Government  aid  "  ? 

Mr.  Ousley.  That  is  a  point  I  would  like  to  have  determined. 

Mr.  Moss.  Well,  before  they  began  to  loan — and  I  do  not  want  to 
inject  too  much  into  Mr.  Ousley?s  statement — I  mean  before  the  Gov- 
ernment began  making  direct  loans  to  enable  its  subjects  to  acquire 
homestead?:  that  is  what  I  mean. 


RURAL    CREDITS.  413 

Mr.  Hayes.  It  seems  to  me  that  if  Col.  Ousley  has  a  statement  to 
make  we  ought  to  hear  it,  and  we  then  discuss  the  question  among 
ourselves  afterwards. 

But  since  this  question  has  come  up,  I  would  like  to  ask  Mr.  Moss 
if  it  is  true  that  where  there  is  Government  aid  to  establish  home- 
steads is  it  Russia  or  some  place  where  there  is  an  unusual  condi- 
tion that  seems  to  demand  such  action? 

Mr.  Moss.  Yes.  Now,  in  justice  to  Col.  Ousley,  I  want  to  make 
another  statement:  That  if  he  means  by  his  statement  rigid  Govern- 
ment supervision  and  relief  from  forms  of  taxation  and  speedy 
methods  of  foreclosure,  and  so  on,  then  I  think  that  Col.  Ousley  is 
right  in  his  statement. 

Mr.  Ousley.  I  think  I  was  careful  to  say  "  Government  aid  in 
some  form." 

Senator  Hollis.  We  have  got  that  in  some  form  in  the  bill.  Col. 
Ousley,  realizing  that  the  bill  does  contain  provisions  for  Govern- 
ment supervision!  and  exemption  from  taxation  and  an  amortization 
plan,  do  you  favor  any  direct  form  of  Government  aid,  such  as  guar- 
anteeing the  bonds  or  loaning  money? 

Mr.  Ousley.  I  would  favor  such  additional  Government  aid,  either 
in  the  form — well,  preferably  in  the  form  of  lending  some  money. 

Senator  Hollis.  To  whom — to  the  bank  or  to  the  individual  bor- 
rowers ? 

Mr.  Ousley.  To  the  banks. 

Mr.  Bulkley.  Does  that  take  the  form  of  buying  the  bonds  ? 

Mr.  Ousley.  Yes;  to  make  sure  that  we  have  a  market  for  the 
bonds.  I  believe  if  the  Government  would  make  a  small  investment 
in  these  bonds  you  would  establish  confidence  in  them;  otherwise,  I 
am  afraid  of  a  want  of  confidence  in  them. 

Senator  Hollis.  That  is,  you  would  have  the  Government  raise 
money  by  issuing  its  own  bonds  for  the  purpose  of  buying  these  bonds, 
would  you? 

Mr.  Ousley.  To  a  limited  extent,  to  indicate  its  own  confidence  in 
this  system. 

Mr.  Bulkley.  You  would  have  the  Government  buy  the  bonds, 
would  you,  rather  than  deposit  the  money  in  the  banks? 

Mr.  Ousley.  That  is  a  question  that  should  be  left  to  the  wisdom 
and  statesmanship  of  the  committee;  I  would  not  undertake  to  say 
which  would  be  the  better  plan.  The  point  I  want  to  make  is  this: 
That  I  believe  it  would  be  necessary — it  may  not  actually  be  neces- 
sary; these  bonds  may  have  a  sufficient  sale,  but  if  they  do  not  I 
would  have  the  Government  come  to  the  relief  of  the  situation. 

Mr.  Seldomridge.  Could  not  the  Government  come  to  the  relief  of 
the  situation  by  depositing  a  sufficient  margin  with  the  banks  to  pro- 
tect the  difference  between  the  actual  value  represented  by  the  bonds 
and  any  possible  deficit  that  might  arise  through  depreciation  of  the 
mortgages  underlying  the  bonds? 

Mr.  Ousley.  I  did  not  quite  catch  your  question. 

Mr.  Seldomridge.  My  idea  is  this:  Could  not  the  Government 
stand  between  the  bonds'  value  and  any  possible  depreciation  that 
might  take  place  in  the  value  of  the  land  which  was  mortgaged  ? 

Mr.  Ousley.  Well,  of  course,  that  would  be  one  form  of  Govern- 
ment aid. 

Senator  Hollis.  That  would  be  a  guaranty  ? 


414  RURAL    CREDITS. 

Mr.  Ousley.  Yes :  that  "would  be  a  guaranty. 

Senator  Hollis.  By  putting  up  the  money,  really,  as  collateral  ? 

Mr.  Odsiet.  Yes.  sir. 

Senator  Hollis.  It  would  not  be  an  ordinary  guaranty,  which  is 
backed  by  a  pledge. 

Mr.  Ousley.  My  thought  is  that  if  in  the  initiation  of  this  system 
the  Government  should  provide  a  limited  loan  that  will,  perhaps, 
be  of  itself  sufficient ;  if  it  established  a  good  system  of  well-organized 
and  wisely  conducted  banks,  I  think  private  capital  later  will  come 
to  the  relief  of  the  system.  Possibly  you  have  got  enough  market 
for  the  bonds  here  without  doing  that ;  but  I  fear  you  have  not. 

Mr.  Bulkley.  When  you  say  a  "  limited  loan  " 

Mr.  Ousley  (interposing).  A  limited  amount  of  money. 

Mr.  Bulkley.  Do  you  mean  that  you  would  fix  in  advance  the 
amount  that  the  Government  would  invest  in  these  bonds? 

Mr.  Ousley.  Yes;  I  would  provide  in  this  act  that  the  Govern- 
ment would  invest  5,  10,  15,  or  20  millions  of  dollars  in  these  bonds — 
or  whatever  you  decide  would  be  wise. 

Senator  Hollis.  And  where  would  you  place  the  discretion  of 
apportioning  that  money  among  the  different  districts — with  the 
commissioner  of  farm-land  banks? 

Mr.  Ousley.  That  is  all  put  under  the  Treasurv  Department,  is  it 
not? 

Senator  Hollis.  That  is  a  division  of  the  Treasury  Department. 

Mr.  Ousley.  Yes;  well,  it  ought  to  be  in  the  hands  of  more  than 
one  man ;  I  would  not  be  willing  to  trust  one  commissioner  with  that. 

Mr.  Bulkley.  Do  you  think  a  loan  of  $20,000,000  would  have  any 
effect  on  the  market  ? 

Mr.  Ousley.  I  think  it  would  have  a  very  decided  effect. 

Senator  Hollis.  That  is,  to  make  the  bonds  look  desirable? 

Mr.  Ousley.  Yes;  a  very  decided  effect. 

Mr.  Bulkley.  If  we  should  provide  for  investing  postal-savings 
funds  in  those  bonds,  that  would,  in  your  judgment,  be  more  than 
adequate,  would  it  not? 

Mr.  Ousley.  I  did  not  understand  that. 

Mr.  Bulkley.  If  we  should  provide  for  investing  postal-savings 
funds  in  these  bonds 

Mr.  Ousley  (interposing).  Oh,  if  you  would  put  all  the  postal 
savings  in  this  system,  it  would  perhaps  be  ample. 

Senator  Hollis.  They  amount  to  about  $40,000,000. 

Mr.  Ousley.  But  you  do  not  provide  that. 

Senator  Hollis.  No;  we  do  not  provide  that  in  the  bill. 

Mr.  Ousley.  But  if  you  were  to  put  all  the  postal-savings  funds  in 
the  bonds,  I  do  not  think  vou  would  have  to  do  anything  more  than 
that. 

Mr.  Bulkley.  But  even  that  is  a  small  amount. 

Mr.  Ousley.  I  know  it  is  a  small  amount;  but  when  the  Govern- 
ment impresses  its  confidence  upon  the  system  in  that  way,  I  believe 
that  private  investors  will  take  the  bonds.  If  these  sources  that 
you  have  provided  now  in  the  bill  are  sufficient,  of  course  they  would 
not  have  to  loan  any  money.  But  if  we  are  going  to  do  anything 
with  this  system.  I  think  we  ought  to  make  sure  of  a  market;  and 
the  only  way  to  make  sure  of  a  market,  in  my  judgment,  is  to  em- 
power the  Government  by  this  act  to  make  loans,  under  certain  con- 


RURAL    CREDITS.  415 

ditions,  up  to  a  certain  amount.  Now,  then,  it'  private  individuals 
take  the  bonds  eagerly,  the  Government  would  not  have  to  do  that. 
But  I  can  not  believe  that  we  are  going  to  introduce  such  a  wide 
departure  from  the  customs  of  100  years  in  this  country  without 
some  Government  aid. 

Mr.  Platt.  You  are  assuming  that  these  bonds  are  going  to  draw 
5  per  cent  interest.  What  reason  is  there  to  suppose  that  they  will 
not  draw  8  per  cent  interesl  '. 

Mr.  Ouslev.  If  they  are  going  to  draw  8  per  cent  interest,,  you  are 
wasting  your  time  establishing  this  system,  because  you  are  not 
giving  the  farmer  any  relief.  He  can  get  money  now  at  8  per  cent 
interest. 

Mr.  Seldomridge.  Do  merchants  pay  8  per  cent  interest  in  your 
section  ? 

Mr.  Ousley.  No. 

Mr.  Seldomridge.  What  interest  do  they  pay? 

Mr.  Ousley.  The  large  merchants  pay  (5  per  cent ;  some  of  them 
sell  their  commercial  paper  in  New  York  or  elsewhere  in  the  East  at  4 
per  cent — short-term  paper. 

Mr.  Platt.  I  doubt  that  at  the  present  time.  That  may  have  been 
done  some  years  ago,  but  I  doubt  whether  it  is  done  now. 

Mr.  Ousley.  A  banker  of  New  York,  whom  I  met  in  Austin  about 
two  weeks  ago,  told  me  that  money  was  loaning  freely  in  New  York 
then  at  4  per  cent  for  four  months. 

Mr.  Plait.  That  is  on  stock-exchange  collateral,  is  ii  not  \ 

Mr.  Ousley.  No;  on  commercial  paper. 

Mr.  Platt.  I  have  not  seen  any  such  quotations  a-  that. 

Mr.  Ousley.  I  got  that  from  our  former  bank  commissioner  of 
Texas,  Mr.  Gill,  who  is  connected  with  some  New  York  bank.  He 
said  that  they  were  not  lending  beyond  four  months,  because  they 
were  waiting  for  the  new  banking  and  currency  bill — that  was  the 
National  City  Bank  of  New  York. 

Mr.  Platt.  Yes. 

Mr.  Ousley.  But  if  you  are  not  going  to  provide  for  money  for 
farmers  at  less  than  8  per  cent,  you  are  wasting  your  time.  You 
would  only  be  providing  for  a  long  amortization — for  30  or  40 
years — instead  of  the  five-year  loans. 

Mr.  Platt.  I  do  not  think  that  Mr.  Moss  calculates  that  money 
will  be  any  cheaper  for  farmers  than  the  rate-  of  interest  prevailing 
now  in  the  neighborhood. 

.Mr.  Ousley.  Then,  so  far  as  my  Stale  is  concerned,  I  venture  the 
opinion  that  you  would  not  have  a  bank  in  it  under  this  system. 

Mr.  Plait.  Why  not?     They  will  be  profitable,  will  they  not? 

Mr.  Ousley.  That  remains  to  be  seen.  It  is  an  experimental  bank 
system.  I  do  not  know  whether,  if  I  were  a  banker,  I  would  care 
to  invest  in  a  system  like  this  or  not  under  those  conditions. 

Senator  Hollis.  Col.  Ousley,  you  find  a  very  general  interest  in 
the  plan  among  the  farmers,  do  you  no1  '■  They  are  all  alive  to  it. 
are  they  not  ? 

Mr.  Ousley.  Yes;  I  find  a  very  eager,  hopeful  interest  in  some 
prospect  of  relief.    But  the  hope  is  for  cheap  money. 

Senator  Hollis.  The  national  grange  met  in  my  Si  ate  last  fall 
and  discussed  the  matter  and  passed  resolutions. 


416  RURAL    CREDITS. 

Now.  in  my  pari  of  the  country  there  are  :i  great  many  fanners 
who  have  no  incumbrance  at  all  upon  their  farms  and  who  have 
money  in  the  banks — savings  banks  and  others.  We  have 
$104,000,000  in  savings  banks  in  my  State.  Now.  T  think  there 
would  be  a  great  many  of  those  farmers  who  would  hear  the  matter 
discussed  and  who  would  know  that  these  were  safe  investments  and 
would  take  their  money  out  of  the  savings  banks  and  put  it  in  these 
bonds.  I  hope  so.  1  know  rhat  the  more  the  matter  is  discussed 
the  greater  interest  there  is  in  it  -the  more  likely  the  wealthy 
farmers  will  be  to  invest  in  the  bonds. 

Mr.  Ousley.   Yes. 

Senator  IIollis.  That  i.-.  they  do  not  want  the  trouble  of  looking 
after  the  loans  themselves,  and  perhaps  foreclosing  them,  if  they 
can  buy  a  bond  that  will  relieve  then)  of  the  expense  of  foreclosure, 
and  so  on.  and  make  it  an  impersonal  thing.  I  think  they  would 
want  that  class  of  security. 

Mr.  Ousley.  That  may  be  true. 

Senator  Hollis.  I  hope  so.  1  think  there  will  be  a  great  many 
wealthy  men  in  New  England  who  would  buy  these  bonds.  I  know 
there  a  great  many  who  have  invested  in  loans  on  western  lands. 

Mr.  Ousley.  Well,  in  my  State,  the  farmer  if  he  has  any  money 
is  likely  to  invest  it  in  more  land;  he  is  not  likely  to  put  his  money 
in  savings  banks.  If  he  is  a  wealthy  man,  he  may  be  buying  some 
bank  stock.  There  are  a  large  number  of  farmers  who  own  bank 
stock  in  our  State. 

Mr.  Platt.  Are  they  borrowing  money  to  buy  more  land  with 
now '. 

Mr.  Ousley.  I  can  not  say  that  they  are  borrowing  more  money 
to  buy  land  with;  no,  sir.  The  landless  man,  of  course,  is  trying  to 
buy  land,  and  in  some  instances  I  am  quite  sure  that  men  are  bor- 
rowing money  to  buy  land  with;  but  if  they  do  that  it  is  just  a 
sepeculation  for  a  quick  turn. 

Mr.  Bulkley.  Does  the  law  of  Texas  permit  a  man  to  mortgage 
his  land  for  the  purpose  of  improving  it  ? 

Mr.  Ousley.  For  the  purpose  of  improving  it  ? 

Mr.  Bulkley.  Yes. 

Mr.  Ousley.  I  think  our  homestead  law  permits  a  vendor's  lien — 
I  mean  mechanic's  lien  on  the  house,  or  something  of  that  kind.  I 
do  not  think  it  permits  the  borrowing  of  money  to  lay  out  the  farm, 
or  to 

Mr.  Bulkley  (interposing).  Irrigate,  for  instance? 

Mr.  Ousley.  No,  sir. 

Mr.  Bulkley.  What  do  you  mean  by  the  law  not  permitting  it? 

Mr.  Ousley.  I  mean  that  you  can  not  mortgage  a  homestead  in 
Texas. 

Mr.  Platt.  Do  you  mean  before  the  title  is  taken  ? 

Mr.  Ousley.  What  is  that? 

Mr.  Platt.  Do  you  mean  before  the  man  gets  title  to  it  \ 

Mr.  Ousley.  After  he  gets  title  to  it. 

Mr.  Bulkley.  But  purchase-money  mortgages.  I  understand,  are 
valid. 

Mr.  Ousley.  Yes:  vendor's  lien  not 

Senator  Hollis.  Do  you  mean  that  if  a  man  owns  a  farm,  clear, 
he  can  not  mortgage  it  if  he  wants  to  do  so? 


RURAL    CREDITS.  417 

Mr.  Ouslet.  No,  sir;  not  if  it  is  a  homestead. 

Mr.  Platt.  That  is  a  queer  law. 

Senator  Hollis.  I  have  never  heard  of  that  law.  Is  that  true  of 
other  States  ? 

Mr.  Ousley.  Of  several  States,  I  think. 

Senator  Hollis.  How  long  has  it  been  in  operation '. 

Mr.  Ousley.  Ever  since  the  days  of  the  Republic. 

Senator  Hollis.  Does  it  work  well  ?    How  does  it  work  \ 

Mr.  Ousley.  Just  in  that  way;  you  can  not  mortgage  a  home; 
that  is  all;  it  is  not  subject  to  debt;  it  is  not  subject  to  execution  of 
any  kind. 

Mr.  Platt.  That  would  have  to  be  repealed  before  we  could  do 
anything  under  this  bill. 

Mr.  Ousley.  That  is  precisely  the  point  I  was  raising.  Under 
this  bill  Texas  could  not  have  a  bank. 

Mr.  Bulkley.  Is  that  true?  Could  they  not  borrow  and  use  the 
money  for  buying  land?  Suppose  a  man  has  half  of  the  price  of  a 
farm  and  wants  to  buy  a  farm,  could  he  not  borrow  the  remaining 
half  in  Texas  under  this  law  ? 

Mr.  Ousley.  Well,  you  say  before  the  bank  will  have  this  privilege 
under  the  bill  the  States  must  waive  the  homestead  exemptions.  In 
other  words,  before  a  bank  can  be  located  in  Texas  under  the  bill,  we 
would  have  to  change  our  constitution  and  abolish  our  homestead 
exemption;  and  you  might  just  as  well  talk  about  abolishing  the 
Ten  Commandments  in  Texas. 

Mr.  Bulkley.  Do  you  mean  that  they  would  not  make  the  change  ? 

Mr.  Ousley.  They  would  not  give  up  their  homestead  exemp- 
tion even  for  3  per  cent  a  month. 

Senator  Hollis.  Dr.  Coulter,  what  do  you  say  about  that  ? 

Mr.  Coulter.  You  can  start  a  bank  in  Texas  if  you  want  to,  or 
start  one  in  any  State,  and  go  right  along  and  do  business.  The 
privilege  that  Mr.  Ousley  speaks  of  is  the  privilege  of  the  bond- ■ 

Mr.  Ousley.  Yes. 

Mr.  Coulter.  That  is  to  say,  that  you  do  not  give  all  the  advan- 
tages to  the  bonds  in  a  State  having  laws  like  that  that  you  do  in 
other  States.  Now.  I  have  not  any  doubt  that  bonds  even  in  that 
State  would  still  hold  a  good  place  in  the  market  and  sell  better 
than  the  farm  mortgages  do  in  that  State.  But  still  the  bonds  would 
not  be  given  all  the  advantages  which  bonds  from  other  States  would 
be  given.  They  would  just  have  the  normal  standing  of  normal 
bonds,  while  the  idea  of  this  bill  is  to  give  a  special  value  to  the 
bonds  in  a  State  which  do  certain  special  things. 

Mr.  Ousley.  You  would  not  accept  our  land-bank  bonds  for  postal 
savings  ? 

Mr.  Coulter.  No. 

Mr.  Ousley.  You  would  not  accept  our  land-bank  bonds  for  time 
deposits  of  national  banks? 

Mr.  Coulter.  No;  the  bonds  would  have  to  take  the  same  place 
as  other  bonds. 

Mr.  Ousley.  Then  they  would  have  to  carry  the  prevailing  rate  of 
interest  in  Texas. 

Mr.  Coulter.  There  is  some  doubt  whether  they  would  get  very 
much  lower.     I  might  say.  that  as  to  Mr.  Moss's  State.  Indiana,  he 

37031—14—^27 


418  RUKAL    CEEDITS. 

does  not  expect  much  reduction  in  interest  rates,  because,  as  a  matter 
of  fact,  farmers  are  now  getting  5  per  cent  money  pretty  easily 
there. 

Mr.  Moss.  That  is  true. 

Mr.  Coulter.  But  he  has  not  any  idea  that  there  would  not  be,  in 
the  Mountain,  Western,  or  Southern  States,  a  very  material  reduction, 
because  the  tendenc}7  would  be,  having  bonds  of  the  same  type,  under 
the  same  Federal  inspection,  coming  from  all  parts  of  the  country, 
for  those  bonds  to  seek  very  nearly  a  level;  and  it  would  be  only  a 
matter  of  a  few  years  before  bonds  on  Texas  farm  lands,  at  least  in 
part  of  the  State,  wherever  they  felt  absolutely  sure  of  them,  would 
come  to  seek  the  same  level  as  bonds  of  the  other  sections  of  the 
country. 

As  an  illustration,  take  the  toAvnship  bonds  of  Mr.  Moss's  State. 
Indiana ;  when  they  started  issuing  those  bonds  the  law  prohibited 
them  from  selling  the  bonds  under  par.  And  when  they  started 
issuing  bonds  they  could  not  sell  them  unless  they  bore  6  per  cent 
interest,  although  the}-  were  tax  exempt,  because  people  did  not  know 
about  them  and  they  were  afraid  of  those  bonds. 

Xow,  almost  every  year  they  can  sell  their  bonds  at  a  lower  rate. 
They  are  selling  44-  per  cent  bonds  now  at  par. 

Mr.  Ousley.  Yes. 

Mr.  Coulter.  Of  that  same  type  of  township  bonds.  That  is  just 
a  matter  of  leveling  down  when  the  market  becomes  acquainted  with 
them.  And  those  towTnship  bonds  have  not  any  of  those  special  ad- 
vantages that  you  speak  of. 

Mr.  Ousley.  No. 

Mr.  Coulter.  So  that  it  is  merely  a  matter  of  their  getting  into 
the  field,  being  recognized,  being  properly  inspected  and  gradually 
finding  their  way  into  the  market  and  finding  purchasers. 

Mr.  Ousley  I  hope  I  will  not  be  understood  as  having  the  opinion 
that  this  bill  will  not  tend  to  lower  the  rate  of  interest,  and  that 
these  banks  are  impossible  to  establish.  I  hope  I  have  not  conveyed 
any  such  impression  as  that.  But  I  am  now  pointing  out  the  fact 
that,  under  that  provision — and  there  are  other  States  besides  Texas 
that  have  homestead  exemptions — under  that  provision,  our  banks 
could  not  obtain  any  of  the  postal  savings,  nor  the  time  deposits  of 
national  banks,  nor  trust  funds. 

Mr.  Bulkley.  What  would  be  the  effect  of  that  homestead  exemp- 
tion law  in  this  situation:  Suppose  a  man  has  a  purchase  money 
mortgage  on  his  homestead;  can  he  give  a  valid  new  mortgage  for 
the  purpose  of  refunding  that? 

Mr.  Ousley.  Yes,  sir. 

Senator  Hollis.  Mr.  Scudder,  I  believe,  has  had  some  experience 
in  Texas.  Mr.  Scrudder,  what  do  you  say  about  the  possibilities 
of  these  farm-land  banks  being  established  in  Texas? 

Mr.  Scudder.  Mr.  Chairman,  in  Texas  a  piece  of  land  could  be 
bought  and  the  vendors'  lien  retained ;  and  that  vendors'  lien  is  very 
often  made  the  basis  of  a  loan. 

Mr.  Ousley.  Oh,  yes. 

Mr.  Scudder.  And  passed  from  hand  to  hand;  it  is  just  as  good  a 
first  lien  as  a  first  mortgage  or  first  deed  of  trust;  in  fact,  it  is 
considered  as  prime  security,  is  it  not  ? 

Mr.  Ousley.  Yes;  first  class. 


RURAL    CREDITS.  419 

Senator  Hollis.  lb  the  paper  evidence  of  the  nature  of  the  security  ? 

Mr.  Scudder.  Yes;  the  vendor  states  in  it  that  it  is  for  the  pur- 
chase price  of  the  property;  and  that  is  the  best  paper  in  Texas 
to-day. 

Mr.  Ousley.  Yes;  it  is  the  best  paper  we  have  got.  But  after 
that  note  is  paid  you  can  not  put  a  mortgage  on  the  land. 

Mr.  Scudder.  No. 

Mr.  Coulter.  Is  that  160  acres  ? 

Mr.  Ousley.  No  ;  it  is  200  acres. 

Mr.  Platt.  That  has  not  any  relation,  then,  to  the  homestead  laws 
of  the  United  States,  allowing  1G0  acres  to  each  man? 

Mr.  Ousley.  No,  sir.  That  was  the  homestead  act  established  by 
the  founders  of  the  Republic. 

Mr.  Platt.  I  should  think  that  would  have  to  be  repealed  in 
order  to  make  this  bill  effective  there? 

Mr.  Ouslev.  Absolutely  so. 

Mr.  Platt.  If  you  have  an  exemption  of  200  acres  of  land,  that  is 
too  much  of  an  exemption.  It  is  more  of  an  exemption  than  anybody 
needs. 

Mr.  Ousley.  Yes.  Now.  if  you  could  provide  in  this  bill  to  take 
care  of  our  vendors'  lien  notes,  and  make  them  somehow  available 
for  use  in  these  banks,  then  you  could  afford  some  relief  to  us.  But 
we  could  not  proceed  at  all  under  this  bill. 

Mr.  Seldomridge.  The  bill  provides  that  there  must  be  certain  acts 
performed  by  the  State  before  these  banks  can  be  organized ;  so  that 
matters  of  this  kind,  it  seems  to  me,  would  be  subject  to  action  by 
the  legislature  of  your  State. 

Mr.  Ousley.  Yes.  Well,  I  am  just  stating  this  fact,  and  I  think 
my  friend  here  from  Texas  will  confirm  me  in  the  opinion  that  Texas 
would  not  sacrifice  its  homestead  exemption  for  any  consideration; 
and  I  am  simply  asking  whether  the  committee  can  not  conform  this 
bill  in  some  way  to  meet  that  condition  by  utilizing  our  vendors' 
lien  notes,  which  are  a  perfectly  valid  security. 

Senator  Hollis.  What  is  there  about  that  law  that  makes  it  so 
dear  to  the  people?  Do  thev  think  that  it  has  kept  their  homes  for 
them? 

Mr.  Ousley.  Yes. 

Senator  Hollis.  Do  you  think  it  has  ? 

Mr.  Ousley.  I  think  it  has  in  many  instances.  I  am  sure  I  would 
not  be  willing  to  see  it  sacrificed.  I  would  like  to  see  it  modified  in 
some  degree.  I  would  like  to  see  a  value  limit  rather  than  an  acreage 
limit,  because  there  might  be  200  acres  of  land  in  the  suburbs  of  a 
city  now  that  would  be  worth  great  fortunes ;  and,  on  the  other  hand, 
200  acres  in  other  sections  would  be  worth  very  little.  I  think  there 
ought  to  be  a  value  limit  on  the  exemption. 

Senator  Hollis.  You  see  the  old  theory  was  that  to  get  into  debt 
was  a  disgrace.    But  the  modern  theory  is  that  a  man  is  not  using 
his  tools  to  the  best  advantage  unless  he  borrows  enough  money  to 
work  his  property  to  the  best  advantage. 
Mr.  Ousley.  That  is  true. 

Mr.  Platt.  We  are  trying  to  work  up  a  bill  which  will  persuade 
a  man  to  go  into  debt.    In  Texas  you  have  a  law  which  tries  to  pre- 
vent him  from  going  into  debt.    [Laughter.] 
Mr.  Ousley.  That  is.  on  their  homesteads. 


420  RURAL    CREDITS. 

Mr.  Platt.  Any  man  who  can  borrow  money  at  4  or  5  per  cent 
interest  on  his  farm  is  a  fool  not  to  borrow  it,  provided  he  can  make 
more  than  that  on  the  investment  of  the  money. 

Mr.  Ousley.  1  think  our  homestead  exemption  law  might  be  modi- 
fied to  the  extent  that  a  man  might  be  permitted  to  borrow  money 
for  the  improvement  of  his  farm.  I  think  perhaps  that  condition 
might  be  met. 

Senator  Hollis.  Well,  they  are  now  allowed  to  refund  the  original 
purchase-price  lien,  are  they  not? 

Mr.  Ousley.  Yes.  But  I  would  not  undertake  to  hold  out  any 
promise  that  I  would  waste  my  time  trying  to  get  the  people  of  Texas 
to  change  their  homestead  law.  My  opinion  about  it  might  be  one 
thing,  but  there  are  some  things  that  are  just  utterly  impossible  in 
the  present  state  of  the  public  mind.  It  would  take  20  years  to  edu- 
cate the  people  of  Texas  out  of  that  idea. 

Senator  Hollis.  Yes. 

Mr.  Platt.  They  are  not  willing  to  trust  themselves  to  go  into 
debt? 

Mr.  Ousley.  It  is  not  that;  but  it  is  a  provision  against  the  specu- 
lation and  the  bad  business  management  and  the  improvidence  of 
the  heads  of  families,  and  it  is  preserving  the  shelter  of  the  home 
over  the  women  and  children  against  the  mismanagement  and  the 
ill  fortune  and  the  ill  providence  of  their  fathers  and  husbands. 

Mr.  Platt.  Well,  that  simply  means  they  are  paying  a  higher  rate 
of  interest  for  any  money  that  is  borrowed,  because  it  prevents 
a  man  from  using  the  only  property  he  has.  and  there  is  no  use  trying 
to  get  away  from  it.    That  ought  to  be  understood. 

Mr.  Ousley.  That  is  true;  but  that  is  the  price  we  are  paying  for 
it;  and  we  are  willing  to  pay  the  price,  so  far  as  that  is  concerned. 

Mr.  Platt.  The  success  of  the  credit  organizations  in  Germany  is 
largely  due  to  the  fact  that  they  have  no  exemptions  at  all. 

Mr.'  Ousley.  That  is  true.  I  had  quite  a  discussion  on  that  with 
some  of  our  friends  on  the  other  side.  I  wanted  to  point  out  that 
fact,  and  some  of  them  did  not  want  to  admit  that  fact. 

Now,  if  we  are  to  get  any  benefit  in  Texas — and  you  will  find 
that  there  are  other  States  having  homestead  exemptions  too— — 

Mr.  Bulkley  (interposing).  Do  you  know  what  States  they  are? 

Mr.  Ousley.  I  could  not  tell  you  that. 

Senator  Hollis.  Is  not  this  the  usual  homestead  law,  that  a  cer- 
tain value,  $500  or  $1,000,  is  exempt  from  attachment  and  execution 
for  debt,  but  that  the  owner,  by  the  signature  of  himself  and  his 
wife,  can  waive  that  exemption  and  borrow  money  so  as  to  pledge 
the  entire  homestead?  That  is  the  law  in  my  State,  and  I  think  it  is 
general  in  New  England;  but  how  far  it  extends  beyond  that  I  do 
not  know. 

Mr.  Ousley.  Yes.  I  am  not  familiar  with  the  homestead  provi- 
sions of  any  other  State.  I  simply  know  that  there  are  some  States 
that  have  homestead  provisions. 

Mr.  Platt.  It  does  not  apply  to  city  homes,  does  it  ? 

Mr.  Ousley.  Yes. 

Mr.  Platt.  It  does  apply  to  them? 

Mr.  Ousley.  Yes.  And  it  has  been  very  greatly  abused,  too,  in 
our  State.     Men  have  held  property  as  homesteads  that  are  not 


EURAL   CREDITS.  421 

homesteads.  There  has  been  a  great  deal  of  fraud  practiced.  There 
is  no  question  about  that.  It  is  a  provision  that  has  been  very  much 
abused. 

Senator  Hollis.  The  man  can  not  sell  his  homestead  without  his 
wife's  signature,  I  suppose? 

Mr.  Ousley.  No,  sir. 

Senator  Hollis.  Does  the  wife  have  to  be  examined  apart  from 
her  husband? 

Mr.  Ousley.  Yes,  sir.  I  take  it  that  this  next  provision  in  the 
bill  here,  that  no  State  can  obtain  the  benefit  of  this  act  without  a 
system  of  land  title  registration,  that  you  contemplate  establishing 
thereby  a  uniform  system  of  land  titles. 

Senator  Hollis.  Well,  I  did  not  draw  the  bill.  But  for  your  in- 
formation, I  will  say  that  I  think  the  idea  is  that  it  will  tend  in  that 
direction. 

Mr.  Ousley.  Yes. 

Senator  Hollis.  I  am  not  entirely  clear  about  that  land  title  part 
I  think  that  is  left  to  regulation,  is  it  not?  I  do  not  think  the  bill 
undertakes  to  fix  that  definitely.    How  is  that,  Dr.  Coulter? 

Mr.  Hayes.  No. 

Mr.  Coulter.  No  ;  the  idea  is  that  banks  may  start  in  any  State 
with  any  kind  of  registration  or  recording  laws. 

Mr.  Ousley.  Yes. 

Mr.  Coulter.  But  it  is  left  to  the  commissioner  of  farm-land  banks 
to  extend  certain  additional  advantages  in  those  States  which  have 
a  registering  or  guaranteeing  title  system.  That  is  to  say,  there  are 
at  the  present  time — we  had  the  laws  looked  up  on  all  of  these  points, 
on  the  present  taxation,  for  instance,  of  mortgages ;  the  present  reg- 
istration and  recording  systems;  the  present  homestead  exemptions, 
etc.  If  the  committee  desires  it,  I  have  a  lot  of  statutes  and  pam- 
phlets, etc.,  from  the  various  State  officers  of  practically  all  the 
States  piled  up  in  my  office. 

We  thought  it  was  desirable  to  make  it  possible  for  this  bureau 
to  help  toward  a  standardization  or  uniformity  of  laws  by  making 
it  possible  for  the  commissioner  of  farm-land  banks,  with  the  sanc- 
tion of  the  Secretary  of  the  Treasury,  to  extend  certain  additional 
privileges  or  advantages  to  the  bonds  from  States  as  they  improved 
their  laws  on  these  various  subjects. 

Senator  Hollis.  Who  is  to  pass  on  whether  they  have  a  satisfac- 
tory system  or  not — the  commissioner? 

Mr.  Coulter.  It  would  be  really  up  to  the  Secretary  of  the  Treas- 
ury to  O.  K.  or  to  approve  any  order  by  the  commissioner  of  farm- 
land banks.  If  he  found,  for  instance,  that  10  States  had  a  system 
of  land-title  registration  which  made  it  so  that  the  State  practically 
guaranteed  title,  and  there  was  no  chance  of  some  one  who  had  dis- 
appeared for  40  years  coming  back  and  claiming  title  to  the  land,  nnd 
all  that  sort  of  thing:  if  it  seemed  to  him  that  the  titles  were  abso- 
lutely safe  and  sound  in  those  States  beyond  question,  he  might  issue 
an  order  that  the  bonds  from  those  States  should  be  recognized  for 
certain  additional  purposes,  or  issue  an  order  that  the  bonds  from 
those  States  were  safer  because  of  this  guarantee  and  give  them  an 
increased  beneficial  standard. 

Then  other  States  would  probably  hurry  to  improve  their  legisla- 
tion. 


422 


RURAL    CREDITS. 


I  may  say  in  that  connection  that  we  found  various  Government 
offices  in  the  National  Government  which  are  making  an  effort  to 
standardize  the  laws  of  the  various  States  on  various  subjects.  There 
is  one  office  here  in  Washington  that  has  drawn  up  a  model  law  on 
the  registration  of  birth  and  deaths.  And  I  think  there  are  over  25 
States  now  that  have  adopted  that  law  that  has  been  drawn  up  here 
in  a  Government  office.  There  is  no  infringement  of  State  rights, 
but  there  is  encouragement  to  them  to  enact  uniform  legislation. 

I  know  of  other  Government  offices  which  have  as  their  principal 
business  the  drawing  up  of  what  would  seem  to  be  pretty  nearly  a 
model  law  for  the  various  States  under  peculiar  State  conditions 
on  a  specific  subject.  And  after  that  measure  has  been  before  the 
State  legislature  a  few  times  the  State  will  adopt  it,  and  then  another 
State  will  adopt  it,  and  finally  you  find  25  or  30  States  with  uni- 
form legislation  on  a  certain  subject. 

We  thought  that,  in  view  of  the  great  variety  of  laws  with  refer- 
ence to  the  recording  or  registering  of  titles,  with  reference  to  ex- 
emptions, and  with  reference  to  foreclosures,  it  would  be  wise  to 
make  it  possible  for  this  bureau,  through  the  commissioner,  with  the 
approval  of  the  Secretary  of  the  Treasury,  to  give  advantages  and 
to  extend  privileges  to  the  bonds  in  all  States  where  these  special 
laws  were  passed.  It  would  not  prevent  banks  from  starting  in  any 
States,  but  their  bonds  would  have  just  the  normal,  common,  every- 
day advantages.    They  would  not  have  any  special  advantages. 

Mr.  Ousley.  Yes;  but  that  provision  might  be  very  seriously 
abused.    The  language  is  this  (p.  32)  : 

That  in  the  judgment  of  the  commissioner  of  farm-land  banks  the  State  laws 
providing  for  registration  of  land  titles,  conveyances,  and  foreclosures  in  any 
given  State  are  such  as  to  give  reasonable  protection  to  the  holders  of  first 
mortgages  and  first  deeds  of  trust  on  lands  located  within  that  State. 

You  see,  it  is  wholly  in  the  discretion  of  the  commissioner  of  farm- 
land banks. 

Mr.  Coulter.  What  is  the  provision  above  that  \ 

Mr.  Ousley.  The  provision  above  that  relates  to  homestead  ex- 
emptions. This  is  one  of  the  conditions  upon  which  banks  can  par- 
ticipate in  the  postal  savings  funds  and  in  trust  funds.  Now.,  if 
you  had  a  hard-headed  and  stubborn  fellow  in  there  as  commissioner, 
who  had  a  notion  that  he  was  going  to  reform  the  land  titles  in  the 
United  States  in  his  term  of  office,  he  might  cut  out  several  States 
from  participation  in  this 

Mr.  Coulter   (interposing).  In  that  special  advantage? 

Mr.  Ousley.  Yes. 

Mr.  Coulter.  That  is  to  say.  that  it  all  hinges  on  the  first  two 
lines  in  section  34  of  the  bill: 

That  the  national  land-bank  bonds  of  any  national  farm-land  bank  shall 
be  available  for  the  following  purposes. 

Mr.  Ousley.  Exactly. 

Mr.  Coulter.  But  those  bonds  would  have  their  normal  standing 
in  the  market,  under  normal  conditions.  For  instance,  we  have 
now  $2,000,000,000  worth  of  farm-land  mortgages  outstanding— 
between  two  and  three  billions— which  have  not  any  special  ad- 
vantages at  all. 

Mr.  Ousley.  I  understand. 


EUKAL    CREDITS.  423 

Mr.  Coulter.  In  some  States  they  find  such  a  fine  market  that 
they  are  negotiated  at  5  or  6  per  cent.  And  so  we  have  hundreds 
of  millions,  and,  in  fact,  billions  of  dollars  of  bonds  outstanding 
now,  many  of  which  sell  at  part,  at  44  per  cent  interest,  without  any 
of  the  special  privileges.  Now,  the  idea  here  is  that  State  after 
State  as  they  perfect  their  laws  will  be  given  special  advantages 
over  normal  conditions.  Do  you  think  that  would  be  carrving  it  too 
far? 

Mr.  Ousley.  I  am  afraid  it  would.  I  am  afraid  there  might  be 
a  great  abuse  there.  If  in  my  State,  as  the  result  of  this  act.  we 
are  excluded  from  participation  in  these  special  funds,  because  of 
our  homestead  exemptions,  and  if  we  modified  Or  abolished  that, 
we  would  have  to  change  our  land-title  system:  and  if  we  are  en- 
cumbered with  a  lot  of  requirements  of  that  kind,  we  simply  will 
not  have  any  banks  in  Texas.  And  I  fear  that  you  may  make 
the  requirements  in  the  bill  so  hard  that  the  people  are  not  going 
to  trouble  themselves  to  get  rid  of  those  requirements  of  our  laws  and 
that  you  will  have  a  land-bank  system  with  half  a  dozen  or  a  dozen 
States  participating  in  it,  and  it  will  take  a  generation  or  perhaps 
two  generations  to  give  the  system  a  national  effect.  You  may  make 
the  conditions  so  hard,  you  understand,  that  you  can  not  easily  put 
the  system  into  effect;  and  I  would  hate  to  leave  that  particular 
discretion  altogether  in  the  commissioner  of  farm-land  banks.  I 
think  there  ought  to  be  somebody  else  to  share  that  responsibility 
with  him. 

Mr.  Coulter.  This  is  with  the  approval  of  the  Secretary  of  the 
Treasury. 

Mr.  Ousley.  Does  the  bill  say  that? 

Mr.  Coulter.  Yes;  only  by  a  general  rule  that  would  apply  alike 
to  all  parts  of  the  country  once  ordered — it  would  apply  to  all  with 
that  condition  existing 

Mr.  Ousley.  This  does  not  read  so  [indicating  pamphlet  in  wit- 
ness's hand].  It  says,  "In  the  judgment  of  the  commissioner f of 
farm-land  banks." 

Mr.  Coulter.  Well,  the  rule  that  covers  the  whole  thing  is  at 
the  bottom  of  page  67  of  the  pamphlet  which  you  have  in  your 
hand: 

The  foregoing  privileges,  or  such  of  them  as  the  commissioner  of  farm-land 
banks,  with  the  approval  of  the  Secretary  of  the  Treasury,  may.  by  general 
rules  applicable  to  all  banks  organized  hereunder 

Mr.  Ousley  (interposing).  That  may  cover  it;  yes. 

Mr.  Woods.  Col.  Ousley,  do  you  know  the  rate  of  interest  paid 
by  tenants  who  are  obliged  to  borrow  money  in  the  State  of  Texas, 
especially  in  the  western  part  of  the  State? 

Mr.  Ousley.  They  do  not  borrow  very  much  money.  They  get 
advances  from  their  landlords  in  the  way  of  supplies  or  they  buy 
their  supplies  from  merchants  on  crop  mortgages.  They  do  not 
borrow  very  much  money — it  is  a  trifling  amount. 

Mr.  Woods.  How  about  the  eastern  part? 

Mr.  Ousley.  The  eastern  part  of  the  United  States,  do  you  mean  ? 

Mr.  Woods.  No;  the  eastern  part  of  Texas;  do  not  tenants  there 
borrow  money? 

Mr.  Ousley.  Perhaps  some  of  them  over  there  do.  I  do  not  think 
as  a  rule  that  there  is  much  borrowing  of  money  by  tenants.     They 


424  EUEAL    CREDITS. 

get  their  credit  from  their  landlords,  or  from  merchants  on  a  crop 
mortgage.  There  are  very  few  tenants  who  would  borrow  money 
at  a  bank.  Tf  they  did,  they  would  pay  the  8  per  cent  interest  that 
small  borrowers  pay. 

Mr.  Platt.  Can  a  homesteader  mortgage  his  crop? 

Mr.  Ousley.  Yes. 

Mr.  Platt.  He  can  mortgage  the  uncertain  security,  then,  but  not 
the  good  security? 

Mr.  Ousley.  The  tenant  can  mortgage  his  crop,  subject  to  the 
landlord's  lien. 

Mr.  Hayes.  The  homesteader  can  mortgage  his  homestead  by 
joining  his  wife  in  the  mortgage,  can  he  not? 

Mr.  Ousley.  No,  sir. 

Mr.  Seldommdge.  Is  there  any  demand  for  short-time  credit  for 
farmers  ? 

Mr.  Ousley.  Not  much.  The  demand  in  my  State  is  for  cheap 
money,  whereby  the  man  without  a  home  may  obtain  one.  That  is 
the  demand  in  my  State. 

Mr.  Platt.  Of  course,  we  all  want  cheap  money. 

Mr.  Woods.  How  much  are  farms  worth  around  Dallas? 

Mr.  Ousley.  Improved  black-land  farms  around  Dallas  are  worth 
$175  an  acre. 

Mr.  Woods.  How  would  a  man  there  be  helped  under  the  pro- 
visions of  this  bill  ? 

Mr.  Ousley.  We  could  not  take  the  provisions  of  this  bill. 

Mr.  Woods.  Suppose  the  State  passed  a  law  waiving  the  homestead 
law;  how  would  it  help  a  man  to  borrow  money  down  there? 

Mr.  Ousley.  It  would  not  help  him  unless  you  get  the  money 
cheaper,  except  that  you  have  the  amorization  plan  under  which  a 
man  could  have  the  money  for  a  long  time. 

Mr.  Woods.  He  would  be  obliged  to  have  considerable  money  on 
hand  before  he  could  buy  a  farm,  under  this  bill,  would  he  not? 

Mr.  Ousley.  Oh,  yes.  Of  course,  it  is  contemplated  that  a  man 
shall  have  some  money,  and  not  borrow  the  whole  amount  necessary 
to  buy  the  land. 

Mr.  Seldomridge.  Do  you  have  a  large  number  of  tenants  there? 

Mr.  Ousley.  Most  of  our  farmers  are  tenants. 

Mr.  Seldomridge.  Is  there  any  disposition  on  their  part  to  secure 
land,  if  possible? 

Mr.  Ousley.  They  are  very  eager  to  do  so. 

Mr.  Seldomridge.  Are  there  any  financial  remedies  to  aid  them 
in  that  direction? 

Mr.  Ousley.  Not  at  all,  sir. 

Mr.  Seldomridge.  How  could  they  be  helped  in  that  way  ? 

Mr.  Ousley.  With  an  amortization  plan,  at  a  rate  of  interest  wind) 
they  could  afford- to  pay.  There  are  tenants  now  buying  farms,  you 
understand,  and  they  are  paying  8  and  9  per  cent  interest. 

Mr.  Woods.  How  much  do  they  pay  down  on  the  farms  th;it  they 
buy? 

Mr.  Ousley.  One-fourth  or  one-fifth;  maybe  a  little  less. 

Mr.  Seldomridge.  Would  there  not  arise  in  the  case  of  those  men 
the  need  of  short-term  credit  to  carry  them  over? 

Mr.  Ousley.  Xo:  they  can  get  that  accommodation  from  their  mer- 
chants on  their  crop  mortgages. 


RURAL    CREDITS.  425 

Mr.  Seldomridge.  Ts  that  done — the  giving;  of  crop  mortgages? 

Mr.  Ousley.  Yes,  sir. 

Mr.  Seldomridge.  What  is  the  rate  of  interest  on  them? 

Mr.   Ousley.  They   do   not   borrow   money   on   mortgage.     They 
mortgage  their  crop  to  their  supply  merchants  or  their  landlords. 

Mr.  Seldomridge.  About  what  do  they  have  to  pay  to  the  merchant 
for  that  accommodation? 

Mr.  Ousley.  They  have  to  pay  very  handsomely. 

Senator  Hollis.  It  is  very  expensive  if  the  merchants  have  to  take 
that  risk? 

Mr.  Ousley.  Yes;  it  is  very  expensive. 

Mr.  Seldomridge.  Would  it  not  be  better  to  have  short-term  credit 
and  pay  cash  for  the  supplies? 

Mr.  Ousley.  Very  much  better. 

Mr.  Seldomridge.  Then  there  seems  to  be  some  need  and  demand 
for  short-term  credit? 

Mr.  Ousley.  There  is  need  for  it ;  but  it  never  has  been  presented 
in  that  aspect  to  those  people. 

Mr.  Seldomridge.  And  they  are  paying  25  per  cent  interest,  per- 
haps, on  these  crop  mortgages? 

Mr.  Ousley.  Possibly  more  than  that,  sir. 

Mr.   Seldomridge.  Under  those  conditions  are  they  managing  to 
remove  themselves  from  the  tenant  class  to  the  home-owning  class? 

Mr.  Ousley.  Very  few  of  them. 

Mr.  Seldomridge.  So  that  we  might  anticipate  their  desire  in  that 
direction  is  not  likely  to  be  gratified? 

Mr.  Ousley.  Not  under  present  conditions. 

Mr.  Seldomridge.  Not  under  present  conditions? 

Mr.  Ousley.  No,  sir.    They  are  getting  very  restless  about  it ;  they 
are  getting  very  turbulent  about  it. 

Mr.  Woods.  You  say  they  pay  from  one-fifth  to  one-quarter  down  ? 

Mr.  Ousley.  Yes. 

Mr.  Woods.  Under  the  provisions  of  this  bill  they  would  be  obliged 
to  pay  one-half  down  ? 

Mr.  Ousley.  Yes.    I  was  raising  the  objection  that  on  some  of  our 
land  they  ought  to  be  allowed  to  borrow  at  a  higher  appraisement. 

Mr.  Woods.  Then  they  would  have  to  borrow  money  to  stock  the 
farm,  and  implements  and  horses  and  things  of  that  kind? 

Mr.  Ousley.  Certainly. 

Mr.  Woods.  And  that  would  take  considerable  money. 

Mr.  Ousley.  Yes. 

Mr.  Seldomridge.  What  is  the  average-sized  farm  of  a  tenant  in 
Texas? 

Mr.  Ousley.  Well,  from  50  to  150  acres,  I  should  say. 
Mr.   Seldomridge.  They  are   mostly  engaged  in  cotton  growing; 
that  is  the  staple,  is  it  not? 

Mr.  Ousley.  In  one  section  of  the  State — in  most  sections  of  the 
State  it  is ;  yes. 

Mr.  Seldomridge.  Is  that  where  the  tenant  conditions  largely  exist; 
in  the  cotton-producing  area  ? 
Mr.  Ousley.  Yes,  sir. 

Mr.  Hayes.  Are  these  tenants  white  or  colored  ? 
Mr.  Ousley.  They  are  both  white  and  colored. 


426  BUBAL    CREDITS. 

Mr.  Seldomridge.  Vow  say  they  are  getting  rather  turbulent; 
what  is  the  cause  of  that? 

Mr.  Ousley.  Their  dissatisfaction,  their  unrest,  their  hopeless  con- 
dition;  lands  advancing  in  value  and  money  high  and  the  time 
short. 

Mr.  Bulkley.  You  mean  that  they  are  losing  hope  of  being  able 
to  own  land  of  their  own  ? 

Mr.  Ousley.  Yes,  sir. 

Senator  Mollis.  Do  you  think  in  those  communities  that  the  co- 
operative credit  associations  that  you  had  a  chance  to  observe  abroad 
might  be  worked  up  so  as  to  be  helpful  ? 

Mr.  Ousley.  What  was  that  ? 

Senator  Hollis.  You  went  abroad  with  the  commission,  did  you 
not? 

Mr.  Ousley.  Yes,  sir. 

Senator  Hollis.  And  you  had  some  chance  to  see  what,  was  done 
there  with  cooperative  credits  among  farmers,  did  you  not? 

Mr.  Ousley.  Yes,  sir. 

Senator  Hollts.  Do  you  think  that  is  likely  to  prove  successful 
in  Texas? 

Mr.  Ousley.  Not  in  Texas. 

Senator  Hollis.  Why  not? 

Mr.  Ousley.  For  the  reason  that  our  tenant  class  is  composed  of 
men  of  unstable  habits  of  mind.  They  shift  about  from  place  to 
place.  They  are  not  fixed  to  the  soil,  like  the  people  are  in  Germany 
and  other  European  countries.  They  go  and  come.  They  are  moved 
by  the  prospects  of  better  conditions  somewhere  else.  And  besides 
all  that,  they  do  not  live  in  the  village  communities  like  they  do  in 
the  European  countries,  where  every  man  knows  his  neighbors'  affairs 
and  their  history  and  their  dependability.  They  are  more  aloof. 
Our  farmers  live  on  their  farms.  In  the  European  countries  they 
cluster  largely  in  villages,  and  it  makes  a  different  social  condition; 
it  make  a  different  family  condition;  so  that  a  man  does  not  object 
to  indorsing  for  his  neighbor.  But  among  the  tenants  we  have, 
where  a  man  is  not  well  acquainted  with  his  neighbors  a  mile  or 
a  half  a  mile  away,  he  does  not  feel  that  social  interest  in  them ;  there 
is  not   that  neighborhood  feeling. 

Mr.  Woods.  You  are  speaking  of  the  unlimited  liability  feature? 

Mr.  Ousley.  I  am  speaking  of  the  rural-credit  societies  for  short- 
time  loans;  that  is  what  I  mean. 

Mr.  Wood.  You  spoke  about  "indorsing"? 

Mr.  Ousley.  Well,  even  in  the  limited-liability  associations,  the 
borrower  must  furnish  security — some  neighbor. 

Mr.  Woods.  Yes ;  but  not  necessarily  signers  as  security  ? 

Mr.  Ousley.  Oh,  no;  some  good  security.  But  I  spoke  of  his 
neighbor  indorsing  for  him,  just  as  evidence  of  the  friendly  relation 
that  exists  there  and  does  not  exist  with  us. 

Mr.  Woods.  Of  course,  there  are  two  systems  over  there,  you  know  ? 

Mr.  Ousley.  Oh,  yes. 

Mr.  Woods.  You  spoke  of  the  tenant  class  being  restless  and 
rather  turbulent. 

Mr.  Ocsley.  Yes. 

Mr.  Woods.  What  is  your  suggestion  as  to  assisting  them  and  mak- 
ing conditions  better? 


RURAL    CREDITS.  4  "2  7 

Mr.  Ousley.  As  I  stated,  at  the  opening  of  my  remarks.  I  have  no 
sure  or  confident  remedy.  I  am  simply  hoping  to  aid  them  by  some 
means  that  will  afford  them  a  cheap  rate  of  interest  and  a  long  time 
to  pay  for  their  homes. 

Mr.  Woods.  Well,  do  not  those  tenant  classes  that  you  speak  of 
need  assistance  more  than  the  man  who  has  the  farm  half  paid  for 
and  well  stocked  ? 

Mr.  Ousley.  I  can  not  say  that  one  has  the  need  more  than  the 
other,  but  they  both  need  assistance. 

Mr.  Woods.  Would  it  not  be  of  greater  advantage  to  the  Govern- 
ment to  assist  them?    Would  they  not  make  better  citizens? 

Mr.  Ousley.  The  tenants? 

Mr.  Woods.  Yes ;  if  they  were  encouraged  to  become  owners. 

Mr.  Ousley.  It  makes  better  citizens  of  them  if  they  become  home 
owners ;  yes,  sir. 

Senator  Hollis.  To  what  part  of  Texas  did  John  W.  Gates  go  ? 

Mr.  Ousley.  Port  Arthur. 

Senator  Hollis.  How  far  is  that  from  you  ? 

Mr.  Ousley.  That  is  away  down  on  the  coast. 

Senator  Hollis.  Do  you  know  whether  land  values  went  up  in  that 
vicinity  after  he  established  himself  there  ? 

Mr.  Ousley.  Do  you  mean  in  his  oil  business? 

Senator  Hollis.  I  did  not  know.  I  thought  he  went  into  business 
generally  there. 

Mr.  Ousley.  No;  he  went  into  that  Port  Arthur  commercial  de- 
velopment. 

Senator  Hollis.  Oh,  I  see. 

Mr.  Ousley.  I  do  not  think  that  had  much  affect  on  land.  He  did 
not  do  any  farming. 

Mr.  Bulkley.  Are  most  of  those  tenants  anxious  to  own  farms  of 
their  own? 

Mr.  Ousley.  Yes,  sir. 

Mr.  Bulkley.  What  proportion  of  them  have  half  the  price  of 
the  farm,  so  that  they  could  buy  under  this  system? 

Mr.  Ousley.  A  very  small  proportion  of  them,  because,  under  pres- 
ent conditions,  they  can  not  accumulate  much. 

Mr.  Bulkley.  Well,  now,  if  we  should  accept  a  plan  allowing  them 
to  borrow  on  long  time  50  per  cent  of  the  value  of  their  farms,  very 
few  of  them  would  be  able  to  take  advantage  of  it  ? 

Mr.  Ousley.  Very  few  of  them  would  be  able  to  take  advantage  of 
it  immediately;  but  many  of  them  would  begin  to  get  themselves 
into  condition  to  take  advantage  of  it.  They  would  strain  themselves 
and  deny  themselves  and  save  up  money. 

Mr.  Bulkley.  You  think  that  they  would  save  more  money  if 
they  had  that  prospect  in  view,  do  you  ? 

Mr.  Ousley.  I  think  they  would  save  more  money  if  they  had 
that  prospect  of  cheap  money  at  long  time.  I  think  many  of  them 
would  begin  to  accumulate  by  self-denial  of  the  most  rigid  kind. 
But  when  you  face  this  condition,  Mr.  Bulkley,  where  a  man  who  is 
not  any  too  energetic  to  begin  with,  that  he  must  pay  $100  an  acre 
for  land,  and  he  has  got  to  buy  it  on  five  years'  time — 100  acres  of 
it — you  can  see  what  it  amounts  to,  even  without  the  improvements. 
He  can  not  pay  for  it  out  of  the  ground  in  five  years ;  it  is  utterly  im- 
possible for  him  to  do  that.     It  costs  him,  in  labor,  allowing  him- 


428  RURAL    CREDITS. 

self  and  his  family  a  wage  of  only  $1  a  day — it  costs  him  12  cents  a 
pound  to  grow  cotton  under  those  conditions. 

Mr.  Bulkley.  Do  they  ordinarily  have  any  great  difficulty  in  get- 
ting those  five-year  loans  extended? 

Mr.  Ousley.  No;  they  have  no  difficulty  in  getting  them  extended, 
but  they  always  have  to  pay  a  big  commission. 

Mr.  Woods.  You  spoke  of  100  acres  of  farm  land  for  $100  an  acre; 
that  would  be  $10,000. 

Mr.  Ousley.  Yes.  sir. 

Mr.  Woods.  Under  this  proposed  system  it  would  be  necessary  for 
a  man  to  have  $5,000  cash  before  he  bought  that  land? 

Mr.  Ousley.  Yes.  sir. 

Mr.  Woods.  Do  you  think  there  is  any  man  in  Texas  now  who 
really  wants  to  buy  a  farm  and  Avho  has  $5,000  and  does  not  buy  one? 

Mi-.  Plait.  Is  not  land  held  at  a  speculative  value  in  Texas?  Is  it 
not  too  high  ? 

Mr.  Ousley.  That  is  a  ma  iter  of  opinion.  Do  you  mean  to  ask 
whether  it  is  worth  the  price  as  an  earning  proposition? 

Mr.  Platt.  Yes. 

Mr.  Ousley.  That  is  a  matter  of  opinion,  as  to  how  much  j^ou  con- 
sider a  fair  rate  of  interest.  I  do  not  think  lands  in  Texas  are  yield- 
ing as  much  as  the  ordinary  bank  rate  of  interest  on  an  investment; 
so  you  might  say  that  the  values  are  somewhat  speculative. 

Mr.  Platt.  When  you  speak  of  cheap  money,  you  do  not  neces- 
sarily mean  5  per  cent  or  some  rate  of  interest  that  is  not  obtained 
by  anybody  in  Texas,  do  you  ?  You  mean,  for  instance,  the  average 
rate  of  interest  merchants  pay  or  that  anybody  else  would  pay,  do 
you  not '.  Suppose  farmers  could  get  money  as  cheaply  as  the 
average  merchant  in  Texas? 

Mr.  Ousley.  I  think  they  would  be  entirely  satisfied. 

Mr.  Platt.  That  is  what  I  wanted  to  know. 

Mr.  Ousley.  Yes:  I  think  they  would  be  satisfied;  but  they  do 
not  get  it  at  that  rate  in  my  State. 

Mr.  Platt.  There  are  evidently  good  reasons  for  that,  because  they 
can  not  give  the  security  under  the  present  laws. 

Mr.  Ousley.  That  would  not  affect  the  vendors'  lien  note.  There 
is  no  higher  security  in  the  world  than  the  vendors'  lien  note. 

Mr.  Platt.  The  rates  of  interest  are  always  higher  on  those 
than 

Mr.  Ousley  (interposing).  Yes;  but  the  homestead  is  simply  not 
available  for  a  loan,  so  that  does  not  affect  the  rate  of  interest. 

Mr.  Platt.  How  do  you  go  about  collecting  the  vendors'  lien? 
Suppose  they  do  not  pay  them? 

Mr.  Ousley.  They  are  foreclosed :  just  like  a  mortgage. 

Mr.  Platt.  Do  you  mean  that  they  practically  are  mortgages? 

Mr.  Ousley.  Yes:  they  are  practically  mortgages.  So  that  there 
is  no  better  security  in  the  world  than  the  vendors'  lien,  and  we  ought 
to  get  the  money  on  them  at  a  low  rate  of  interest,  but  we  do  not. 
Now.  T  understand  that  Mr.  Moss  in  his  State  can  get  money  at 
practically  5  or  6  per  cent  on  some  of  the  farm  lands  there? 

Mr.  Moss.  Yes:  that  is  the  ordinary  rate  of  interest  in  my  section 
of  country.  Six  per  cent  would  be  considered  the  ordinary  bank 
rate  and  would  be  considered  high.     There  is  a  great  deal  of  money 


EUEAL    CREDITS.  429 

loaned  on  promissory  notes.  I  am  satisfied,  at  less  than  6  per  cent, 
but  that  is  the  ordinary  rate. 

Mr.  Ousley.  Yes. 

Mr.  Moss.  The  tax-free  bonds  are  selling  to  the  local  bunk-  at  a 
premium,  bringing  4^  per  cent  interest.  At  the  proper  time  I  will 
bring  before  the  committee  actual  sales  of  bonds  in  my  own  section 
at  4^  per  cent,  which  were  sold  to  a  local  bank  at  a  premium. 

Mr.  Ousley.  Yes;  you  will  understand,  gentlemen,  that  I  am  dis- 
cussing this  bill  purely  from  the  standpoint  of  my  local  environ- 
ment, and  I  presume  that  is  what  you  want. 

Mr.  Platt.  Yes. 

Mr.  Moss.  But  is  this  not  true,  Col.  Ousley.  that  where  bonds  are 
difficult  to  sell  is  where  interest  rates  are  now  very  high? 

Mr.  Ousley.  Yes,  sir. 

Mr.  Moss.  And  thus  it  is,  you  will  nearly  always  find  that  the  land 
itself  is  cheap  compared  with  the  conditions  I  am  talking  about. 

Mr.  Ousley.  I  did  not  quite  understand  that. 

Mr.  Moss.  I  say  that  where  interest  rates  are  high  and  where  bonds 
would  be  hard  to  sell,  is  it  not  true  that  the  land  values  are  cheaper 
than  they  are  in  the  sections  where  interest  rates  are  lower1? 

Mr.  Ousley.  I  presume  that  is  true. 

Mr.  Platt.  I  do  not  believe  that  is  always  true.  For  instance, 
there  is  good  land  in  my  territory  that  sells  for  $60  or  $75  an  acre, 
and  yet  it  would  probably  produce  just  as  much  as  that  land  in  Texas 
at  $100  an  acre;  it  is  within  75  miles  of  New  York  City,  with  water 
transportation. 

Mr.  Moss.  You  will  understand,  Mr.  Platt,  that  I  am  using  the 
words  "  cheap  "  and  "  high,"  relatively,  as  comparing  the  particular 
neighborhood;  for  instance,  in  my  section  of  the  country  land  sells 
all  the  way  from  $75  to  $200  an  acre;  and  so  you  will  understand 
what  I  mean  by  "cheap."' 

Mr.  Bulkley.  Col.  Ousley,  what  has  been  the  general  tendency  of 
interest  rates  on  mortgage  loans  in  Texas?  Have  they  been  going 
down  ? 

Mr.  Ousley.  They  have  not  gone  down  perceptively  during  the 
period  of  my  observation  of  this  problem. 

Mr.  Bulkley.  How  long  has  that  been? 

Mr.  Ousley.  Five  or  six  years. 

Mr.  Bulkley.  You  do  not  think  there  is  a  tendency  one  way  or  the 
other  at  the  present  time? 

Mr.  Ousley.  I  would  modify  that  statement.  Money  is  freer; 
more  money  is  offered.  Lenders  are  eager  now  for  mortgages  on 
farm  land — on  vendors'  lien  notes.  That  condition  rather  indicates 
a  tendency  downward,  of  course,  because  where  money  gets  to  bidding 
for  a  security  it  tends  to  reduce  the  rate  of  interest  of  course.  Dur- 
ing the  30  years  of  my  residence  in  Texas,  of  course,  money  rates  have 
declined  very  sharply.  When  I  went  there  we  used  to  pay  1£  per 
cent  a  month  for  a  little  loan. 

Mr.  Bulkley.  In  the  absence  of  any  legislation  would  you  look 
forward  to  money  going  down,  do  you  think? 

Mr.  Ousley.  Not  for  a  long  time;  very  slowly. 

Senator  Hollis.  Have  .you  anything  further  to  suggest  to  the  com- 
mittee, Col.  Ousley? 

Mr.  Ousley.  Nothing  further,  Mr.  Chairman. 


430  RURAL    CREDITS. 

Senator  Hollis.  Does  any  member  of  the  committee  desire  to  ask 
Col.  Ousley  any  further  questions?     If  not  we  will  hear  Mr.  Ady. 

STATEMENT  OF  ABEL  ADY,  OF  KLAMATH  FALLS,  OREG. 

Senator  Hollis.  What  is  your  business,  Mr.  Ady? 

Mr.  Ady.  Farming. 

Senator  Hollis.  You  have  had  some  special  experience  about  loans 
on  lands;  will  you  tell  the  committee  about  that? 

Mr.  Ady.  Well,  at  present  I  am  president  of  the  Klamath  Water 
Users'  Association,  an  organization  of  the  settlers  and  landowners 
on  the  Government  project — the  Klamath  project. 

In  my  official  position  I  am  daily  meeting  with  the  farmers  who 
are  in  financial  distress,  so  that  I  am  somewhat  familiar  with  their 
conditions  and  their  needs. 

Senator  Hollis.  This  distress  that  you  speak  of,  is  it  widespread 
and  due  to  some  particular  cause? 

Mr.  Ady.  It  is  quite  general  among  the  settlers,  the  real  home 
makers  in  that  project. 

Senator  Hollis.  That  is,  they  have  not  been  able  to  get  ahead  as 
fast  as  they  wanted,  and  they  are  short  of  funds? 

Mr.  Ady.  Short  of  funds,  due  to  various  reasons. 

Senator  Hollis.  Will  you  tell  us  what  those  reasons  are  ? 

Mr.  Ady.  First,  the  project  was  estimated  to  be  completed  by  the 
Government  at  about  $16.40  per  acre,  and  farmers  entered  into  the 
contract  to  pay  whatever  it  might  cost,  believing  that  it  would  cost 
what  the  estimates  stated,  obligating  themselves  to  pay,  in  10  annual 
payments,  the  payments  to  begin  when  water  was  delivered  upon 
each  farm. 

They  did  not  take  into  consideration  the  fact  that  in  addition  to 
paying  these  amounts  to  the  Government  there  would  be  quite  a 
heavy  amount  of  fencing,  farm  buildings,  leveling,  seeding,  etc.,  that 
would  probably  cover  all  they  would  be  able  to  produce  during  the 
first  four  or  five  years. 

Mr.  Bulkley.  How  about  clearing;  is  there  any  of  that  to  be 
done? 

Mr.  Ady.  Sagebrush;  yes  sir. 

Mr.  Bulkley.  Does  it  cost  much  ? 

Mr.  Ady.  It  cost  from  $5  to  $10  an  acre  to  clear  the  sagebrush 
alone;  and  then  they  have  to  level  the  land,  and  that  will  range  from 
$5  to  $20  per  acre,  according  to  the  condition  of  the  soil.  The  ad- 
vertising was  done  generally  throughout  the  Nation  by  the  Interior 
Department,  the  Reclamation  Service — you  have  seen  it,  probably; 
it  said  "  Homes  to  the  homeless  on  the  irrigated  lands  of  the  West." 
Naturally,  the  men  who  would  respond  would  be  the  homeless  men. 
The  man  who  had  wealth  would  not  respond  to  that  kind  of  call; 
he  would  stay  in  the  civilized  country.  But  the  man  with  a  few 
hundred  dollars  would  go  out  and  put  his  few  hundred  dollars  in 
the  land,  believing  all  that  he  had  to  do  was  to  turn  on  the  water 
and  reap  great  crops.  Where  the  necessity  for  spending  $10  or  $15 
for  leveling  and  $5  for  clearing,  and  the  fencing,  and  the  buildings, 
and  grubstaking  his  family  came  up  he  would  be  stranded,  of  course. 
He  would  be  helpless.    He  had  to  borrow  money,  which  he  could  do  by 


KLTRAL    CREDITS.  431 

paying  10  per  cent,  and  in  addition  to  that  a  commission,  which  was 
usually  divided  between  the  lender  and  the  agent,  and  frequently  a 
bonus  beyond  that,  in  order  to  get  the  money. 

Next  year  he  would  have  to  borrow  more  money;  the  next  year 
he  would  have  to  borrow  a  little  bit  more,  until  he  got  to  the  limit 
of  his  credit. 

Mr.  Seldomridge.  And  no  water? 

Mr.  Ady.  In  some  instances  no  water.  But  on  the  project  in 
which  I  am  interested  he  got  water ;  some  of  them  did  not  get  water. 
We  have  been  for  years  making  an  appeal  to  the  Government  and 
the  Department  of  the  Interior  for  an  extension  of  time,  and  there 
are  bills  now  pending  before  Congress  that  will  doubtless  give  us  an 
extension  of  time  for  the  payment  of  the  amount  due  to  the  Govern- 
ment for  delivering  water  upon  the  land. 

But  that  is  not  all  that  we  need.  Our  people  are  in  debt,  and  at 
the  rate  of  10  and  12  per  cent  interest  on  the  deferred  payments  for 
the  balance  due  upon  their  land;  and  it  requires  more  than  the  land 
will  produce  to  pay  the  rates  of  interest  and  pay  the  Government 
charges  as  per  past  demands. 

Mr.  Bulkley.  What  are  those  deferred  payments  due  on  the  land? 
I  did  not  quite  understand  that? 

Mr.  Ady.  These  lands  on  this  particular  project  were  all  private 
lands  prior  to  the  Government  undertaking  to  irrigate  them. 

Mr.  Bulkley.  And  are  these  settlers  undertaking  to  pay  some- 
thing in  addition  to  the  Government's  charges? 

Mr.  Ady.  Yes;  these  settlers  are  paying  their  purchase  price  to  the 
former  owners  of  the  land. 

Mr.  Bulkley.  How  much  is  that? 

Mr.  Ady.  From  $25  to  $150  an  acre. 

Mr.  Bulkley.  Do  you  mean  to  say  that  they  could  sell  that  land 
without  water  for  $125  an  acre? 

Mr.  Ady.  They  have  sold  some  of  it  subject  to  the  Government's 
tax  for  that  price. 

Mr.  Bulkley.  What  Government  tax  ? 

Mr.  Ady.  The  Government  tax  covers  the  cost  of  irrigating,  build- 
ing the  reservoirs,  and  the  ditches,  tunnels,  etc.,  to  irrigate  the  lands. 

Mr.  Bulkley.  Then,  do  you  mean  to  say  that  the  cost  of  irrigating 
is  a  first  lien? 

Mr.  Ady.  A  first  lien. 

Mr.  Bulkley.  Then  the  owner  of  the  unirrigated  land  sells  it 
for  $25 

Mr.  Ady  (interposing).  From  $25  to  $150,  subject  to  the  Govern- 
ment lien. 

Mr.  Bulkley.  Uncleared  land? 

Mr.  Ady.  No  ;  the  uncleared  land  would  be  $25  an  acre ;  it  depends, 
upon  the  improvements  and  condition  of  the  lands. 

Mr.  Bulkley.  Well,  did  you  give  as  high  as  $25  for  uncleared 
land? 

Mr.  Ady.  I  have  known  of  none  of  it  selling  for  less  than  that. 

Mr.  Bulkley.  You  have  to  pay  the  cost  of  the  water  in  addition 
to  that? 

Mr.  Ady.  We  have  to  pay  the  cost  of  the  water  in  addition  to  that, 
which  will  range  from  $30  to  $50  an  acre. 


432  RURAL    CREDITS. 

Mr.  Hayes.  It  is  the  same  everywhere  in  the  West  where  I  know 
anything  about  it.     It  is  so  in  Colorado. 

Mr.  Adv.  Tt  is  the  same  everywhere. 

Mr.   Bulklet.  Yon  may  proceed. 

Mr.  Adv.  Now,  the  conditions  that  we  need  help  on  are  these: 
When  we  appeal  to  outside  banks  for  loans,  the  outside  banker  al- 
ways refers  the  matters  to  the  local  banks  before  advancing  the 
money.  You  are  familiar  with  that  dodge.  The  local  banker  has 
such  a  good  thing  of  it  that  he  advises  the  outside  banker  he  does 
not  loan  on  that  kind  of  property,  because  he  likes  his  10  and  12  per 
cent  and  the  bonus  sometimes  for  getting  it. 

You  will  readily  see  how  a  cooperative  bank  that  would  take  the 
deposits  of  the  farmers  and  take  in  some  Government  money  would 
prevent  our  people  being  constantly  bled  by  sharks.  We  are  quite 
in  hope  that  some  such  conditions  would  be  developed  in  the  near 
future. 

Mr.  Btjlkley.  Now.  do  you  say  that  the  actual  cost  of  the  Govern- 
ment project  putting  water  on  this  property  runs  to  $30  on  acre? 

Mr.  Ady.  From  $30  to  about  $60  an  acre. 

Mr.  Btjlkley.  You  mean  on  other  projects,  do  you  not  ? 

Mr.  Ady.  Yes ;  on  ours  it  is  $30.    That  is  one  of  the  lowest  projects 
in  the  West- 
Mr.  Bulk  ley.  The  actual  cost  was  $30  an  acre? 

Mr.  Ady.  Yes,  sir. 

Mr.  Btjlkley.  About  double  the  estimate? 

Mr.  Seldomridge.  Yes. 

Mr.  Ady.  Yes:  and  the  cost  of  most  of  the  projects  will  be  very 
nearly  double  the  regular  estimates  of  10  years  ago. 

Mr.  Bulklet.  What  is  the  character  of  that  land?  Ts  it  all  irriga- 
ble; is  every  acre  good? 

Mr.  Adv.  Yes:  that  that  they  put  under  the  big  system.  There 
may  be  occasional  patches  here  and  there  that  are  not  good.  But 
those,  I  suppose,  are  provided  for  and  do  not  worry  us. 

Mr.  Bulkley.  When  they  distribute  the  cost  do  they  distribute 
it  against  all  the  land? 

Mr.  Ady.  Yes;  all  the  irrigable  land. 

Mr.  Bulkley.  Is  there  any  rocky  land  in  there? 

Mr.  Ady.  There  is  rocky  land,  but  it  is  not  taxed. 

Mr.  Bulkley.  So  you  pay  the  $30  only  on  that  part  which  is 
irrigable  and  capable  of  being  used? 

Mr.  Ady.  Yes. 

Mr.  Bulkley.  As  to  the  amount  which  the  settlers  owe  to  the 
Government,  do  they  pay  any  interest  on  that? 

Mr.  Ady.  No,  sir:  with  the  exception  of  the  last  20-year  bonds. 
Those  will  draw  4  per  cent  interest.  Those  were  issued  two  years 
ago.  But  very  little  of  that  money  has  been  spent.  But  the  original 
amount  that  came  from  the  sale  of  timbers  of  the  West  and  that  came 
from  sale  of  Government  lands  is  loaned  to  the  settlers  without 
interest. 

Mr.  Bulkley.  So  that  the  actual  cost,  amounting  to  $30  an  acre, 
does  not  include  interest  on  the  investment?  The  Government  really 
loses  interest,  does  it  not? 

Mr.  Adv.  The  Government  loses  interest,  but  it  is  only  loaning 
to  the  farmers  of  the  West  the  proceeds  of  their  own  resources.    You 


RURAL    CREDITS.  433 

understand  that  we  in  that  respect  are  like  a  boy  going  to  his  father 
and  asking  for  a  loan  of  what  he  has  helped  to  produce. 

Mr.  Bulkley.  Yes. 

Mr.  Ady.  But  the  thing  that  is  burdening  us  is  the  amount  of  in- 
terest we  have  to  pay  to  the  original  landowner.  The  result  of  the 
irrigation  and  the  putting  in  of  these  projects  was  only  to  boost  the 
price  of  the  land  in  the  hands  of  the  original  owners,  and  we  buy 
them  from  the  original  owners. 

Mr.  Bulkley.  How  much  did  it  raise  the  price  on  your  land,  for 
example  ? 

Mr.  Ady.  Oh,  they  were  worth  an  average  of  $7  an  acre,  and  they 
sold  for  an  average  of  $50  an  acre. 

Mr.  Bulkley.  They  sold  for  an  average  of  $50  an  acre  ? 

Mr.  Ady.  Yes;  they  were  worth  an  average  of  $7  an  acre  10  years 
ago,  when  I  went  in  there,  and  they  have  now  sold  for  an  average 
of  $50  an  acre. 

Mr.  Bulkeey.  Did  these  private  owners  make  that  large  profit  by 
reason  of  the  Government  going  in  there  ? 

Mr.  Ady.  They  surely  did,  and  they  are  the  men  who  are  lending 
the  money  now  at  10  and  12  per  cent. 

Mr.  Bulkley.  That  is  a  very  interesting  fact. 

Mr.  Hayes.  Well,  was  there  no  Government  land  in  this  project 
at  all? 

Mr.  Ady.  None  at  all. 

Mr.  Hayes.  That  is  very  unusual. 

Mr.  Ady.  There  are  several  other  projects  of  the  same  kind. 

Mr.  Hayes.  I  did  not  know  that  there  was  anv. 

Mr.  Ady.  There  is  the  Salt  River  project,  with  $10,000,000  invested 
under  the  same  conditions. 

Mr.  Bulkley.  What  proportion  of  those  settlers  have  been  able  to 
make  all  their  payments  and  keep  "  trimmed  up  "  ? 

Mr.  Ady.  We  had  a  meeting  of  our  settlers  last  August,  when  As- 
sistant Secretary  Miller  and  the  present  director  of  the  Reclamation 
Service  visited  our  project.  At  the  assembled  meeting  of  our  people 
I  asked  the  question  as  to  how  many  of  them  had  been  able  to  meet 
their  payments  up  to  that  date  without  going  into  debt,  and  thre» 
out  of  the  entire  number  had  done  so. 

Mr.  Bulkley.  What  was  the  entire  number  ? 

Mr.  Ady.  About  400,  and  those  three  admitted  that  they  paid  th" 
charges  out  of  other  resources  than  the  lands. 

Mr.  Seldomridge.  Well,  now,  if  the  Government  should  relinquish 
its  right  to  collect  its  payments,  say,  for  15  or  20  years,  could  not 
these  people  gradually  work  out  of  the  obligations  to  the  owners  of 
the  land? 

Mr.  Ady.  Yes;  but  even  that  would  be  unjust.  We  are  not  asking 
for  that;  we  are  only  asking  that  they  reduce  it  sufficiently  so  as  to 
make  it  possible  for  us  to  meet  those  payments. 

Mr.  Seldomridge.  But  granting  the  fact  that  there  is  not  only  a 
lien  upon  these  lands  now  held  by  the  Government,  but  also  a  further 
lien  held  by  the  landowners,  to  what  extent  could  the  Government 
come  in  and  relieve  that  condition,  when  these  people  have  nothing 
in  the  way  of  security  to  offer?  What  equity,  in  other  words,  have 
they  in  this  land  ? 

37031—14 2S 


43  i  RURAL    CREDITS. 

Mr.  Ady.  The  Government  holds  the  first  lien,  and  the  original 
Landowner-  hold  the  second  lien;  the  mortgage  to  him  is  the  second 
lien. 

Mr.  Seldomridge.  Yes;  the  mortgage  is  the  second  lien;  now,  what 
have  they,  what  equity  upon  which  to  base  or  to  secure  a  si  ill 
further  loan? 

Mr.  Adv.  The  landowners  usually  require  from  25  to  60  per  cent 
down.  So  that  the  balance  due  to  the  landowner  is  a  percentage 
low  enough  to  make  him  absolutely  safe;  and  when  the  land  is  well 
cleared  and  fenced  and  improved,  after  several  years  of  hard  work 
by  the  settler,  it  is  a  very  good  proposition  for  the  original  owner 
to  foreclose.  And  that  is  the  thing  that  we  have  been  struggling 
against  last  j^ear  and  have  made  desperate  attempts  to  get  the  Gov- 
ernment to  extend  our  time  on  the  Government  lien,  in  order  to  save 
us  from  foreclosure  and  enable  us  to  pay  all  of  our  crop  returns  to 
the  original  landowner  and  get  him  out  of  the  way. 

Mr.  Seldomridge.  If  they  get  rid  of  the  present  lien  by  a  long-time 
loan  running  15  or  20  years,  that  would  help  them  out  of  that  con- 
dition, would  it  not? 

Mr.  Ady.  The  present  law  is  going  to  do  that. 

Mr.  Bulkley.  That  does  not  take  care  of  the  amount  which  they 
owe  the  original  landowners,  does  it  ? 

Mr.  Ady.  No. 

Mr.  Hayes.  No;  but  we  could  pass  a  law  something  like  this  bill-— 
the  Moss-Fletcher  bill — and  they  could  then  refund  those  debts  in 
those  cases  that  you  speak  of  where  the  settler  has  improved  the 
land,  cleared  it,  and  fenced  it,  and  so  on. 

Mr.  Ady.  That  is  what  I  am  suggesting. 

Mr.  Hayes.  He  could  come  into  one  of  these  banks  and  secure 
enough  money  to  clear  him  all  up — the  Government  debt  and  all, 
could  he  not  ? 

Mr.  Ady.  I  should  think  so. 

Mr.  Seldomridge.  What  is  the  average  mortgage  indebtedness  upon 
this  land  per  acre,  apart  from  the  Government  obligations? 

Mr.. Ady.  The  average  is  $20. 

Mr.  Seldomridge.  $20  per  acre  ? 

Mr.  Ady.  Yes ;  $20  per  acre. 

Mr.  Hayes.  What  is  that  ? 

Mr.  Ady.  The  average  of  the  mortgage  indebtedness  of  the  land. 
There  is  occasionally  a  farm  that  is  clear  of  debt. 

Mr.  Seldomridge.  And  how  much  are  the  average  holdings  of  the 
settlers  ? 

Mr.  Ady.  About  80  acres. 

Mr.  Hayes.  And  what  is  the  land  Avorth  when  he  gets  it  cleared 
off  in  shape  to  cultivate? 

Mr.  Ady.  From  $90  to  $100  an  acre. 

Mr.  Seldomridge.  So  that  with  a  small  owner,  from  $1,500  to 
$2,000  would  meet  his  requirement  ? 

Mr.  Ady.  It  would. 

Mr.  Hayes.  $2,500,  or  something  like  that? 

Mr.  Bulkley.  Is  that  project  pretty  well  sold  out? 

Mr.  Ady.  It  is  quite  extensively,  in  small  holdings. 

Mr.  Seldomridge.  What  interest  are  they  paying  on  land  mort- 
gages? 


RURAL   CREDITS.  435 

Mr.  Ady.  Not  less  than  8  per  cent,  and  that  is  only  on  the  de- 
ferred payments  upon  sales  of  land. 

Mr.  Bulkley.  What  is  the  extent  of  the  whole  project? 

Mr.  Ady.  Thirty-six  thousand  acres  at  present,  but  there  is  twice 
that  amount  yet  to  be  reclaimed. 

Mr.  Bulkley.  Has  most  of  that  36,000  acres  been  taken  up  by 
settlers  ? 

Mr.  Ady.  It  has  been  sold  to  homesteaders  by  the  original  owners. 

Mr.  Bulkley.  Almost  all  of  it? 

Mr.  Ady.  Yes,  sir. 

Mr.  Seldomridge.  Has  it  sold  on  long  time  ? 

Mr.  Ady.  Usually  on  rather  short  time. 

Mr.  Seldomridge.  What  do  you  mean  by  "rather  short  time"? 

Mr.  Ady.  From  two  to  five  years — too  short  a  time  for  a  man  to 
make  it  from  the  lands ;  and  it  would  leave  an  excellent  opportunity 
for  foreclosure  befoie  the  man  can  make  it. 

Mr.  Seldomridge.  Did  the  Government  go  in  and  -develop  that 
project  without  there  being  any  Government  land  to  be  developed 
by  it — do  you  mean  to  tell  the  committee  all  of  the  land  under  the 
project  was  in  the  hands  of  private  individuals? 

Mr.  Ady.  I  will  explain:  All  of  the  uplands — all  of  the  36,000 
acres — was  wholly  private  land  before  the  Government  went  in. 
There  were  two  lake  beds  to  be  included  in  the  project,  and  one  of 
those  was  afterwards  cut  out  of  the  project. 

Mr.  Seldomridge.  Do  you  want  us  to  infer  that  the  people  who 
derived  the  greatest  benefit  from  that  project  were  individuals,  and 
that  there  was  no  development  of  Government  lands  through  this 
project? 

Mr.  Ady.  The  original  landowners  are  the  persons  who  got  the 
benefit  of  the  Government  working  on  that  project;  yes,  sir.  Some 
of  them  still  remained  there,  but,  then,  most  of  'hem  are  in  the 
banking  business  now.     [Laughter.] 

Mr.  Seldomridge.  Well,  I  supposed  that  the  Government  reclama- 
tion projects  were  simply  to  develop  unused  a  ad  unoccupied  land 
that  was  open  to  entry  and  was  not  available  without  irrigation  ? 

Mr.  Hayes.  That  is  what  I  thought.  I  thought  that  was  the 
Government's  primary  purpose. 

Mr.  Bulkley.  Mr.  Ady,  you  have  had  some  association  with  set- 
tlers on  projects  other  than  your  own,  have  you  not? 

Mr.  Ady.  I  have. 

Mr.  Bulkley.  What  are  those  other  projects? 

Mr.  Ady.  Oh,  some  twenty-odd  different  projects. 

Mr.  Bulkley.  In  what  States? 

Mr.  Ady.  Washington,  Nevada,  Arizona,  New  Mexico,  and  Colo- 
rado. 

Mr.  Bulkley.  Now,  what  has  been  your  association  with  those 
other  projects? 

Mr.  Ady.  I  personally  did  the  agitating  and  the  pioneer  work  to 
organize  these  settlers  on  all  the  different  projects  into  a  national 
association,  for  the  purpose  of  urging  legislation  that  would  save 
their  home  conditions  for  the  home  makers. 

Mr.  Bulkley.  Have  you  been  around  among  those  other  projects? 

Mr.  Ady.  Manv  of  them ;  ves,  sir. 


430  EUEAL   CREDITS. 

Mr.  Bulkley.  Do  you  find  similar  condition-  to  those  you  de- 
scribed on  your  own  project  on  the  others? 

Mr.  Ady".  Yes. 

Mr.  Hayes.  In  all  of  them? 

Mr.  Adv.  Almost. 

Mr.  Hayes.  In  Fallon,  Nev.,  were  the  condition.-  the  same? 

Mr.  Anv.  Practically. 

Mr.  Hayes.  It  did  not  start  that  way — it  was  all  Government  land 
when  it  started? 

Mr.  Ady.  It  was  all  Government  land,  but  the  payments  to  the 
Government  in  10  annual  installments  were  too  high  and  the  citizens 
were  unable  to  pay  that. 

Mr.  Hayes.  That  is  all  right,  but  I  wanted  to  find  out  how  it 
started.  Now,  are  you  familiar  with  the  Klamath  River  project  in 
northern  California? 

Mr.  Ady.  That  is  what  I  am  representing.  I  am  president  of  the 
association  of  farmers  in  Klamath,  Oreg.,  and  have  been  for  years. 
It  is  in  Oregon. 

Mr.  Hayes.  That  is  not  in  Oregon. 

Mr.  Ady.  All  of  the  reclaimed  lands  are  in  Oregon.  It  is  the  lake 
beds  that  are  in  California. 

Mr.  Hayes.  And  that  would  be  public  land  ? 

Mr.  Ady.  But  they  have  cut  that  out  from  the  project. 

Mr.  Hayes.  Why ;  do  you  know  ? 

Mr.  Ady.  I  do  not  know.  I  lost  all  I  had  in  the  world  because 
they  cut  it  out.    I  had  my  money  invested  in  that. 

Mr.  Hayes.  Did  they  not  have  water  enough  to  cover  all  three 
places  ? 

Mr.  Ady.  There  is  water  in  the  lower  Klamath  Lake  and  there 
is  water  in  the  Klamath  project  to  irrigate  ten  times  over  all  the  land 
they  have  got  there. 

Mr.  Seldomridge.  Then,  as  I  understand  it,  this  project  was 
originally  begun  to  take  care  of  this  lake  region  that  you  have  men- 
tioned, and  that  was  the  principal  object  of  the  project,  but,  indi- 
rectly, it  has  only  taken  care  of  the  people  that  owned  the  land  and 
not  the  entire  section.    Is  that  correct  ? 

Mr.  Ady.  It  was  to  take  care  of  about  45,000  acres  in  the  Reht 
Lake  and  about  75,000  acres  of  the  lower  Klamath  Lake  and  inci- 
dentally about  an  equal  number  of  acres  of  private  lands  that  could 
be  very  conveniently  included  in  the  project.  The  practice  has  been, 
however,  to  cut  out  the  lake  beds  that  had  the  Government  lands  and 
put  in  the  private  lands,  and  the  rest  to  be  considered  some  time  in 
the  future — the  Lord  only  knows  and  He  will  not  tell  when. 

Mr.  Seldomridge.  Yes.  Then  the  Government  did  not  originally 
devise  the  project  simply  to  assist  private  landowners — its  purpose 
was  to  take  care  of  the  public  lands? 

Mr.  Ady.  Its  purpose  was  to  take  care  of  both,  in  its  origin. 

Mr.  Seldomridge.  But  when  it  worked  it  out,  it  resulted  in  the 
private  landowners  getting  the  benefit  and  the  public  land  still 
being  with  the  benefit.    That  is  the  condition,  is  it? 

Mr.  Ady.  Yes.  sir.  Now,  in  the  Salt  River  project,  there  are  about 
150.000  acres  of  private  lands  and  about  10.000  acres  of  Government 
lands  have  been  added  to  that. 


RURAL    CREDITS.  437 

Mr.  Hayes.  That  is  in  Arizona,  is  it  not? 

Mr.  Ady.  That  is  in  Arizona.  That  is  the  largest  project  we  have 
in  the  country.  I  do  not  know  where  the  Government  land  was  that 
justified  the  expenditures. 

Mr.  Seldomridge.  Well,  this  discussion  is  not  germane  to  the  bill, 
but  I  would  like  to  know  the  reason  that  the  projects  you  referred 
to  did  not  take  care  of  the  public-land  situation  here.  Was  it  due  to 
an  engineering  difficulty  or  lack  or  water,  or  what  was  the  cause? 

Mr.  Hayes.  Or  because  there  was  no  demand  for  the  land,  or  what? 

Mr.  Ady.  One  lake  bed  they  cut  out  upon  the  report  of  the  soil 
experts  of  the  Department  of  Agriculture.  The  first  report  com- 
pared the  land  favorably  to  the  overflow  lands  of  the  Sacramento 
Valley,  and  which  were  then  worth  $200  per  acre.  Those  published 
reports  were  such  as  would  induce  any  man  to  invest,  and  I,  with 
others,  invested.  Then  later,  the  soil  experts  reported  that  the  land 
was  questionable,  and  a  little  bit  later  they  reported  that  it  was  more 
questionable,  and  finally  the  market  broke,  so  that  I  lost  what  I  had 
and  other  men  did  the  same. 

Mr.  Seldomridge.  Were  those  reports  verified  by  any  practical 
demonstration  ? 

Mr.  Ady.  By  an  analysis  of  the  soil.  The  lands  are  all  under 
water;  they  are  overflow  lands. 

Mr.  Seldomridge.  Yes. 

Mr.  Platt.  The  United  States  Government  is  a  rather  uncertain 
agent  on  whose  recommendations  to  buy  land  then  ? 

Mr.  Ady.  Sometimes. 

Mr.  Platt.  It  is  a  pretty  uncertain  corporation  to  do  business  with, 
on  general  principles. 

Mr.  Hayes.  I  am  afraid  it  is. 

Mr.  Platt.  The  worst  trust  in  the  country  is  the  United  States 
Government;  there  is  no  doubt  about  that — the  worst  to  do  busi- 
ness with,  or  have  anything  to  do  with. 

Mr.  Ady.  I  will  make  the  same  suggestion  that  I  did  to  the  De- 
partment of  the  Interior.  Uncle  Sam  is  no  better  than  the  man 
who  represents  him,  and  if  the  man  who  represents  him  is  a  shyster, 
Uncle  Sam  is  a  shyster.  That  has  been  our  experience  in  the  West. 
But  if  the  man  who  represents  Uncle  Sam  is  a  square  fellow,  with 
sympathy  for  the  man  on  the  ground,  Uncle  Sam  is  all  that  he  ought 
to  be. 

Mr.  Platt.  Is  not  the  trouble — since  we  are  in  a  discussion  that  is 
not  germane  to  the  bill  under  consideration  anyhow — is  it  not  the 
trouble  that  the  corporation  or  trust  known  as  the  United  States 
Government  is  altogether  too  big  to  be  handled  economically?  It 
tries  to  do  too  many  things. 

Mr.  Ady.  Either  that,  or  else  it  is  not  trying  to  do  enough — and 
I  think  it  is  the  latter. 

Mr.  Bulkley.  Mr.  Ady,  if  we  worked  out  some  plan  for  loans  to 
be  made  to  actual  farm  owners  for  productive  purposes,  do  you  be- 
lieve in  placing  a  limit  on  the  amount  any  one  man  can  borrow  ? 

Mr.  Ady.  Most  assuredly  I  would. 

Mr.  Bulkley.  What  would  you  make  the  limit  ? 

Mr.  Ady.  $2,000  or  $3,000. 


438  RURAL   CREDITS. 

Mr.  Bulklev.  Do  you  think  that  is  enough  to  take  care  of  a  man 
having  a  farm  ? 

Mr.  Ady.  It  is  enough  for  a  start. 

Mr.  Hayes.  Would  you  not  make  it  $5,000  ? 

Mr.  Ady.  No. 

Mr.  Eagsdale.  Do  you  mean  that  you  would  apply  that  to  the 
entire  United  States,  without  regard  to  the  local  conditions  that  might 
obtain  in  the  different  sections? 

Mr.  Platt.  You  would  not  loan  a  man  $5,000  on  a  $10,000  farm,  a 
100-acre  farm  worth  $100  an  acre? 

Mr.  Ady.  A  man  with  that  class  of  farm  would  not  need  Govern- 
ment help. 

Mr.  Platt.  This  is  not  Government  help ;  this  is  banking. 

Mr.  Ady.  I  supposed  that  we  were  considering  Government  as- 
sistance. 

Mr.  Bulkley.  Well,  Mr.  Ady's  answer  is  a  fair  answer  to  my 
question.  I  meant  Government  assistance.  I  did  not  mean  a  direct 
loan  from  the  Government,  but  I  did  assume  Government  assistance. 

Mr.  Ady.  In  case  of  Government  assistance  I  would  limit  the 
amount  so  as  to  do  the  greatest  good  to  the  greatest  number;  and 
only  to  such  amounts  as  would  be  absolutely  necessary  to  assist  the 
man  to  make  a  home  in  good  faith  for  himself.  But,  in  where  I 
am,  it  would  not  be  a  matter  of  taking  chances  at  all ;  half  a  million 
dollars  could  be  placed  in  that  county  in  GO  days  on  gilt  edge  security 
at  6  per  cent  interest. 

Mr.  Bulkley.  Would  they  be  satisfied  to  get  it  at  6  per  cent  ? 

Mr.  Ady.  Yes,  sir;  although  they  would  like  to  have  it  for  less. 

Mr.  Bulkley.  Of  course. 

Mr.  Ragsdale.  Do  you  not  think  yourself  that  6  per  cent  would  be 
a  high  rate? 

Mr.  Ady.  I  do;  yes. 

Mr.  Hayes.  You  think  5  per  cent  would  be  better,  do  you  not? 

Mr.  Ady.  Rather. 

Mr.  Hayes.  That  is  what  I  thought. 

Mr.  Ady.  Although  I  have  paid  33^  per  cent  bonus  to  get  money 
in  my  own  country. 

Mr.  Hayes.  What  do  you  think  would  be  a  reasonable  rate  ? 

Mr.  Ady.  Under  present  economic  conditions,  6  per  cent  would  be 
a  reasonable  rate. 

Mr.  Hayes.  That  is  what  I  thought;  but  you  did  not  seem  to 
think  so. 

Mr.  Ady.  Oh,  no.  I  guess  I  must  have  misunderstood  your  ques- 
tion; you  wanted  to  know  whether  I  thought  it  would  be  high. 

Mr.  Hayes.  Yes. 

Mr.  Ady.  I  would  think  so,  under  economic  conditions. 

Mr.  Bulkley.  Do  you  mean  high  in  the  sense  of  hard  to  pay? 
[Laughter.] 

Mr.  Ady.  Yes. 

Senator  Hollis.  Does  any  member  of  the  committee  desire  to  ask 
any  questions  of  Mr.  Ady. 

If  not,  I  would  like  to  ask  Mr.  Scudder  to  express  his  view,  in  the 
few  minutes  we  have  left  before  1  o'clock,  about  what  could  be  done 
to  handle  the  Texas  situation. 


RURAL   CREDITS.  439 

ADDITIONAL  STATEMENT  OF  S.  D.  SCUDDER,  OF  NEW  YORK 

CITY. 

Mr.  Scudder.  It  seems  to  me  a  very  easy  proposition.  The  objects 
of  the  bill,  as  far  as  the  land-mortgage  proposition  is  concerned,  are 
two :  First,  to  aid  in  the  improvement  of  the  property,  and,  second, 
to  aid  in  the  purchase  of  the  property. 

For  the  first  object  you  would  not  naturally  get  the  homesteader 
of  Texas,  but  you  could  cover  it  under  the  second  object  very  easily, 
by  changing  the  phraseology,  or  adding  to  the  phraseology  "first 
vendors'  lien,"  which  lien  is  absolutely  as  good  as  a  first  motgage 
or  a  first  deed  of  trust.  All  you  would  have  to  add  would  be  the 
phraseology  covering  vendors  or  "  purchase-money  "  liens. 

Mr.  Platt.  Would  that  be  necessary  ? 

Mr.  Hayes.  Could  those  be  transferred — are  they  transferable? 

Mr.  Scudder.  Oh,  yes ;  this  paper  is  largest  in  circulation  in  Texas 
to-day;  I  believe  also  in  Louisiana;  and  perhaps  in  Arkansas,  but 
I  would  not  be  sure  about  that. 

A  person  buying  a  piece  of  property  in  Texas  and  giving  a  vendors' 
lien  is  giving  as  good  a  lien  as  you  could  get  under  a  deed  of  trust 
or  a  mortgage.  If  foreclosed  you  can  get  the  property  just  as  quickly 
as  if  you  held  a  mortgage  or  deed  of  trust. 

Senator  Hollis.  How  would  it  do  to  say  in  the  bill  "  farm-land 
loans  "  and  then  define  farm-land  loans  ? 

Mr.  Scudder.  So  as  to  cover  the  different  States  ? 

Senator  Hollis.  Yes.  So  as  to  cover  the  different  States  and  the 
different  classes  of  collateral,  and  then  leave  the  determination  of 
what  loans  and  securities  come  up  to  the  standard  to  the  authority 
of  the  commissioner  of  farm-land  banks,  or  somebody  else.  It  oc- 
curs to  me  that  that  is  the  way  it  might  be  handled  in  different 
sections  of  the  country,  by  placing  the  authority  with  some  official 
to  say  what  is  the  equivalent  of  a  first  mortgage  in  different  section 
of  the  country. 

Mr.  Scudder.  Yes. 

Mr.  Moss.  I  would  like  to  say,  Mr.  Chairman,  that  I  have  re- 
ceived a  letter  from  a  banker  in  Wisconsin,  where  they  are  putting 
a  recent  State  law  into  effect.  He  stated  that  the  language  of  the 
law  itself  would  not  have  permitted  it  to  go  into  operation,  under 
the  most  favorable  conditions;  but  the  large  powers  that  were  given 
to  the  State  official  made  it  possible,  under  his  regulations,  to  remedy 
some  of  the  defects  of  the  law  itself;  and  the  law  was  put  into  opera- 
lion  under  the  regulations  of  the  State  official.  And  the  suggestion 
of  this  banker  was  that  there  ought  to  be,  in  a  law  of  this  kind,  the 
power  to  make  regulations  of  that  kind  to  overcome  just  the  diffi- 
culties that  you  have  suggested,  and  I  think  that  is  true. 

Senator  Hollis.  Yes. 

Mr.  Platt.  Would  not  the  commissioner  of  farm-land  banks  rule 
that  those  vendors'  liens  are  mortgages? 

Senator  Hollis.  I  should  think  he  would ;  but  we  ought  to  take 
care  of  those  contingencies. 

Mr.  Scudder.  My  point  is  that  where  you  are  covering  the  case 
by  the  language  of  the  bill  for  some  States  where  there  are  no  mort- 
gages, by  saying  "first  deeds  of  trust."  you  can  at  the  same  time 


440  RURAL   CREDITS. 

rcver  those  other  States  where  they  have  the  very  best  paper  of  thai 
kind  that  there  is,  the  ''first  vendors'  liens." 

Mr.  Platt.  Anything  that  is  security  for  land  is  a  mortgage;  it 
does  not  make  any  difference  what  they  call  it  in  one  State  or 
another. 

Senator  Hollis.  I  do  not  think  it  is  a  mortgage,  however. 

Mr.  Hayes.  No  ;  it  is  a  lien,  but  not  a  mortgage. 

Senator  Hollis.  You  will  find  that  the  law  books  are  full  of  the 
differences  between  liens,  deeds  of  trust,  mortgages,  conditional  sales, 
and  so  on. 

Mr.  Scudder.  You  see,  in  Texas  a  homesteader  can  not  give  a 
"mortgage,"  but  he  can  sell  his  property  and  allow  a  vendors  lien 
to  remain  on  it.  A  person  in  Texas  having  property  outside  of  the 
homestead  can  give  a  mortgage  on  that  portion  that  is  outside  of 
the  homestead. 

Mr.  Platt.  But  a  vendor's  lien  is  a  mortgage ;  you  say  he  has  the 
land  as  security? 

Mr.  Hayes.  It  is  a  lien,  but  not  a  mortgage. 

Mr.  Scudder.  It  is  a  first  lien,  but  not  a  mortgage. 

Mr.  Platt.  They  are  exactly  the  same  thing. 

Mr.  Scudder.  But  you  have  got  to  define  it  in  the  bill,  or  you  close 
it  out. 

Mr.  Bulkley.  Is  there  any  doubt  that  vendors'  liens  may  be  re- 
funded— for  instance,  that  a  homesteader  can  give  a  new  mortgage 
for  the  purpose  of  paying  off  the  vendor's  lien? 

Mr.  Scudder.  No  ;  there  is  no  doubt  at  all.  It  would  be  absolutely 
good  in  Texas.  We  used  to  attach  the  taken-up  "  vendor's  lien  "  to 
the  new  "mortgage  paper,"  so  as  to  show  that  for  all  time  that  there 
could  be  absolutely  no  question. 

Mr.  Hayes.  And  is  it  good  in  anybody's  hands  until  the  lien  is 
satisfied  ? 

Mr.  Scudder.  Absolutely  good. 

Mr.  Platt.  Mr.  Scudder,  there  is  one  question  that  I  asked  Col. 
Ousley,  though  not  for  the  record:  Is  there  any  special  reason  why 
these  vendors'  liens  should  bear  as  high  a  rate  if  they  are  just  as 
good  as  mortgages? 

Mr.  Scudder.  They  do  not.  You  can  get  them  at  a  lower  rate  of 
interest  in  Texas  than  on  mortgages  to-day. 

Mr.  Platt.  Do  they  promote  speculation  in  land  rather  than  pro- 
duction ? 

Mr.  Scudder.  No;  if  anything,  they  prevent  speculation.  A 
vendor's  lien  has  the  earmarks  of  a  bona  fide  purchase.  A  vendor's 
lien  is  the  actual  purchase  price 

Mr.  Ragsdale.  What  might  be  called  a  "purchase-price  mort- 
gage"? 

Mr.  Scudder.  Yes. 

Mr.  Platt.  When  a  man  has  borrowed  on  a  vendor's  lien,  he  can 
not  get  any  further  loan  on  that  security.  Is  that  not  an  induce- 
ment for  a  man  to  borrow  with  the  idea  that  it  is  going  to  increase 
in  value,  rather  than  with  the  idea  of  making  it  produce  something? 

Mr.  Scudder.  Well,  there  are  some  sales,  of  course,  made  in  Texas 
on  vendors'  liens  in  installments;  for  instance,  a  man  will  pay  one- 
quarter  down  in  cash,  and  he  will  give  three-quarters  of  the  purchase 


RURAL   CREDITS.  441 

price  in  vendors'  liens,  payable,  say,  one-quarter  in  two  vears,  one- 
quarter  in  four  years,  and  the  third  quarter  in  six  years.  Under  this 
bill  he  could  not  make  a  loan  on  more  than  the  first  two  installments, 
which  would  represent  50  per  cent  of  the  original  purchase  price. 
The  other  and  last  installment  he  would  have  to  raise  on  a  second 
mortgage.  In  other  words,  this  man  would  have  to  provide  for  a 
second  mortgage  on  his  property.  But  the  same  principle  of  allow- 
ing a  50  per  cent  loan — or  whatever  the  percentage  is  in  the  bill — 
should  apply  to  the  "  vendor's  lien  "  as  well  as  to  a  lien  called  a 
"  mortgage  "  or  "  deed  of  trust  " 

Mr.  Platt  (interposing).  Well,  does  not  this  system  permit  the 
turning  over  of  the  land — buying  with  a  vendor's  lien — and  when 
a  man  can  not  delay  any  more  the  only  thing  he  can  do  is  to  pay  it 
off;  and  if  he  can  not  do  that,  the  only  thing  he  can  do  is  to  sell  it? 
Does  not  that  promote  sales  rather  than  production  on  the  land  ? 

Mr.  Scudder.  The  idea  of  "  vendors'  liens "  makes  it  easier  for 
the  homesteader  to  get  a  piece  of  land.  I  will  say  that  this  has  been 
the  result  in  Texas;  that  because  of  this  vendor's  lien  and  the  excel- 
lent security  it  affords,  a  homesteader  or  a  man  who  wants  to  get  a 
piece  of  property  is  able  to  purchase  it  more  easily  than  if  it  was 
simply  a  mortgage  proposition :  because  if  I  have  a  piece  of  land  of 
100  acres,  and  I  want  to  sell  it  to  a  person,  I  am  more  apt  to  sell  it 
under  a  A^endor\s  lien,  and  more  apt  to  get  a  fair  price  because  of 
the  vendor's  lien,  than  if  then-  was  simply  a  mortgage  law,  which 
would  only  alloAv  the  borrower  to  go  out  and  get  50  or  60  per  cent  ot 
the  value  of  his  land,  whereas  I  am  willing  to  sell  it  to  him  on  a 
vendor's  lien,  leaving  perhaps  75  per  cent  of  it  to  remain  under  such 
a  lien. 

Mr.  Platt.  It  promotes  sales,  then? 

Mr.  Scudder.  It  does  help  a  man  to  get  a  piece  of  land. 

Mr.  Platt.  It  helps  to  sell  a  piece  of  land  if  he  owns  it.  Those 
are  only  two  different  ways  of  saying  the  same  thing. 

Mr.  Scudder.  Yes;  naturally  it  must  work  both  ways.  It  oper- 
ates to  make  land  more  liquid. 

Mr.  Eagsdale.  The  natural  tendency  of  it  is  to  break  up  the  large 
farms  into  small  farms,  with  that  many  additional  home  owners,  is 
it  not? 

Mr.  Scudder.  Undoubtedly;  and  that  has  been  a  great  benefit  to 
Texas.  It  has  been  made  possible  to  split  up  those  big  ranches  and 
have  homesteaders  come  there,  and  I  think  it  has  been  a  blessing 
rather  than  a  detriment. 

Mr.  Platt.  But  it  does  promote  speculation  in  land,  because  it 
promotes  sales,  does  it  not? 

Mr.  Scudder.  No;  it  is  just  the  other  way;  it  develops  the  home- 
steader. It  induces  the  man  who  has  a  little  money  to  come  in  and 
live  on  his  land,  and  to  split  up  those  big  ranches. 

Mr.  Platt.  And  to  turn  around  and  sell  it  again? 

Mr.  Scudder.  No;  because,  if  he  has  bought  it  and  paid  one-quarter 
on  it,  say,  25  per  cent,  he  has  got  a  25  per  cent  interest  in  that  farm 
and,  in  certainly  a  large  majority  of  cases,  there  must  be  some  object 
for  his  putting  every  dollar  that  he  has  into  the  purchase  of  this 
land,  other  than  speculation.  Generally  speaking,  the  man  who  pays 
a  small   amount  on  his  land  has  been  the  "  settler,"  and  not  the 


442  RURAL    CREDITS, 

"speculator."  Your  theory  may  work  in  the  case  of  city  lots,  but 
it  does  not  go  in  the  case  of  farm  lands. 

Mr.  Platt.  If  those  vendors'  liens  are  such  good  securities,  why 
should  they  bear  such  a  high  rate  of  interest,  as  Col.  Ousley  testi- 
fied that  the  rate  of  interest  paid  on  those  vendors'  liens  was  above 
the  ordinary  rate  of  interest  in  the  community,  as  I  understood. 

Mr.  Scudder.  Did  he?  That  has  not  been  my  experience.  Of 
course,  there  are  special  instances  where  a  large  discount  is  obtain- 
able in  the  purchase  of  vendors'  liens,  when  those  notes  represent  a 
very  large  proportion  of  the  value  of  the  property  sold,  and  the 
holder  desires  to  realize  cash  at  once  on  those  notes;  but  my  experi- 
ence has  been  that  ordinarily  the  vendors'  lien  has  the  advantage  over 
a  mortgage  or  deed  of  trust. 

Mr.  Ragsdale.  The  rate  on  the  vendors'  liens  ? 

Mr.  Scudder.  Yes;  that  has  not  been  my  experience.  My  experience 
in  Texas  was  that  vendors'  lien  notes — that  is,  provided  the  "  percent- 
age "  was  confined  to  a  reasonable  percentage  of  the  value  of  the 
land,  brought  a  lower  rate  of  interest  than  mortgages.  In  other 
words,  when  I  was  loaning  money  in  Texas.  I  preferred  to  purchase 
a  vendors'  lien  (or  make  a  mortgage  by  deed  of  trust  to  take  up  a 
vendors'  lien)  provided  it  was  within  my  50  per  cent — that  was  my 
rule  in  those  days — than  to  make  a  straight  mortgage,  because  I  had 
the  bona  fide  evidence  of  the  object  of  the  purchaser  of  that  prop- 
erty— generally,  the  object  was  improvement,  especially  where  it  was 
a  refunding  of  a  vendors'  lien — and  I  knew  also  that  that  was  the 
very  finest  land  of  security  under  the  Texas  law ;  i.  e.,  the  vendors' 
lien  is  unassailable. 

Mr.  Ragsdale.  Aside  from  that,  the  very  fact  that  a  man  was  buy- 
ing a  piece  of  property  and  putting  his  money  in  it  would  show  that 
he  was  going  ahead;  whereas  a  man  giving  an  ordinary  mortgage 
might  mean  that  he  was  retrograding.* 

Mr.  Scudder.  Yes,  sir. 

Mr.  Ragsdale.  One  is  the  case  of  the  acquisition  of  a  property, 
and  the  other  is  the  encumbering  of  a  property? 

Mr.  Scudder.  Yes,  sir. 

Mr.  Platt.  It  seems  to  me  that,  as  a  general  proposition,  if  a  man 
holds  a  piece  of  property  on  which  he  can  not  borrow  and  upon 
which  he  owes  money,  the  only  thing  he  can  do  is  to  sell,  and,  there- 
fore, a  law  of  that  sort  must  promote  speculation.  It  can  not  do 
otherwise. 

Mr.  Scudder.  Dr.  Coulter  has  asked  the  question  whether  they 
have  the  "  deed-of-trust "  system  in  Texas.  I  will  say  that  they  also 
have  that  in  Texas;  that  you  can  make  a  loan,  give  a  deed  of  trust, 
and  follow  out  the  general  rules  of  a  deed  of  trust. 

Mr.  Hayes.  You  think,  then,  that  we  would  cover  the  Texas  situ- 
ation, if  we  were  to  put  into  the  bill  the  words  "  vendors'  lien,"  or 
"purchase-money  lien"? 

Mr.  Scudder.  Yes;  not  only  the  Texas  situation,  but,  perhaps,  that 
of  other  States — Louisiana  and  others. 

Mr.  Hayes.  Yes. 

(Thereupon,  at  12.55  o'clock  p.  m.,  the  subcommittees  adjourned 
until  to-morrow,  Wednesday.  March  4.  1014.  at  10.30  o'clock  a.  m.) 


WEDNESDAY,   MARCH   4,    1914. 

United  States  Senate. 

Washington.  D.  C. 
The  subcommittees  met  at  11  o'clock  a.  m.,  Hon.  Robert  J.  Bulkley 
presiding. 

Present:  Senator  Hollis  and  Representatives  Stone.  Seldomridge, 
Hayes,  Woods,  and  Piatt. 

STATEMENT  OF  JOHN  SPRUNT  HILL,  OF  DURHAM,  N.  C. 

Senator  Hollis.  Will  you  state  your  office  and  official  connection 
with  this  matter,  please? 

Mr.  Hill.  I  am  45  years  old;  a  farmer;  have  three  farms,  one 
operated  on  the  tenant  system  and  two  operated  under  personal 
direction  with  foremen.  I  am  president  of  a  loan  and  trust  company; 
vice  president  and  general  manager  of  a  savings  bank  that  lends  a 
great  deal  of  money  on  city  and  farm  property  on  a  strictly  6  per 
cent  basis.  I  have  had  many  years'  experience  in  New  York  and 
North  Carolina  in  the  land-loan  business,  especially  in  fighting  loan 
sharks  and  bringing  money  down  to  a  G  per  cent  basis.  I  am  a 
director  and  promoter  and  a  large  stockholder  of  a  building  and  loan 
association,  and  am  familiar  with  its  workings  and  a  great  believer 
in  its  principles. 

I  was  a  member  of  the  American  commission  that  went  to  Europe 
to  study  rural  credits  and  cooperative  production  and  marketing, 
appointed  by  the  governor  of  North  Carolina,  and  traveled  at  nvy 
own  expense.     I  was  chairman  of  the  committee  on  rural  credits 

Senator  Hollis  (interposing).  Of  the  American  commission ? 

Mr.  Hill.  Of  the  American  commission.  I  made  a  special  an  ex- 
tensive study  of  rural  credits  both  in  Europe  and  since  my  return. 
I  was  much  pleased  to  be  associated  with  my  friends  Dr.  John  Lee 
Coulter  and  Hon.  Ralph  Moss,  whom  I  see  present. 

Senator  Hollis.  Mr.  Hill,  have  you  made  any  printed  or  formal 
report  of  any  kind? 

Mr.  Hill.  To  the  governor  of  North  Carolina ;  yes,  sir.  I  will 
bring  that  in  later.  I  wish  to  state  that  no  two  gentlemen  on  the 
whole  American  commission  or  the  United  States  commission  im- 
pressed me  more  favorably  than  these  two,  and  I  regret  that  I  have 
to  differ  with  them  as  to  their  conclusions  as  set  forth  in  the  Moss- 
Fletcher  bill  and  also  in  their  statements  before  this  committee. 
Probably  their  opinions  have  been  influenced  somewhat  by  their  sur- 
roundings and  by  their  personal  observations.  What  I  shall  say  is 
in  reply  to  many  statements  that  have  been  made  before  this  com- 

443 


444  RURAL   CREDITS. 

mittee.  It  has  no  personal  bearing,  as  I  have  great  respect  for  them 
personally  and  they  are  my  friends. 

With  the  permission  of  your  committee,  I  will  take  up,  first,  a 
brief  discusion  of  the  Moss-Fletcher  bill;  then  a  brief  reply  to  the 
statements  made  by  Messrs.  Moss  and  Coulter;  and,  third,  a  brief 
outline  of  a  general  plan  for  relief  to  be  granted  to  the  American 
farmers. 

The  Moss-Fletcher  bill  may  be  divided  into  two  parts — a  joint- 
stock  plan  and  a  cooperative  plan.  The  two  parts  are  loosely  thrown 
together,  in  my  opinion,  and,  evidently,  the  cooperative  plan  was  an 
afterthought  thrown  in  to  save  the  bill.  So  far  as  I  was  able  to 
observe,  no  other  country  attempted  to  unite  the  joint-stock  and  the 
cooperative  plan  under  one  particular  act.  They  do  not  mix  well. 
The  joint-stock  idea  is  absolutely  and  fundamentally  opposed  to  the 
cooperative  altruistic  idea,  and  I  can  not  imagine  how  any  man's 
mind  can  associate  the  two. 

First,  the  joint-stock  plan.  I  wish  to  say  that  the  joint-stock 
plan  as  set  forth  in  the  Moss-Fletcher  bill  is  fundamentally  wrong 
in  principle,  has  been  repudiated  throughout  Europe  as  a  plan  for 
relief  of  farmers.  It  is  false  in  its  assumptions ;  it  will  prove  worth- 
less in  its  results ;  in  my  humble  opinion,  it  should  be  eliminated  from 
further  consideration  by  this  committee.  But  in  order  that  I  may 
develop  my  subject  in  proper  order  I  will  have  to  assume,  first,  that 
there  is  a  real  need  in  this  country  at  this  time  for  farm-land 
banks — (a)  organized  for  profit;  (5)  owned  and  operated  by  money 
lenders:  and  (c)  devoid  of  altruistic  principles. 

This  brings  me  to  a  discussion  of  the  sections  of  the  Moss-Fletcher 
bill,  section  by  section. 

Section  11,  page  24,  "  Restrictions."  Mr.  Moss,  on  page  29  of  his 
statement  before  this  committee  says: 

It  offers  you  a  system  of  banks  that  can  go  into  operation  at  once  in  every 
State  of  the  Union  under  conditions  as  they  now  exist. 

Yet  the  bill  provides  that  these  banks  shall  be  only  operated 
in  those  States  which  pass  suitable  laws — first,  requiring  simplifica- 
tion of  titles;  or,  in  other  words,  the  Torrens  land  system.  That 
in  itself  makes  the  bill  hopeless.  I  am  a  great  believer  in  the 
Torrens  land-title  system.  So  far  as  I  am  able  to  understand, 
only  the  State  of  Massachusetts  has  ever  practically  adopted  a 
Torrens  title  system  as  a  working  basis.  Three  or  four  other  States 
have  passed  such  laws.  The  State  of  North  Carolina  has  passed 
such  a  law;  and  yet,  so  far  as  I  know  no  title  has  been  registered 
under  the  Torrens  system.  In  every  State  there  is  tremendous 
opposition  to  it  on  the  part  of  lawyers  and  also  interested  persons. 

Mr.  Bulkley.  Mr.  Hill,  did  you  say  these  banks  could  not  operate 
in  any  States  that  did  not  adopt  such  a  law  ? 

Mr.  Hill.  That  is  the  restriction  of  the  bill,  as  I  understand  it. 

Mr.  Bulkley.  Do  you  mind  my  asking,  Mr.  Moss,  right  there, 
if  that  is  a  correct  understanding  of  the  bill? 

Mr.  Moss.  Of  course,  Mr.  Chairman,  I  feel  that  Mr.  Hill  had 
better  go  on  and  make  his  statement  and  analysis  as  he  has  it 

Mr.  Hill  (interposing).  I  have  no  objection  to  the  interruption. 

Mr.  Moss  (continuing).  And  then  I  will  ask  the  permission  of 
the  committee  later  on  to  put  my  own  analysis  on  the  proposition. 


RURAL   CREDITS.  445 

Mr.  Hill.  It  would  take  a  great  many  years  for  the  48  States  of 
the  American  Union  to  be  educated  up  to  the  adoption  of  the 
Torrens  title  system;  therefore,  there  could  be  no  immediate  assist- 
ance to  the  farmers. 

Second  is  the  waiver  of  the  exemption  and  homestead  laws.  A 
State  like  Texas,  for  instance,  in  order  for  a  man  to  mortgage  his 
house,  his  homestead,  and  200  acres  of  land,  it  would  require  a 
constitutional  amendment;  hence,  a  tremendous  campaign.  There 
are  other  States  that  have  restrictions  along  this  line  very  difficult 
to  remove. 

Third  is  taxation.  That  is  also  set  forth  in  section  18,  page  30, 
of  the  bill,  "Exemption  from  taxation."  The  capital  stock  and 
the  income  derived  from  these  joint-stock-company  banks  and  the 
mortgages,  deeds  of  trust,  notes,  and  bonds,  shall  be  exempt  from 
Federal,  State,  and  local  taxation.  No  greater  obstacle  to  the 
immediate  granting  of  relief  to  the  American  farmers  could  be 
imposed  than  that  one. 

All  of  these  restrictions  are,  in  my  judgment,  reasonable  and 
good;  but  they  are  submitted  and  dwelt  upon  by  me  to  show  that 
there  could  be  no  immediate  relief  for  a  great  number  of  years 
under  this  bill.  Hence  the  real  facts,  in  my  judgment,  will  show 
that  any  prospect  of  immediate  relief  is  not  based  on  the  facts. 

Senator  Hollis.  Mr.  Hill,  it  was  called  to  our  attention  yesterday 
that  the  bill  does  not  provide  that  a  land-title  system  or  that  a  mort- 
gage system  opposed  to  the  Texas  rule  was  necessary  for  the  estab- 
lishment of  the  bank  for  doing  business.  You  will  note  on  the  top 
of  page  30  that  these  restrictions  apply  only  to  investment  in  these 
land-bank  bonds,  and  that  they  are  only  allowed  where  such  re- 
strictions are  imposed.  Have  you  thought  of  that?  I  think  that 
is  what  the  bill  provides;  that  is  my  understanding  of  it. 

Mr.  Hill.  That  may  be,  and  there  may  be  a  difference  of  opinion 
as  to  that.  The  point  in  regard  to  restrictions  is,  in  my  opinion,  not 
a  very  serious  one,  and  I  only  mention  it  in  passing. 

Mr.  Hayes.  Mr.  Chairman,  is  Mr.  Hill  going  to  point  out  why 
this  particular  provision  he  speaks  of  is  going  to  prevent  the  relief 
that  is  desired? 

Mr.  Hill.  Yes,  sir.  If  you  have  restrictions  that  can  not  be  over- 
come readily  in  a  State,  why  then  that  would  appear  to  me  to  be  a 
serious  objection  to  the  adoption  of  this  bill. 

Mr.  Hayes.  Yes;  but  I  think  you  were  just  then  speaking  of  the 
exemption  from  taxation  as  something  that  was  going  to  prevent 
the  results  we  desire.     I  understood  you  to  say  so. 

Mr.  Hill.  I  am  afraid  I  did  not  catch  the  question  exactly.  If  I 
do,  my  understanding  of  it  is  this,  that  if  the  stock  of  these  banks, 
or  if  these  banks  can  not  be  established  until  the  stock  of  the  bank 
is  made  nontaxable  by  the  State  legislatures,  under  the  constitutions 
of  our  States  then  it  will  be  a  very  serious  restriction  that  will  pre- 
vent immediate  relief. 

Mr.  Hayes.  How?     That  is  just  what  I  want  to  understand. 

Mr.  Hill.  Because  it  would  take  a  10-years'  campaign  to  educate 
the  people  of  the  various  States  up  to  the  point  to  amend  their 
various  constitutions. 


446  EUEAL   CREDITS. 

Mr.  Hayes.  They  do  not  have  to.  Don't  you  understand  that  the 
United  States  can  exempt  from  taxation  so  the  States  can  not  reach 
it,  a  bank  like  this — a  corporation  of  its  own  creation? 

Mr.  Hill.  No.  sir ;  I  do  not  understand  that  at  all. 

Mr.  Plait.  The  United  States  could  not  exempt  mortgages  that 
might  be  taken  by  the  banks. 

Mr.  Hayes.  No. 

Mr.  Hill.  It  is  not  a  municipality,  not  a  part  of  the  State,  not  a 
part  of  the  county. 

Mr.  Hayes.  I  am  not  sure  about  that. 

Senator  Hollis.  We  are  on  debatable  ground  there,  and,  so  far  as 
I  understand  the  bill,  we  do  not  attempt  to  make  that  a  condition  of 
having  the  banks  go  into  effect  in  any  State.  We  have,  or  at  least 
the  bill  provides,  they  shall  be  exempt.  Just  how  far  that  will  be 
effective  I  am  quite  doubtful,  and  it  is  something  we  will  have  to 
examine  quite  closely. 

Mr.  Hayes.  The  thing  I  wanted  to  bring  out  was  to  know  what 
his  idea  was. 

Mr.  Hill.  The  time  it  will  take.  I  am  for  these  restrictions,  but 
it  is  the  time  it  will  take. 

Senator  Hollis.  That  is,  if  it  is  constitutional  and  proper  for 
Congress  to  provide  thev  shall  all  be  exempt  from  taxation,  you  are 
for  it? 

Mr.  Hill.  Yes,  sir. 

Senator  Hollis.  But  you  are  not  in  favor  of  it  if  it  will  entail 
great  delay  if  we  exempt  it? 

Mr.  Hill.  Yes,  sir.  I  asked  the  representatives  of  the  Farmers' 
Union  of  North  Carolina,  with  whom  I  was  in  conference,  to  con- 
sider the  matter  of  exempting  land-mortgage  bonds  from  taxation, 
and  with  one  accord  they  opposed  it. 

Senator  Hollis.  What  were  their  grounds  for  that? 

Mr.  Hill.  They  thought  it  was  a  rich  man's  scheme  to  escape 
taxation. 

Senator  Hollis.  That  is,  they  thought  the  lender  was  the  man 
who  paid  the  tax  and  it  did  not  reach  the  borrower? 

Mr.  Hill.  Yes. 

Mr.  Hayes.  The}-  have  the  same  prejudice  in  California. 

Mr.  Hill.  The  next  section  is  section  14,  on  page  25,  the  legal  rate 
of  interest.  Under  the  head  of  "  Dividends  "  it  says.  "  The  dividends 
shall  be  limited  to  the  legal  rate  of  interest  in  the  State  where  such 
banking  corporation  is  situate."  The  legal  rate  of  interest  in  many 
of  our  Eastern  States  is  6  per  cent.  It  ranges  from  6  to  10  per  cent 
in  the  Western  States.  Therefore  your  dividends  in  these  banks  in 
the  Eastern  States  would  be  limited  to  a  lower  rate  than  in  the  West- 
ern States.  It  should  not  be  elastic.  If  this  bill  should  be  adopted, 
there  should  be  some  fixed  amount.  Your  market  for  your  bonds  is 
practically  the  same  in  many  centers.  I  presume  it  is  expected  that 
the  bonds  will  sell  for  4£  per  cent.  Therefore  there  should  be  a  fixed 
rate  of  interest  instead  of  an  uncertain  rate  of  dividends. 

Mr.  Platt.  You  speak  of  section  14? 

Mr.  Hill.  Under  the  heading  of  "  C,  dividends." 

Mr.  Platt.  That  is  section  37  in  the  copy  I  have. 

Senator  Hollis.  It  is  on  page  9  of  the  bill  before  us. 

Mr.  Hill.  Probably  my  numbering  is  a  little  different. 


RUKAI,    CREDITS.  447 

Senator  Hollis.  It  is  a  little  different ;  yes. 

Mr.  Hill.  The  next  subject  is  the  statement  under  the  head  of 
"  Dividends  "  that  the  balance  of  such  net  earnings,  if  any,  shall  be 
distributed  among  the  patrons  of  such  banking  corporation  in  pro- 
portion to  the  amount  of  business  transacted  by  such  banks. 

Senator  Hollis.  It  is  "  with  "  such  banks  here. 

Mr.  Hill.  It  is  "  by  "  such  banks  in  my  copy.  Transaction  with 
such  banks. 

Senator  Hollis.  That  means  the  amount  of  business  which  each 
patron  does.    That  is  the  cooperative  plan  of  business. 

Mr.  Platt.  This  is  all  cooperative. 

Mr.  Hill.  The  whole  provision  is  taken  from  short-time  credit 
banks  and  has  no  bearing,  in  my  mind,  upon  land-mortgage  banks 
at  all;  would  be  impossible  to  carry  out;  would  create  a  tremendous 
bookkeeping,  and  should  be  stricken  from  the  bill.  If  there  should 
be  profits  from  these  banks,  these  cooperative  banks,  they  should  not 
be  divided  like  a  cooperative  store  among  the  patrons,  but  they  should 
be  used  to  build  up  a  reserve  and  to  bring  down  the  rate  of  interest. 
There  can  be  no  such  thing,  in  my  mind,  as  distribution  of  profits 
to  the  farmers  borrowing  money  from  long-time  on  banks.  It  would 
be  ridiculous  in  its  execution. 

The  next  section  in  section  14  is  under  the  subject  of  "  Capital." 
Under  the  act  the  amount  of  capital  and  the  number  of  shares  into 
which  the  bank  is  divided  it  is  provided  that  such  capital  shall  in  no 
case  be  less  than  $10,000 — in  my  opinion  a  most  ridiculous  provision. 
How  can  any  man  who  has  made  any  study  of  the  subject  of  land 
mortgages  conceive  of  a  land-mortgage  bank  doing  business  with 
$10,000  capital,  issuing  bonds,  paying  overhead  charges,  paying  for 
clerical  work,  having  an  agent  to  sell  the  bonds,  bookkeeping.  pay- 
ing  for  a  fiduciary  agent?  It  is  inconceivable,  in  my  mind,  for  so 
small  a  bank. 

Senator  Hollis.  Where  would  you  place  the  limit,  Mr.  Hill  ? 

Mr.  Hill.  The  limit  should  not  be,  under  any  circumstances,  less 
than  $100,000,  and  perhaps  $200,000. 

Senator  Hollis.  Right  there:  You  knoAv  there  is  a  large  number 
of  very  useful  national  banks  doing  business  on  $25,000  capital  ? 

Mr.  Hill.  Yes. 

Senator  Hollis.  Tell  us  why  so  much  larger  capital  is  needed 
for  a  land-mortgage  bank. 

Mr.  Hill.  Because  the  national  banks  with  small  capital  do  not 
have  to  market  bonds.  The  whole  principle  of  land-mortgage  banks 
hinges  around  the  proposition  of  marketing  your  bonds  at  a  low 
rate  of  interest.  If  the  bonds  are  not  marketed  at  a  low  rate  of  in- 
terest you  can  not  bring  any  5  per  cent  or  4^  per  cent  money  to  the 
farmers.  It  seems  to  me  that  any  bill  Congress  should  enact  ought 
to  aim  to  bring  money  to  the  farmer's  door  at  at  least  5  per  cent. 
How  can  a  little  bank  of  $10,000  capital,  Avith  overhead  charges  of 
1^  per  cent,  perhaps,  with  clerk  hire,  pay  for  the  issuing  and  market- 
ing of  bonds? 

Mr.  Bulkley.  Is  not  that  very  thing  done  in  Europe  by  banks 
without  any  capital  stock  at  all? 

Mr.  Hill.  No,  sir.  I  shall  show  you  by  the  evidence  I  will  come  to 
that  the  bond-issuing  institutions  in  Europe  are  tremendous  institu- 
tions.   There  is  no  authority  whatever  for  this  trifling  $10,000  bank 


448  RURAL   CREDITS. 

It  is  one  of  the  worst  provisions  I  have  ever  seen.  I  can  not  con- 
ceive how  any  man  could  think  of  a  $10,000  hank  who  has  studied 
conditions  in  Europe. 

Senator  Hollis.  Will  you  just  amplify  that?  You  mean  they 
have  to  have  so  much  money  tied  up  at  any  one  time  in  the  loans 
they  have  made  before  they  can  convert  those  loans  into  bonds  and 
sell  the  bonds,  and  you  mean  that  that  takes  a  large  amount  of 
capital? 

Mr.  Hill.  Yes,  sir.  I  also  mean  that  the  small  bank  is  at  a  great 
disadvantage  in  selling  its  bonds  in  comparison  with  the  large  banks. 

Senator  Hollis.  You  mean  on  account  of  its  lack  of  credit? 

Mr.  Hill.  Yes,  sir.  It  also  means  that  where  large  banks  are 
organized  they  will  be  able  to  sell  bonds  at  a  lower  rate  of  interest 
and  therefore  be  able  to  sell  money  to  the  farmers  at  a  lower  rate  of 
interest.  Therefore  the  small  bank  will  be  crowded  out  of  competi- 
tion in  a  few  years. 

Mr.  Bulk  ley.  That  sounds  all  right,  theoretically.  I  wish  you 
would  throw  the  light  of  experience  on  that  as  much  as  you  can,  and 
tell  us  what  are  the  smallest  banks  in  Europe  that  do  issue  bonds. 

Mr.  Hill.  Yes;  I  will  in  a  minute.  I  am  trying  to  base  my  whole 
speech  on  the  evidence  I  have  here,  and  I  will  give  you  the  evidence 
as  it  is. 

To  secure  the  blessings  of  small  loans  to  tho  farmers,  it  is  not  necessary  to 
have  small  banks. 

The  experience  of  European  countries  is  just  to  the  contrary.  On 
page  391  of  the  evidence  of  the  American  and  the  United  States 
commission,  under  the  head  of  "  German  mortgage  banks,"  is  the 
following  statement : 

Moreover,  these  mortgage  banks  are  allowed  to  issue  mortgage  bonds  but  only 
for  a  sum  not  exceeding  15  times  the  amount  of  the  paid  up  capital  and  the 
reserve  funds  which  shall  be  created  solely  for  the  purpose  of  covering  deficits 
for  the  security  of  the  holders  of  such  bonds.  In  Germany  we  now  have  40 
mortgage  banks,  which  have  together  loaned  out  on  mortgages  the  amount  of  10,- 
000,000,000  marks,  but  only  6  per  cent  of  this  large  sum  is  loaned  out  on  rural 
property — the  great  majority  of  mortgages  are  given  on  land  in  towns.  Two 
great  banks,  the  Central  Land  Credit  Joint-Stock  Co.  and  the  Bavarian  Mort- 
gage Bank,  hold  together  90  per  cent  of  all  those  mortgages  on  agricultural 
property,  so  that  all  the  other  joint-stock  mortgage  banks  have  no  great  im- 
portance for  agricultural   purposes. 

Then  it  comes  to  this  point,  in  view  of  all  the  experience  in  Ger- 
many joint-stock  company  banks,  with  the  exception  of  two,  do  not 
loan  money  in  any  appreciable,  quantities  to  farmers.  Of  those  two 
banks,  one  is  the  Great  Central  Bank  at  Berlin,  with  something  over 
$10,000,000  capital,  with  great  State  privileges,  with  a  different  plan 
of  valuation  from  other  banks  granted  to  it  by  the  State.  When  all 
of  the  other  banks  in  Germany  of  the  landschaften  kind  were  com- 
pelled to  value  on  a  basis  of  the  returns  from  the  land — that  is,  the 
valuation  should  not  be  more  than  20  times  or  30  times  the  income 
from  the  land — this  one  great  institution  was  granted  the  great 
privilege  of  lending  money  on  its  own  valuations.  It  also  had  a 
royal  commissioner  m  its  nflices  at  all  time-,  and  many  other  special 
privileges  from  the  Government. 

That  is  tho  kind  el'  a  joint-stock  hank  that  loans  money  to  formers 
in  Germany. 


BUEAL  CREDITS.  449 

In  other  countries  there  is  no  such  thing  as  a  joint-stock  company 
bank  loaning  money  to  farmers  in  any  appreciable  amount. 

Senator  Hollis.  Does  this  particular  German  bank  do  a  com- 
mercial business  also? 

Mr.  Hill.  I  will  read  what  it  does.  This  particular  bank  under- 
writes bonds  of  municipalities.  It  is  only  allowed  to  take  deposits 
up  to  one-half  of  its  capital  stock.     Cahill,  on  page  37,  says : 

With  the  object  of  furthering  rural  mortgage  credit  through  this  bank,  the 
State  accorded  to  it  special  privileges  not  possessed  by  the  other  Prussian  joint- 
stock  mortgage  banks — a  royal  commissioner  and  valuation  matters.  The  pos- 
session of  the  power  of  making  independent  valuations  was  also  of  a  very  great 
material  advantage. 

It  does  not  do  a  general  banking  business.  I  will  come  to  that  a 
little  later;  it  is  another  part  of  my  speech. 

I  hope  that  I  have  made  myself  perfectly  clear  that  relief  to 
farmers  in  Germany  does  not  come  from  joint-stock  company  banks 
owned  by  money  lenders  and  operated  for  profit  and  not  operated 
upon  any  altruistic  principles.  Why,  therefore,  should  the  members 
of  any  commission  pick  as  its  model  this  giant  stock  bank,  with  its 
millions  of  capital,  with  its  special  privileges,  with  its  special  officers 
all  over  Germany?  This  bank  operates  all  over  German}^.  It  is  a 
great  central  bank  operating  all  over  Germany,  and  when  it  was 
first  proposed  to  the  German  parliament  it  was  voted  clown  because 
of  its  tremendous  powers.  Yet  the  gentlemen  take  this  bank  as 
their  model  and  hand  to  the  American  farmers  a  bill  proposing  relief 
on  a  joint-stock  profit-making  plan. 

Mr.  Hayes.  You  do  not  count  the  Credit  Foncier  in  France,  a 
joint-stock  institutions,  then? 

Mr.  Hill.  In  a  measure;  but  it  is  so  surrounded  by  monopolistic 
and  lottery  and  other  State  privileges  and  grants  of  money  from  the 
State  that,  in  my  judgment,  the  relief  that  the  Credit  Foncier  grants 
to  the  farmers  should  be  eliminated  from  discussion  before  this  com- 
mittee, as  it  would  be  unfair  to  the  whole  proposition  of  land-mort- 
gage banks. 

Mr.  Hates.  As  a  matter  of  fact,  does  the  Government  furnish 
much  money? 

Mr.  Hill.  It  organized  the  Credit  Foncier,  and  my  recollection 
is  that  it  loaned  them  about  $2,000,000  to  start  with. 

Mr.  Hayes.  That  is  all,  I  guess. 

Mr.  Hill.  I  am  coming  to  a  plan  somewhat  similar  to  that,  but 
Americanized  and  cooperative.     (Evidence,  p.  23.) 

Mr.  Bulkley.  That  is  page  23  of  Senate  Document  214,  is  it? 

Mr.  Hill.  No;  page  23  of  the  agricultural  cooperative  evidence, 
taken  by  the  commission. 

Under  the  Italian's  system,  such  loans  were  generally  made  by  public  utility  cor- 
porations, such  as  savings  banks,  which  are  institutions  witbout  shareholders 
and  consequently  with  no  distribution  of  dividends.  *  *  *  The  surplus 
is  added  to  the  reserve  fund  and  guarantees  all  the  operations  of  the  banks. 
Tbese  large  reserve  funds  are  the  strongholds  of  the  credit  of  the  banks. 
******* 

The  Milan  Savings  Bank  charges  4.SS  per  cent  on  its  mortgage  loans,  inclu- 
sive of  everything.  It  can  afford  to  make  loans  at  this  low  rate  of  interest 
because  it  is  a  public  utility  corporation  without  shareholders  and  therefore 
does  not  distribute  dividends.  The  charge  made  by  other  banks  issuing  such 
bonds  is  5.77  per  cent. 

37031—14 29 


450  RURAL   CREDITS. 

Which  verifies  my  point  made  above. 
Page  104,  in  regard  to  Hungary: 

Q.  Have  all  the  banks  of  Hungary  been  forced  to  place  loans  on  real  estate, 
on  nearly  the  same  basis  as  your  Institution  and  those  similar  to  it? — A.  They 
are  forced  to  grant  money  practically  on  the  same  conditions,  but  a  little 
dearer.  Only  the  provincial  savings  banks  give  a  little  bigger  loan,  compen- 
sated for  by  the  higher  rate  of  interest. 

Mr.  Bulkley.  What  is  referred  to  there  "by  your  institution"? 
Mr.  Hill.  The  Hungary  small-holding  banks. 

This  institution  and  the  provincial  savings  bank  are  distinctly  antagonistic 
by  reason  of  the  fact  that  in  former  times,  before  the  institution  of  cooperative 
societies,  the  banks  were  able  to  lend  money  to  people  in  want  of  it  at  an 
enormous  rate  of  interest. 

Mr.  Platt.  Does  that  mean  the  savings  banks  ? 

Mr.  Hill.  The  savings  banks.  In  Hungary  the  savings  banks  are 
all  joint-stock  companies. 

Mr.  Platt.  Not  mutual  ? 

Mr.  Hill.  Not  mutual.  When  there  was  a  financial  crisis  the 
central  organization  of  the  country  savings  banks  was  obliged  to 
announce  at  the  general  meeting  that  52  institutions  had  to  be  wound 
up,  but  not  a  single  cooperative  society  was  wound  up  for  the  want 
of  money. 

Talk  about  stability  and  permanency,  why  these  little  $10,000 
institutions  would  be  like  the  Hungarian  country  savings  banks  if 
they  undertook  to  lend  money  on  long-time  mortgages. 

Evidence,  page  408,  under  the  "  Heading  of  Germany  " — the  Prus- 
sian land-credit  bank  operates  over  the  whole  of  Germany:  it  pays 
dividends  of  9-|  per  cent — 

Q.  Do  the  bonds  you  sell  have  any  date  of  maturity? — A.  No  fixed  date. 

This  great  central  bank,  with  its  tremendous  capital,  issues  bonds 
that  have  no  fixed  date  of  maturity — a  scheme  entirely  different 
from  what  has  been  evolved  here. 

Air.  Bulkley.  Which  bank  is  that? 

Air.  Hill.  That  is  the  great  joint-stock-company  bank  of  Germany, 
lending  money  to  farmers. 

Senator  Hollis.  I  wish  you  would  explain  the  application  of  that 
point,  that  they  do  not  have  any  fixed  time  of  maturity  for  the  bonds  ? 

Mr.  Hill.  Well,  that  may  or  ma}7  not  be  an  advantage,  as  the 
initial  money  of  the  institution  is  loaned  out  to  farmers  on  mortgages, 
and  collateral-trust  bonds  have  to  be  issued  against  these  mortgages 
strictly  in  proportion  to  the  amount  outstanding.  Hence  the  date 
of  maturity  of  the  collateral-trust  bond  is  of  no  particular  impor- 
tance, they  being  constantly  recalled.  It  is  an  endless-chain  propo- 
sition. 

Mr.  Bulkley.  Do  they  recall  them  in  order  ? 

Air.  Hill.  I  think  not,  although  I  am  not  sure. 

Mr.  Bulkley.  Is  it  by  lot? 

AIi-.  Hill.  By  lot,  they  are  generally  recalled.  The  actual  work- 
ing basis,  however,  is  that  the  bonds  are  not  issued  until  absolutely 
necessary.  If  you  have  funds  in  hand  you  use  those  funds  to  lend 
to  the  farmers  and  do  not  issue  bonds  unless  necessary. 

Senator  Hollis.  The  point  is  that  it  must  be  to  the  advantage  of 
any  institution  not  to  be  compelled  to  pay  money  at  any  particular 
date,  but  to  use  its  own  time. 


RURAL   CREDITS.  451 

Mr.  Hill.  Yes. 

Senator  Hollis.  That  is  an  advantage,  of  course. 

Mr.  Hill.  Yes.  Mr.  Moss,  in  his  statement  on  page  19,  says,  "We 
wish  to  afford  every  possible  means  of  competition  among  them- 
selves." 

I  am  unable  to  grasp  what  he  means  by  that  statement.  Two 
small  lan^ -mortgage  banks  in  the  same  community  competing  with 
themselves,  owned  by  money  lenders,  competing  to  lower  the  rates 
of  interest  to  the  farmers  is,  in  my  mind,  inconceivable.  Has  anyone 
in  the  whole  history  of  the  American  people  ever  seen  money  sharks 
and  money  lenders  competing  with  each  other  to  lend  money  to  the 
farmers  at  a  low  rate  of  interest? 

Mr.  Platt.  Mr.  Hill,  right  there,  if  I  may  interrupt  you :  We  had 
a  gentlemen  testify  here  a  day  or  two  ago  there  was  danger  of  these 
banks  being  organized  by  money  borrowers  who  would  appraise  their 
own  property.  That  was  one  of  his  chief  objections.  What  would 
you  say  to  that? 

Mr.  Hill.  I  would  say  that  the  organization  of  a  large  joint-stock 
company  bank,  somewhat  like  the  Prussian  Central  Bank,  would 
be  a  tremendously  profitable  institution.  All  of  these  concerns  make 
money  rapidly.  Even  where  the  difference  between  the  interest 
rate  of  the  trust  bond  is  only  one-quarter  of  1  per  cent  below  the 
interest  rate  of  the  money  loaned  to  the  farmers,  they  make  money. 
The  evidence  here  shows  that  these  institutions  make  a  great  deal 
of  money  with  a  reasonable  capital.  They  make,  perhaps,  $100,000 
per  year.  I  have  a  great  deal  of  information  here,  tabulated,  which, 
perhaps,  is  unnecessary  to  take  the  time  to  develop,  but  they  are 
tremendously  profitable  institutions.  The  incentive,  if  any  man 
wanted  to  go  into  this  proposition,  would  be  to  form  large  banks, 
not  small  banks.  Any  banker,  in  my  opinion,  would  not  be  so 
foolish  as  to  organize  a  small  bank.  If  he  did,  he  would  lose  his 
money. 

Mr.  Platt.  But  might  not  a  group  of  well-to-do  farmers  organize 
a  bank  themselves?  They  could  easily  raise  $10,000  in  some  parts 
of  the  country  ? 

Mr.  Hill.  My  reply  to  that  is  this :  The  whole  history  of  Europe 
shows  that  the  joint-stock  idea  is  absolutely  repugnant  to  the  in- 
terests of  farmers.  You  must  inject  into  the  banks  the  altruistic 
idea,  the  idea  of  brotherly  love — of  standing  shoulder  to  shoulder — in 
order  to  make  the  institution  successful.  That  is  the  story  of  Europe, 
and  I  deny  that  there  is  any  substantial  authority  for  joint-stock 
companies  offering  relief  to  farmers  in  Europe.  Mr.  Wolf  and  other 
eminent  authorities  will  sustain  my  point. 

Mr.  Stone.  Since  you  think  it  is  inconceivable  that  banks  having  a 
capital  stock  of  $10,000  will  be  organized,  do  you  think  that  larger 
banks  will  be  organized?    They  are  not  prohibited  under  the  bill. 

Mr.  Hill.  It  is  quite  possible  that  some  large  banks  would  be 
organized.  That  is  only  an  opinion.  In  my  judgment  they  should 
not  be  encouraged  to  organize.  We  have  enough  banks  in  this 
country  exploiting  farmers;  we  have  enough  money  lenders  in  this 
country  now.  We  now  have  one  bank  for  every  4.000  people  in  this 
country,  and  that  is  the  story  of  Germany  with  all  her  great  density 
of  population.    If  we  are  going  to  have  any  credit  banks,  let  us  put 


452  EUEAL  CREDITS. 

the  strong  arm  of  the  State  behind  them,  so  that  the  rate  of  interest 
will  be  brought  down  to  the  farmers  at  5  per  cent  or  perhaps  4£. 

Senator  Hollis.  Mr.  Hill,  it  has  been  suggested  that  if  these  small 
banks  were  formed  locally,  and  then  were  combined  into  an  asso- 
ciation,  say,  an  association  for  each  State,  that  that  State  association 
might  furnish  the  investigation  of  the  security  of  the  loan,  issuing 
the  bonds,  and  so  forth.    Have  you  thought  of  that? 

Mr.  Hill.  Yes,  sir.  I  have  thought  of  that  a  great  deal.  It  means 
centralized  power  of  the  money  lender,  and  I  am  fighting  that,  and 
I  propose  to  fight  it  as  long  as  I  live.  What  you  want  is  an  institu- 
tion controlled  in  part  by  farmers  themselves.  No  other  institution 
will  bring  money  down  to  the  farmer  and  bring  it  to  his  door  at 
a  reasonable  rate.  Let  your  institution  be  controlled  by  the  United 
States  Government,  by  the  State  government,  and  inspected  by  them, 
and  partly  controlled  by  the  farmers,  and  you  have  got  a  propo- 
sition that  brings  money  to  the  farmer.  There  is  no  reason  whatever 
in  my  opinion  for  injecting  the  money  lender  into  it.  There  is  plenty 
of  room  for  banks.  I  am  a  banker  myself,  and  I  am  proud  of  it, 
and  I  want  to  say  here,  as  I  said  in  the  American  commission,  if  this 
question  of  cooperation  interferes  with  my  business,  then  by  busi- 
ness is  wrong,  and  it  must  come  down.  This  proposition  of  bringing 
money  to  the  farmers  must  be  settled  by  the  Government  and  not  by 
the  money  lenders. 

Senator  Hollis.  The  dangers  you  fear  would  be  very  largely 
minimized  if  these  State  associations  of  banks  incorporated  under 
Federal  law  could  be  put  under  the  charge  of  the  Federal  Reserve 
Board  ?     That  has  been  suggested. 

Mr.  Hill.  Well.  I  will  try  to  give  a  rough  outline  of  a  plan  I 
prefer. 

Senator  Hollis.  Take  that  in  your  own  time;  I  only  make  these 
as  suggestions. 

Mr.  Hill.  In  reply  to  Mr.  Moss's  statement  I  would  like  to  ask 
if  banks  and  banking  corporations  compete  simply  because  they  are 
given  the  privilege?  I  believe  it  is  the  experience  in  this  country 
that  our  Government  is  eternally  trying  to  make  them  compete  under 
the  provisions  of  the  Sherman  antitrust  law.  You  must  be  able  to 
reach  the  great  money  centers  to  sell  these  bonds.  I  have  great  re- 
spect for  the  opinions  of  the  gentlemen  that  come  from  other  States. 
Necessarily  my  opinions  are  somewhat  shaded  by  my  surroundings. 
What  we  want  in  the  great  South  is  to  bring  us  close  to  the  money 
centers  through  the  aid  and  assistance  and  the  brains  of  the  Gov- 
ernment. I  can  borrow  money  in  New  York  at  4J  per  cent  from  year 
to  year,  and  I  do  borrow  money  in  New  York  at  that  rate  now — 
something  like  $50,000.  My  security  is  no  better  than  the  improved, 
dependable  land  of  the  farmers  of  North  Carolina. 

Now.  the  whole  proposition  in  my  opinion  before  the  committee  is 
to  bring  the  security  of  the  farmer  to  the  attention  of  the  money 
centers  where  capital  is  cheap.     Capital  is  high  in  North  Carolina. 

The  report  of  the  committee  to  the  governor,  composed  of  repre- 
sentatives of  the  Farmers'  Union  and  other  gentlemen,  and  myself, 
shows  that  money  in  North  Carolina  loaned  to  the  farmers  ranges 
from  8  to  20  per  cent;  and  I  was  astounded  at  your  Government 
expert,  Mr.  Thomson's  statement,  that  money  in  North  Carolina  was 
being  loaned  to  the  farmers  for  6  per  cent.     With  all  of  the  ability 


RURAL  CREDITS.  453 

of  that  gentleman  and  the  aid  of  the  Government,  it  seems  that  the 
money  lenders  constantly  and  eternally  deceive  this  Government 
about  the  prevailing  rates  of  interest. 

Mr.  Stone.  Do  you  get  the  money  in  New  York  at  4|  per  cent  from 
money  lenders? 

Mr.  Hill.  Yes,  sir ;  from  banks  or  trust  companies. 

Mr.  Stone.  From  money  lenders? 

Mr.  Hill.  Yes,  sir. 

Mr.  Stone.  Why  is  it  that  you  can  get  money  from  money  lenders 
at  4^  per  cent  whereas  farmers  can  not  get  it  from  money  lenders  at 
less  than  8  ?     What  is  the  difference  ? 

Mr.  Hill.  The  farmer  is  not  organized.  I  have  my  business  or- 
ganized, and  I  can  reach  the  New  York  trust  companies — the  invest- 
ing public  in  the  big  cities.  The  farmer  can  not  reach  the  investing 
public. 

Senator  Hollis.  That  is,  the  farmer  has  to  reach  them  through  in- 
termediaries ? 

Mr.  Hill.  Yes,  sir;  he  has  to  reach  them  through  intermediaries. 
I  know  of  banks  that  borrow  money  in  New  York  at  5  per  cent  and 
are  loaning  it  to  our  people  at  from  8  to  12  per  cent.  I  tell  you,  what 
I  have  said  on  the  public  platform  in  North  Carolina,  there  is  more 
usuary  in  one  State  in  the  South  than  in  any  country  of  Europe. 

Mr.  Platt.  Just  why?  When  you  borrow  money  from  banks  at 
4-J  per  cent  you  put  up  a  security  that  can  be  marketed  instantly,  do 
you  not  ? 

Mr.  Hill.  Yes,  sir. 

Mr.  Platt.  Can  the  farmers  do  that  ? 

Mr.  Hill.  Yes,  sir. 

Mr.  Platt.  What  kind  of  security  ? 

Mr.  Hill.  The  land-mortgage  trust  bond. 

Mr.  Platt.  That  is  the  whole  thing,  is  it  not,  that  you  give  them 
a  security  which  can  be  marketed  readily  ? 

Mr.  Hill.  It  must  be  marketable.  That  is  the  point  I  was  leading 
up  to.  And  it  must  have  a  tremendous  backing,  or  it  will  be 
"  hawked  around  "  at  a  great  premium. 

Mr.  Bulkley.  AVhat  is  the  legal  rate  of  interest  in  North  Carolina? 

Mr.  Hill.  The  legal  rate  is  6  per  cent,  and  it  is  a  misdemeanor  to 
charge  more. 

Mr.  Bulkley.  It  is  a  misdemeanor  to  charge  more  than  6  per 
cent? 

Mr.  Hill.  Yes,  sir. 

Mr.  Bulkley.  And  you  say  loans  are  not  made  at  less  than  8  per 
cent? 

Mr.  Hill.  The  report  says  so. 

Senator  Hollis.  The  point  is,  the  law  is  not  enforced? 

Mr.  Hill.  The  law  is  not  enforced.  Not  only  is  the  law  in  many 
of  the  Southern  States  not  enforced,  but  the  money  lenders  are 
banded  together  to  prevent  the  enforcement  of  the  law.  A  distin- 
guished citizen  of  one  of  the  Southern  States  said  to  me  that  no  man 
would  dare  repudiate  an  interest  charge  or  a  commission  charge. 

Mr.  Woods.  Mr.  Hill,  you  spoke  of  the  interest  rate  being  from  8 
to  20  per  cent  ? 

Mr.  Hill.  Yes,  sir. 


454  RUKAL   CREDITS. 

Mr.  Woods.  Do  you  ever  pay  as  high  as  20  per  cent  on  first  mort- 
gages, or  is  that  personal  security? 

.Mr.  1  Till.  It  comes  this  way:  On  a  .small  loan  which  came  under 
my  personal  observation  a  man  wanted  to  borrow  $300  on  a  piece 
of  property  worth  at  least  $1,200.  He  came-to  a  certain  citizen  who 
is  engaged  somewhat  in  that  business.  This  citizen  said  "  money  is 
tight  :  it  may  be  I  can  find  it  for  you  through  some  of  my  clients." 
He  immediately  called  up  a  bank  and  got  permission  to  loan  $300 
at  6  per  cent.  He  charged  the  man  $30  for  getting  the  money ;  $5  for 
fixing  the  title.  At  the  end  of  12  months  he  wrote  him,  "  Unless 
you  pay  that  bank  its  money,  they  can  sell  you  out.  Call  at  my  office 
and  maybe  I  can  fix  it  for  you."  He  thereupon  called  up  the  bank 
to  renew  the  loan,  which  wTas  done  without  charge. 

Senator  Hollis.  It  was  a  one-year  loan  ? 

Mr.  Hill.  It  was  a  one-year  loan.  Renewal  fees  in  respectable 
banks  are  not  charged.  He  charged  the  man  $10  for  renewing  his 
loan  and  never  had  a  cent  of  capital  invested. 

Now,  I  will  tell  you  that  is  not  a  very  extraordinary  case. 

Mr.  Woods.  Was  that  on  town  or  farm  property  ? 

Mr.  Hill.  That  was  on  town  property.  Farm  property  is  worse 
than  that.  Perhaps  I  might  read  just  a  few  words  from  the  report 
to  the  governor  of  North  Carolina  on  that  subject. 

Senator  Hollis.  Made  by  yourself? 

Mr.  Hill.  Made  by  the  committee : 

It  is  clear  that  there  is  something  radically  wrong  with  the  facilities  for 
borrowing  money  on  farm  lands  in  North  Carolina.  From  general  inquiry  in 
many  parts  of  the  State  the  fact  is  jevealed  that  few  banks  in  North  Carolina 
lend  on  farm  land,  and  that  the  average  farmer  desiring  to  borrow  money  on 
his  land  is  compelled  to  deal  with  the  land-loan  sharks,  and  is  compelled  to 
pay  from  G  to  20  per  cent  on  money  borrowed.  As  a  general  rule  he  is  sub- 
jected to  many  kinds  of  extortion,  usury,  and  exploitation,  and.  naturally,  the 
average  farmer  of  North  Carolina  is  very  much  dissatisfied  with  the  present 
land-loan  shark  business  and  avoids  borrowing  money  whenever  possible.  Fre- 
quently the  land-loan  sharks  prey  upon  the  necessities  of  the  distressed  farmer, 
and  regardless  of  law  against  usury,  without  conscience,  and  without  heart 
gets  all  for  the  money  loaned  that  his  victim  will  pay.  Another  curious  fact 
about  this  business  in  North  Carolina  is  that  the  more  remote  the  farmer  lives 
from  the  money  centers,  the  greater  the  usury,  the  higher  the  commission  and 
renewal  fees,  and  the  inore  exacting  the  oppression  and  the  extortion. 

Mr.  Platt.  That  is  not  curious,  is  it?     That  is  natural,  isn't  it? 

Mr.  Hill.  Well,  farm  land  in  one  section  is  as  good  as  farm  land 
in  another  if  it  is  dependable. 

Mr.  Platt.  No;  it  may  not  be;  because  of  the  distance  from  the 
market  making  a  difference. 

Mr.  Hill.  I  will  say,  a  farmer  who  has  land  in  value  worth 
810,000,  and  only  wants  to  borrow  $1,000,  even  though  it  is  a  long 
distance  from  the  railroad,  his  security  is  as  good  as  anybody  else's. 
Your  point  has  to  do  with  place? 

Mr.  Platt.  Yes. 

Senator  Hollis.  You  know  there  are  two  theories  about  the  rate 
of  interest.  One  is  that  the  interest  rates  are  high  or  low  in  pro- 
portion to  the  amount  of  capital  that  is  available  for  lending.  The 
other  is  that  interest  rates  are  high  in  new  communities  where  enter- 
prises are  bringing  large  returns  and  where  the  use  of  capital  is  more 
profitable  than  in  older  communities  where  industry  does  not  bring 
large  returns. 


RURAL   CREDITS.  455 

I  wish  you  would  apply  those  two  theories  to  North  Carolina  and 
give  us  your  solution  of  it. 

Mr.  Hill.  I  have  for  10  years  been  engaged  in  loaning  money  on 
land — city  land  and  rural  land — at  straight  6  per  cent  basis.  It  has 
been  entirely  profitable.  The  savings  bank  organized  for  that  pur- 
pose increased  its  deposits  about  $100,000  last  year.  I  happened  to 
be  manager  of  that  bank.  That  bank  discharges  anybody,  and  every 
institution  with  which  I  am  connected  discharges  promptly  anybody 
who  gets  a  commission  on  a  loan  or  charges  usury.  Our  business  is 
profitable.  There  is  a  great  deal  of  profit  in  loaning  money  at  6 
per  cent. 

My  opinion  is  that  when  you  come  to  discuss  farm-land  mortgages 
it  has  nothing  to  do  with  the  commercial  rate.  The  story  of  Europe 
is  that  the  farmer,  on  his  good  security,  gets  his  money  from  1  to  2 
per  cent  under  the  commercial  rate.  Money  is  worth  what  it  will 
bring  in  commerce.  But  we  are  talking  about  a  different  kind  of 
money.  We  are  talking  about  stored-up  capital  that  is  seeking  a 
safe,  sure  investment.  Hence,  in  discussing  the  farm-land  proposi- 
tion, all  you  need  to  do  is  to  connect  the  farmer  with  the  man  who 
wants  the  sound  investment.  It  has  very  little  bearing  upon  the 
interest  rate. 

Senator  Hollis.  Your  idea  is  that  individual  farmers  are  charged 
high  rates  in  North  Carolina  on  their  land  loans  because  the  capital 
is  not  readily  available  to  them? 

Mr.  Hill.  Yes,  sir — I  beg  your  pardon.  It  is  not  because  capital 
is  not  readily  available.  Capital  is  readily  available  in  North  Caro- 
lina, but  it  wants  its  pound  of  flesh. 

Senator  Hollis.  It  is  not  readily  available  to  the  indivdiuals  at 
reasonable  rates — to  a  great  many  individuals? 

Mr.  Hill.  Yes. 

Senator  Hollis.  In  my  community  I  am  connected  with  a  very 
large  savings  bank,  a  mutual  savings  bank,  and  the  depositors  get  all 
of  the  profits.  A  farmer  comes  in  and  wants  to  borrow  money.  Be- 
fore the  bank  can  loan  on  that  security  the  title  has  to  be  examined 
and  the  mortgage  has  to  be  drawn.  Our  bank  limits  the  fee  for 
examination  of  title  and  making  the  papers,  I  think,  to  $3.  The 
result  is  that  my  firm  does  not  like  to  do  the  work  because  we  could 
make  more  money  in  other  law  work.  That  is,  it  is  a  very  small 
fee  for  the  amount  of  work  that  may  be  required. 

Now,  the  way  your  usury  law  is  avoided,  apparently  is  by  making 
excessive  charges  for  examining  titles  and  drawing  papers  and  for 
services  in  getting  the  loan,  which  is  commission.  That  is  the  situa- 
tion, isn't  it? 

Mr.  Hill.  That  is  the  system. 

Mr.  Platt.  Does  your  savings  bank  make  farm  loans? 

Mr.  Hill.  Yes,  sir ;  a  great  many. 

Mr.  Platt.  I  do  not  see  them  shown  here.  Your  statement  says 
"  Loans  and  discounts,"  and  below  you  say  "All  other  stocks,  bonds, 
and  mortgages"  only  $5,000.  It  looks  like  a  commercial  statement 
only. 

Mr.  Hill.  That  is  a  formal  statement.  Nearly  all  loans  are  on 
real  estate.  I  did  not  want  to  advertise  that  particular  bank  because 
I  happen  to  be  connected  with  it;  but  that  bank  loans  money  to 
farmers  at  6  per  cent.     It  fights  the  money  sharks.     It  has  brought 


45  6  RURAL  CREDITS. 

money  down  in  that  section  to  6  per  cent,  and  it  guarantees  to  loan 
all  the  money  to  farmers  in  its  county  a.t  6  per  cent;  and  it  will  dis- 
charge anybody  that  charges  above  that.  It  has  over  $500,000  loaned 
on  real  estate,  and  a  considerable  part  of  it  is  on  farm-land  loans. 

Mr.  Platt.  Do  you  carry  that  under  the  heading  of  "  Loans  and 
discounts  "  ? 

Mr.  Hill.  Yes,  sir. 

Mr.  Bulkley.  Is  it  your  statement,  Mr.  Hill,  that  those  who  loan 
money  at  rates  higher  than  the  statutory  rate  evade  the  statutes  by 
these  indirect  methods? 

Mr.  Hill.  Yes,  sir. 

Mr.  Bulkley.  But  they  do  not  directly  violate  the  statute.  Is  that 
the  case? 

Mr.  Hill.  Yes,  sir.  They  violate  the  statutes  directly  and  indi- 
rectly, and  in  ever}'  other  way  imaginable. 

Senator  Hollis.  Have  you  ever  known  of  the  usury  law  being 
enforced? 

Mr.  Hill.  Very  rarely. 

Senator  Hollis.  It  is  winked  at? 

Mr.  Hill.  Yes ;  but  not  by  the  courts. 

Mr.  Bulkley.  Does  that  obtain  generally  in  North  Carolina  ? 

Mr.  Hill.  It  is  charged  in  the  high  places  as  well  as  the  low  places, 
and,  judging  by  my  own  observation,  there  was  nothing  unusual  about 
the  Divine  One  overturning  the  money  tables  when  he  walked  into 
the  temple. 

Mr.  Stone.  Why  is  it,  if  you  offer  to  loan  at  6  per  cent  to  all  the 
farmers  of  that  county,  that  the  farmers  undertake  to  get  loans  at  a 
higher  rate?  I  should  think  that  they  would  come  to  you  for  the  6 
per  cent. 

Mr.  Hill.  This  bank  was  organized  eight  years  ago  with  a  phil- 
anthropic purpose  of  building  homes  for  poor  people,  of  bringing 
money  to  the  door  of  the  poor  man  at  6  per  cent.  We  built  homes  in 
the  towns  first.  Last  January  a  year  ago  our  business  had  grown  so 
strong  we  found  that  we  could  reach  out  and  help  the  farmer  also, 
and  we  commenced  to  do  it.  Now  our  loans  are  coming  in,  and  in  the 
particular  community  in  which  I  live  there  is  not  any  further  need 
for  a  short-time  land-mortgage  bank. 

Mr.  Stone.  Has  usury  disappeared  among  the  farmers  of  your 
county  ? 

Mr.  Hill.  To  a  certain  extent.  All  of  the  best  loans  come  to  our 
bank  in  this  county,  in  so  far  as  I  am  able  to  observe. 

Mr.  Stone.  All  of  the  best  loans  come  to  your  bank  ? 

Mr.  Hill.  All  of  the  best  loans  come  to  our  bank  and  all  the  second 
rate  go  to  other  people. 

Mr.  Stone.  Is  it  true,  then,  that  usury  exists  only  where  the  loans 
are  not  classified  as  the  best  loans? 

Mr.  Hill.  In  our  particular  county.  I  want  to  say  this  particular 
bank  with  which  I  am  connected  is,  I  believe,  the  only  bank  in  that 
section  that  loans  money  on  such  a  basis. 

Mr.  Platt.  You  do  not  loan  money  except  on  select  risk.-,  ap- 
parently? 

Mr.  Hill.  No  :  and  nobody  else  loans  money  except  on  select  risks. 
It  is  a  wrong  thing,  in  my  mind,  to  bring  to  the  American  farmer — 
to  inject  into  the  minds  of  the  American  farmer  the  idea  that  every 


RURAL   CREDITS.  457 

fellow — good,  bad,  and  indifferent — can  get  money  at  a  low  rate  of 
interest. 

Mr.  Stone.  High  rates  and  poor  security  go  together,  then  ? 

Mr.  Hill.  Yes,  sir. 

Mr.  Platt.  Then  there  is  a  justification  for  high  rates,  and  if  a 
man  wants  to  borrow  money  on  poor  security  he  must  pay  for  the 
risk  ? 

Mr.  Hayes.  Or  if  he  has  not  credit. 

Mr.  Hill.  If  he  has  not  credit  he  should  get  a  short-time  loan  in  a 
different  direction.  The  land-mortgage  business,  in  my  opinion,  can 
not  take  up  the  unsafe  loan. 

Mr.  Platt.  Would  you  prevent  the  man  who  has  not  got  the  credit 
from  borrowing  at  a  high  rate  if  wants  to — at  8  per  cent,  10  per  cent, 
or  whatever  he  wants  to  pay  ? 

Mr.  Hill.  No,  sir.  I  should  give  him  short-time  credit,  which  is 
an  entirely  different  proposition.  I  have  very  distinct  ideas  on  that 
which  I  would  prefer  to  go  into  later.  It  is  another  branch  of  this 
subject.  It  is  reached  through  the  Morris  plan,  which  is  an  altruistic 
plan,  and  other  plans.  By  injecting  altruism  into  it,  by  making  it 
your  busness  to  loan  money,  you  can  practcally  reach  every  man, 
good,  bad,  and  indifferent;  and  you  once  shut  out  the  altruistic  idea, 
and  you  have  the  money-shark  idea  injected  into  it. 

Senator  Hollis.  I  wish  you  would  tell  us  just  what  form  of  man 
the  money  shark  is.  Does  he  work  as  an  individual  or  as  a  corpora- 
tion ?    What  form  does  he  take  in  North  Carolina  ? 

Mr.  Hill.  In  some  cases  he  is  a  movable  quantity,  and  comes  from 
Chicago  one  month,  from  New  York  another  month,  and  from  Rich- 
mond another.  As  soon  as  the  authorities  get  after  him  he  moves 
and  somebody  else  takes  his  place,  if  it  is  the  small,  short-term 
credit  money  shark.  The  land-mortgage  money  shark  is  the  skin- 
flint director  around  your  small  bank.  There  are  men  in  most  small 
towns  that  do  not  work,  yet  make  money.  The  secret  is  that  they 
are  the  back-door  cabinet  or  the  kitchen  cabinet  of  some  bank.  The 
system  is  complete  in  many  banks. 

Senator  Hollis.  Just  describe  it  a  little  more  in  detail. 

Mr.  Hill.  The  applicant  to  a  bank — I  will  give  you  the  statement 
of  a  cashier  of  a  certain  country  bank.  Mr.  A  applied  to  him  for  a 
loan  of  $1,000  on  property  worth  $3,000.  The  cashier  in  most  of 
these  banks  is  a  mere  figurehead.  He  does  not  run  the  bank.  This 
cashier  said,  "  Why,  we  have  no  money  now ;  the  money  is  all  locked 
up  in  New  York.    Money  is  tight." 

Mr.  Platt.  A  common  complaint, 

Mr.  Hill.  The  actual  fact  was  the  bank  had  plenty  of  money  in 
its  vaults.  "  Money  is  tight,"  he  said.  Mr.  A  was  depressed.  He 
must  have  the  money  for  certain  purposes,  pressing  purposes. 
Finally,  to  make  a  long  story  short,  the  cashier  said,  "  I  directed  him 
to  a  certain  attorney,  who  is  attorney  for  the  bank."  I  saw  Mr.  A 
some  time  after  that,  and  he  recounted  this  conversation.  He  said, 
"  I  went  to  this  attorney,  Mr.  B,  for  the  loan  and  told  him  the  bank 
cashier  had  sent  me  there.  Mr.  B  said,  '  Money  is  awful  tight.  Oh, 
I  tell  you,  I  do  not  know  how  in  the  world  I  can  let  you  have  it,  Oh, 
it  is  dreadful.  Everybody  wants  money.  All  the  money  is  locked 
up  in  the  great  banks  of  the  North.' "    And  he  gave  him  the  usual 


458  RURAL   CREDITS. 

demagogue  cry  of  the  money  lender.  The  purpose  was,  in  my  opin- 
ion, to  shake  down  the  applicant,  to  reduce  him  to  a  state  of  mind 
where  he  would  pay  his  charges.  When  that  was  reached,  he  said, 
"  I  think  I  can  arrange  it  for  you  as  a  special  favor  to  you,  but,"  he 
says,  "  it  will  cost  you  $50  for  that  $1,000."  That  $50  was  divided 
as  follows,  according  to  the  statement  of  the  cashier :  $10  each  went 
to  the  attorney  and  three  of  the  directors  of  the  bank  for  commis- 
sion on  the  bank's  money.  The  remaining  $10  was  divided  between 
the  attorney  and  the  cashier  of  the  bank  equally.  The  paltry  $5  was 
the  rake-on  of  the  country  cashier.  The  victimized  A  then  got  his 
money,  but  he  did  not  get  all  of  it.  He  only  got  $850.  Fifty  dollars 
had  already  been  paid  out.  That  left  $950.  The  bank  then  required 
him  to  deposit  $100  in  the  bank  so  as  to  take  care  of  any  possible 
contingencies,  out  of  which  was  deducted  the  interest  in  advance  for 
the  first  three  months.    That  is  the  rake-off  of  the  bank. 

Mr.  Platt.  I  should  think  that  is  a  rake-off  of  a  lot  of  criminal 
sharks  outside  of  the  bank  who  are  to  take  no  responsibility.  _  The 
bank  takes  the  responsibility.  These  men  did  not  indorse  for  him  or 
anything? 

Mr.  Hill.  No,  sir.  His  security  was  $3,000. 
Mr.  Hayes.  They  ought  to  be  in  the  penitentiary. 
Mr.  Hill.  I  have  great  respect  for  the  opinion  of  my  friend  from 
Indiana.  There  may  be  some  difference  in  special  cases,  but  the  rule 
is  not  much  below  that;  and  after  talking  with  representatives  of 
the  South  many  times.  I  am  satisfied  that  the  great  curse  of  the 
South  to-day  is  usury.  It  is  as  great,  perhaps,  as  a  curse  as  whisky- 
has  been  to  the  South. 

Mr.  Platt.  Let  me  ask  you  one  question :  Suppose  the  usury  law 
was  abolished  and  the  banks  allowed  to  loan  at  straight  8  or  10  per 
cent,  or  whatever  they  thought  the  risk  was  worth ;  would  not  that 
be  better  than  the  present  arrangement? 
Mr.  Hill.  No,  sir. 

Mr.  Platt.  What  is  the  good  of  the  usury  law7  ? 
Mr.  Hill.  The  usury  law  should  be  rigidly  enforced.     Under  the 
new  national  bank  act  I  believe  it  is  to  take  a  commission  on  a  loan 
in  national  banks.     That  was  in  the  law. 
Senator  Hollis.  Yes ;  it  is  very  drastic. 

Mr.  Hill.  That  is  going  to  be  a  great  reformer,  to  my  mind.  That 
is  one  of  the  best  provisions,  if  it  is  enforced.  I  tell  you  the  en- 
forcement of  the  usury  provisions  in  Colorado  has  been  of  great  value 
to  the  people. 

Mr.  Woods.  The  provision  in  the  national-bank  act  would  only 
apply  to  officials  or  directors  of  national  banks  ? 

Mr.  Hill.  The  officer  of  the  country  national  bank,  in  my  opinion, 
is  as  great  an  offender  as  the  officer  of  the  State  bank. 

Senator  Hollis.  It  applies  to  everyone ;  that  is  my  understanding 
of  it. 

Mr.  Platt.  It  won't  apply  to  the  person  outside? 
Senator  Hollis.  Yes;  if  he  gets  it  he  has  got  to  get  it  from  the 
money  of  the  bank,  and  we  drew  it  with  the  intention  of  taking  them 
all  in. 

Mr.  Hill.  I  think  it  will  do  the  work. 

Mr.  Woods.  That  would  not  prevent  a  money  lender  loaning  $100 
and  then  going  and  selling  that  note  to  the  bank? 


RURAL   CREDITS.  459 

Mr.  Hill.  No,  sir.  We  have  other  methods  of  reaching  that.  The 
Morris  plan  is  about  to  be  organized  in  other  parts  of  the  country, 
and  then  the  short-term  rural  credit  will  seek  to  inject  the  idea  in 
men  to  cooperate  and  then  to  mold  the  character  of  others,  so  that 
everybody  can  get  a  loan.     That  is  the  ideal  to  which  they  will  work. 

On  page  27  is  the  question  of  deposits.     The  act  states : 

Shall  accept  and  pay  interest  on  deposits  to  an  amount  not  exceeding  50 
per  cent  of  the  amount  of  its  combined  paid-up  capital  and  surplus. 

So  far  as  I  am  able  to  gather  from  the  evidence  of  all  the 
European  countries,  that  is  taken  from  the  German  law,  word  for 
word,  applying  to  joint-stock  company  land  mortgage  banks,  of 
which  there  are  38  and  only  2  pretending  to  loan  money  to  farmers. 
Deposits  should  be  unlimited.  Savings-bank  deposits.  I  mean. 
Savings-bank  business  works  hand  in  hand  with  the  land-mortgage 
buisness.  It  is  a  story  of  Europe  everywhere,  except  in  these  little 
individual  cases;  and  that  particular  illustration,  that  where  this 
rule  applied,  was  this  tremendous  bank  with  its  $10,000,000  capital 
that  did  not  need  anything  to  bring  down  its  overhead  charges. 

Senator  Hollis.  You  would  not  permit  commercial  deposits  of  any 
kind  ? 

Mr.  Hill.  Xo,  sir. 

Senator  Hollis.  They  must  all  be  time  deposit- '. 

Mr.  Hill.  They  must  all  be  time  deposits;  yes,  sir. 

Mr.  Moss,  on  page  26,  says : 

We  have  in  this  bill  permitted  a  limited-amount  deposits — only  50  per  cent  of 
the  capital.  *  *  *  It  is  entirely  arbitrary  where  you  fix  a  limit.  I  would 
put  it  so  small  that  the  banks  could  neither  compete  largely  with  the  com- 
mercial banks  nor  be  subjected  to  temptation  of  going  far  out  into  the  wide 
commercial  field  of  bank  activities. 

I  regret  very  much  that  my  distinguished  friend  made  that  state- 
ment. If  I  had  not  known  that  he  was  such  a  fine  fellow,  the  prod- 
uct of  the  soil  like  the  rest  of  us,  that  would  have  hurt  me  very  much. 
He  misunderstood  the  meaning  of  that,  in  my  mind.  Now,  these 
gentlemen,  in  one  breath,  tell  you  that  these  banks  shall  compete. 
They  are  great  apostles  of  competition.  Then  they  fix  it  in  the  bill 
so  that  the}'  can  not  compete  with  the  savings  banks.  They  actually 
go  further  and  provide  that  institutions  now  doing  a  land-mortgage 
business,  like  the  Home  Savings  Bank  here,  must  come  down  to  this 
basis ;  in  other  words,  that  we  have  to  give  up  $400,000  of  our  savings 
deposits  that  we  have  worked  for  years  to  build  up  in  order  to  come 
under  this  system.  It  is  a  great  mistake,  in  my  mind,  in  considering 
this  legislation,  to  put  the  farmer  last.  Put  the  farmer  first ;  let  it 
benefit  the  farmer,  if  so,  then  the  battle  is  half  won.  Then  see  how 
bad  it  is  going  to  hurt  the  other  fellow. 

Mr.  Platt.  I  do  not  quite  understand  what  you  mean.  It  seems 
to  me  your  savings  bank,  and  if  there  was  one  of  those  savings  banks 
organized  in  Durham,  your  savings  bank  would  go  right  on  doing 
business,  wouldn't  it? 

Mr.  Hill.  Why,  of  course.  But  the  fact  is  that  taking  savings 
pays  our  overhead  charges.  We  have  to  send  people  out  in  the  coun- 
try to  look  over  these  risks  at  our  own  expense.  We  do  not  charge 
for  the  inspection  of  property:  the  savings  business  pays  our  over- 
head charges.     We  are  not  in  any  commercial  business.     Our  savings 


460  RURAL   CREDITS. 

bank  loans  money  only  on  security.  The  savings  business  is  tre- 
mendously profitable  and  would  pay  the  overhead  charges,  and 
should  not  be  limited.  Our  savings  bank  does  not  handle  commer- 
cial paper. 

Senator  Hollis.  How  much  do  you  pay  on  deposits? 

Mr.  Hill.  Four  per  cent  and  compound  interest  quarterly. 

Senator  Hollis.    i  ou  are  able  to  do  that  ? 

Mr.  Hill.  The  actual  result,  however,  is  practically  to  pay  about 
3  per  cent,  because  of  the  movement  of  accounts.  So  that  there  is 
profit.  This  bank,  loaning  strictly  at  6  per  cent,  has  built  up  a  sur- 
plus of  $20,000  notwithstanding  the  tremendous  fight  that  was  made 
upon  it.  And  it  is  a  tremendously  profitable  institution.  Its  profits 
last  year  were  17^  per  cent  on  its  capital. 

Mr.  Platt.  Why  would  you  want  to  come  into  this  organization? 
These  banks  are  not  allowed  to  loan  on  town  property,  and  your 
bank  is  loaning  mostly  on  town  property. 

Mr.  Hill.  I  would  not;  I  could  not  go  into  it. 

Mr.  Platt.  That  is  what  you  implied,  and  you  could  not  go  in  and 
loan  on  town  property? 

Mr.  Hill.  The  statement  in  the  bill  is  that  other  people  could  come 
in  if  they  want  to  come  in.  As  they  are  not  forced  in  nobody  is 
going  to  want  to  come  in. 

Mr.  Platt.  Right  there:  there  are,  especially  in  the  Northwest,  a 
good  many  small  banks  that  only  have  $10,000  capital,  practically 
farmers'  banks  and  owned  by  farmers  and  doing  business  almost  ex- 
clusively with  farmers.     Why  would  not  they  come  in? 

Mr.  Hill.  If  they  wanted  to  come  in  that  is  the  privilege  of  those 
people.  They  should  be  allowed  to  continue  business  just  as  they 
are.  There  is  no  conflict  between  a  land-mortgage  business  and  their 
business. 

Mr.  Woods.  They  could  not  come  in  under  the  system  as  proposed, 
because  they  go  after  a  commercial  business.  They  could  not  afford 
to  pay  the  overhead  charges  and  do  that  small  amount  of  farm-land 
business. 

Mr.  Platt.  I  do  not  believe  they  could  increase  their  farm-loan 
business. 

Mr.  Hill.  It  is  no  wonder  that  the  bill  has  been  called  the 
"  bankers'  bill."  It  is  no  wonder  that  organized  farmers  all  over 
the  country  are  protesting  against  this  bill.  Xow.  I  will  show  you 
the  authority  for  the  kind  of  deposits.    Cahill's  report  (page  21)  : 

The  State  provincial  and  the  district  mortgage  credit  hanks  (if  Germany. 
"  besides  taking  deposits',  they  lend  money  to  individuals  on  mortgage,  on  bonds 
with  surety,  and  the  deposit  of  securities." 

On  page  22: 

Other  working  capital  is  derived  from  deposits  from  the  repayments  to  sink- 
ing-fund accounts — from  accumulated  funds. 

That  is  the  State  banks  of  Germany. 
Page  32,  "Capital": 

.Mortgage  banks  are  authorized  to  accept  deposits  at  interest,  but  may  only 
accept  such  deposits  up  to  an  amount  not  exceeding  the  half  of  their  paid-up 
capital. 

That  is,  the  joint-stock  company  mortgage  banks  that  do  not  loan 
to  farmers. 


RURAL   CREDITS.  461 

American  commission  evidence,  page  23 — I  want  to  take  some  time 
to  develop  this  question  of  deposits — to  show  you  overwhelming 
evidence  in  favor  of  taking  unlimited  deposits. 

Page  23,  under  "  Italy  " : 

Under  the  Italian  system,  such  loans  are  generally  made  by  public  utility 
corporations,  such  as  savings  banks,  which  are  institutions  without  share- 
holders. 

I  may  explain  that  in  Italy  there  are  three  institutions  that  loan 
money  to  farmers.  They  are  the  big  savings  banks  that  take  un- 
limited deposits.  They  are  big,  mutual  public  utility  savings  banks. 
Now,  as  I  understood  the  land-mortgage  business  in  Italy,  it  was 
confined  almost  entirely  to  the  big  savings  banks,  showing  you  the 
intimate  connection  between  the  savings-bank  business  saving  over- 
head charges  and  the  philanthropic  business  of  lending  money  to 
farmers  at  cost. 

Senator  Hollis.  Now,  Mr.  Hill,  can  you  tell  as  whether  those  sav- 
ings banks  in  Italy  loan  on  long-term  notes  ? 

Mr.  Hill.  Yes,  sir;  just  the  same  as  the  German  idea  in  the  pro- 
posed plan.  Practically  all  over  Europe  the  plan  is  very  much  the 
same. 

Mr.  Buckley.  Mr.  Hill,  do  you  mean  to  say  savings  deposits  are 
invested  in  loans  running  from  30  to  50  years  ? 

Mr.  Hill.  In  Italy  the  mutual  savings  banks  have  accumulated 
tremendous  reserve  funds — indivisible.  I  want  to  say  here  the  greatest 
thing  in  Europe,  in  my  mind,  is  the  indivisible  reserve.  That  is  the 
thing  that  brings  down  the  money.  Now,  these  big  savings  banks  in 
Italy  have  tremendous  reserves.  They  also  loan  a  certain  per  cent, 
I  think  40  per  cent,  of  their  savings  deposits  on  land  mortgages.  And 
I  may  say  that  my  own  experience  is  that  that  is  perfectly  safe.  One 
to  five  year  land-mortgage  business  is  a  liquid  business  and  not  a  slow 
business  like  the  40-year  amortization  plan. 

Mr.  Bulkley.  What  are  the  terms  of  those  savings  deposits? 
How  are  they  payable  ? 

Mr.  Hill.  Deposits  are  taken  in  different  ways,  I  think,  in  Italy; 
some  on  current  account — that  is,  you  can  draw  out  without  notice — 
and  some  with  notice. 

Mr.  Bulkley.  With  a  long  notice? 

Mr.  Hill.  I  am  not  sure  about  that ;  but,  so  far  as  I  know,  it  is  a 
regular  savings-bank  business,  like  in  New  York  and  New  Hamp- 
shire, except  they  have  the  idea  of  aiding  agriculture. 

Mr.  Bulkley.  When  you  say  those  loans  are  liquid,  do  you  mean 
they  can  sell  the  mortgages? 

Mr.  Hill.  Y"es;  even  the  collateral  trust  mortgages  are  easily  sold, 
so  that  the  money  is  coming  back  into  the  bank  all  the  time. 

Mr.  Bulkley.  Then,  in  case  of  a  run  on  the  deposit  accounts, 
would  you  sell  new  bonds  or  sell  mortgages? 

Mr.  Hill.  The  great  difference  between  the  banks  of  Europe  and 
America  is  that  everyone  in  all  of  Europe  has  a  bank  of  issue  in  close 
touch  where  it  can  go  and  get  good,  hard  money  on  asset  security 
promptly. 

Mr.  Bulkley.  They  can  rediscount,  you  mean? 

Mr.  Hill.  Yes,  sir.  If  we  take  these  bonds — that  is,  if  they  were 
unable  to  sell  these  land-mortgage  bonds — they  could  still  get  money 
from  the  Government. 


462  KUKAL   CREDITS. 

Mr.  Bllkley.  They  would  sell  bonds  to  the  Government;  is  that 
the  proposition  I 

Mr.  Hill.  Sell  to  the  investing  public. 

Mr.  Platt.  You  do  not  mean  that  they  could  get  currency  on  the 
bonds? 

.Mr.  II hi..    V< is.  sir;  short-time  land  mortgages. 

Mr.  Platt.  From  the  Government? 

Mr.  Hill.  Yes.  sir. 

Mr.  Platt.  Rediscount  the  bonds? 

.Mr.  Hill.  Rediscount  the  securities.  If  the  banks  in  Germany 
get  in  difficulties,  they  can  simply  go  and  have  a  call  on  the  Govern- 
ment. 

Mr.  Hayes.  And  put  up  bonds? 

Mr.  Hill.  And  put  up  short-time  secured  assets. 

Mr.  Hayes.  Yes ;  but  not  these  long-time  bonds  ? 

Mr.  Hill.  My  investigation  is  they  put  up  short-term  securities. 

Senator  Hollis.  Mr.  Hill,  is  it  a  fact  that  under  our  Federal 
reserve  act,  in  case  of  an  emergency,  the  Federal  Reserve  Board  can 
authorize  the  bank  to  take  any  securities? 

Mr.  Platt.  I  thought  bonds  were  expressly  excluded  ? 

Senator  Hollis.  I  think  they  were  in  the  original  bill,  but  that 
that  was  cut  out.     If  that  is  in  there,  it  is  a  dangerous  provision. 

Mr.  Hill.  Page  106,  under  the  head  of  "  Hungary,"  "  The  Hun- 
garian Land  Credit  Institution,  apart  from  issuing  mortgage  bonds 
and  giving  loans,  the  institution  also  takes  deposits  in  money,  shares," 
etc.  So  that  apart  from  her  borrowers,  which  number  13,000,  there 
is  a  deposit  clientele  which  numbers  about  1,320. 

Mr.  Woods.  Those  large  savings  banks  in  Italy,  do  the}'  issue  de- 
benture bonds? 

Mr.  Hill.  Yes,  sir.  It  shows  you  that  the  fact  they  are  doing  it 
in  Italy  is  some  evidence  that  the  large  savings  banks  there  like 
yours  in  New  York  could  issue  bonds.  The  Boweiy  Savings  Bank, 
with  which  I  am  familiar,  in  New  York,  could  easily  issue  bonds  if 
they  wanted  to.  The  great  moral  wrong  with  the  directors  of  the 
great  savings  banks  in  the  United  States  is  that  they  sit  there  and 
put  their  deposits  in  railroad  bonds  and  other  securities,  some  of 
which  are  questionable.  But  they  do  not  try  to  loan  money  where 
they  collect  it.  The  banks,  or  some  of  the  banks,  in  New  York,  with 
which  I  am  familiar,  collect  their  money  from  these  people  in  savings 
deposits  and  refuse  to  lend  money  to  tlie  people  in  that  town.  That 
should  be  changed  and  some  legislation  should  be  passed  to  compel 
them  to  do  that. 

Mr.  Platt.  I  guess  that  is  not  quite  true  that  they  refuse  to  loan 
a  dollar  to  the  people  in  the  town? 

Mr.  Hill.  One  statement  is  that  $5,000  out  of  the  deposits  of 
$2,000,000  in  one  town. 

Mr.  Platt.  In  New  York  City? 

Mr.  Hill.  No.  sir:  up  State. 

Mr.  Platt.  That  is  possible. 

Mr.  Hill.  In  most  of  the  cities  of  New  England  and  New  York 
where  mutual  savings  banks  are  established  there  is  a  reluctance  to 
loan  on  farm  property  so  far  as  I  am  able  to  gather  from  my  expe- 
rience there. 

Mr.  Platt.  That  is  true. 


RURAL  CREDITS.  463 

Mr.  Hill.  Because  of  the  trouble  in  handling  it. 

Mr.  Platt.  That  is  it. 

Mr.  Hill.  It  shows  you  that  there  should  be  a  marvelous  change 
in  that  board  of  directors.  They  are  mutual  concerns ;  they  are  for 
the  benefit  of  the  public,  and  the  new  idea  in  banking  is  the  idea  of 
service.  That  is  the  idea  in  Europe  in  many,  many  of  these  banks; 
and  these  mutual  concerns  must  be  made  to  render  this  service  in 
some  sort  of  way,  or  we  must  establish  institutions  that  will  render 
it.  I  would  consider  it  a  social  crime  to  ask  my  people  of  North 
Carolina  to  put  money  in  my  bank,  and  then  go  to  Colorado  and 
lend  the  money  that  those  poor  people  have  brought  and  put  in  my 
bank. 

Mr.  Platt.  You  know  the  reason  the  savings  banks  buy  bonds — 
the  same  reason  the  national  banks  do;  that  they  may  have  some 
liquid  assets  in  case  of  a  run? 

Mr.  Hill.  My  own  opinion  is,  that  some  person  either  connected 
by  family  or  remotely  connected  in  some  sort  of  a  way  with  the  big 
savings  bank  is  also  quite  well  acquainted  with  the  bond  houses  in 
New  York  City,  and  he  has  his  mind  also  so  bent  upon  the  subject 
of  buying  corporation  securities  that  it  never  crosses  his  mind  to 
loan  money  to  the  struggling  farmer  in  his  country  or  the  strug- 
gling landowner  in  his  town. 

Mr.  Platt.  There  is  some  truth  in  that,  I  think;  but  not  very 
much. 

Mr.  Hill.  Other  things  may  be  written  between  the  lines  there, 
which  I  would  not  like  to  say  in  full. 

Page  338,  I  want  to  make  this  matter  of  deposits  so  overwhelm- 
ing on  all  the  authority  that  there  can  be  no  question  in  the  minds 
of  this  committee : 

This  bank  is  connected  with  the  Nassau  Savings  Bank,  and  the  savings  bank 
has  deposited  with  it  no  less  than  $35.000  000  from  250,000  depositors.  There 
are  150  branches  of  the  savings  bank.  As  part  of  their  business  the  savings 
banks  grant  mortgages  on  town  buildings  and  on  town  lands,  but  only  in  the 
towns  of  Weisbaden  and  Frankfort. 

Now,  the  landschaften,  the  old  landschaften,  was  not  connected 
with  any  banks.  When  other  banks  were  established,  they  were 
compelled  to  put  themselves  in  touch  with  other  banks.  So  they 
kept  their  land-mortgage  business  on  one  floor  and  ,their  savings- 
deposits  business  on  the  first  floor,  showing  you  that  the  chief  busi- 
ness was  the  savings-bank  business,  in  order  to  pay  overhead 
charges.  So  far  as  I  know,  the  evidence  shows  that  there  is  a 
landschaften  bank  association  in  every  Province  of  Germany,  and 
connected  with  that  land-credit  association  is  a  landschaften  bank 
which  sells  these  bonds  and  does  its  financial  business,  showing  you 
that  all  of  the  tremendous  business  of  the  landschaften  system  in 
Germany  is  connected  with  savings  banks.  They  are  not  state  insti- 
tutions, the  landschaften. 

The  evidence,  on  page  357,  says: 

No :  it  does  no  banking  business.  For  such  business  there  is  a  special  de- 
partment attached  to  the  landschaft,  but  not  controlled  by  it  nor  by  the 
Government;  it  is  only  in  the  same  building.  When  you  go  to  see  the  land- 
schaft here  in  Halle  you  will  And  on  the  first  floor  the  landschaft  bank ;  that 
is.  the  banking  department,  and  on  the  upper  floors  there  is  the  landschaft 
itself. 


464  EUKAL   CREDITS. 

Mr.  Platt.  That  is  quite  possible  under  this  bill,  isn't  it? 

Mr.  I  In. i..  Well,  it  is  somewhat  possible,  that  they  could  form  a 
bank  to  do  (heir  banking  business. 

In  Germany  (p.  408)  the  joint-stock  company  land-mortgage 
banks,  which  are  prohibited  from  taking  deposits  of  more  than  one- 
half  of  the  capital,  in  discussing  them  the  witness  says: 

Being  share  banks,  we  like  to  have  deposits,  although  the  money  for  the 
mortgage  is  secured  by  the  issuing  of  bonds?  Joint  stock  companies  can  always 
make  a  profit  out  of  deposits,  and  therefore  like  to  have  them.  But  there  is, 
however,  no  necessity  for  deposits,  because  we  can  get  money  from  the  State. 

I  wanted  to  bring  that  out  particularly,  showing  you  that  the  joint- 
stock  company,  when  it  wants  money,  gets  it  from  the  State.  That 
is  the  idea  always. 

*     *     *     and  then  we  have  bonds  which  sell  in  the  open  market. 

Evidence  (p.  412),  under  the  heading  of  the  "Manorial  Land 
Mortgage  Bank  of  Kur  and  Neumark  says : 

Q.  This  bank  has  the  right  to  accept  deposits — how  many  deposits  can  it 
accept? — A.  Unlimited. 

Mr.  Hayes.  Excuse  me,  Mr.  Hill.  What  you  meant  there  by  that 
quotation  is  that  they  can  get  money  from  the  State  by  rediscounting 
at  the  central  institution  ? 

Mr.  Hill.  Yes.     That  is  this  big  central  institution. 

Mr.  Hayes.  Yes ;  of  course,  that  is  not,  strictly  speaking,  the  State. 

Mr.  Hill.  In  Switzerland,  the  canton  banks,  as  I  understand,  fur- 
nish a  great  deal  of  the  land-mortgage  credit  to  Swiss  farmers.  At 
present  there  are  23  such  banks  in  Switzerland.  Their  capital  fur- 
nished them  by  the  cantons.  The  means  by  which  the  Zurich  Canton 
Bank  supplies  itself  with  funds  is:  (a)  The  issue  of  bonds;  (b) 
savings-bank  deposits  on  which  interest  is  paid  to  depositors;  (c) 
acceptance  of  funds  against  evidences  of  deposits  or  in  current  ac- 
counts; (d)  increase  of  the  reserve  fund. 

The  condition  of  the  savings  bank  at  the  end  of  1912  showed, 
in  round  numbers,  deposits  amounting  to  86,000,000  francs — 
$17,000,000.  The  savings  banks,  the  similar  canton  banks,  showed 
deposits  on  hand  of  more  than  320,000,000  francs. 

Senator  Hollis.  Now,  Mr.  Hill,  in  my  own  town,  a  town  of  20,000 
people,  we  hsrVe  one  mutual  savings  bank  with  deposits  of  over 
$12,000,000. 

Mr.  Hill.  Yes.  It  could  easily  afford,  in  my  opinion,  to  loan  the 
farmers  and  to  pay  for  the  inspection  of  the  loans  if  there  were  a 
few  farmers  upon  that  board  of  directors,  or  if  the  people  arose  in 
their  might  and  called  upon  them  to  do  it.  There  is  a  charge  upon 
rich  people  of  this  country  to  take  care  of  the  poor  people ;  and  unless 
a  man  of  means  understands  he  is  a  trustee  of  money  in  that  respect 
he  is  going  to  fail,  of  course,  I  mean  that  savings  deposits  should 
only  be  loaned  to  farmers  for  short  periods — two  to  five  years. 

Senator  Hollis.  I  made  myself  very  unpopular  with  the  other 
trustees  of  the  bank  by  insisting  on  taking  care  of  the  local  people 
first.  We  had  one  farmer  on  the  board,  and  he  has  never  interposed 
any  objection  at  all.  But  we  do  now  take  care  of  the  local  people 
when  they  apply  to  us,  and  I  brought  that  about.  They  would  much 
rather  deal  with  some  one  out  in  Kansas  or  Minnesota  and  have  the 
work  all  done  for  them  than  to  go  out  and  investigate  the  loans. 


RURAL   CREDITS.  465 

Mr.  Hill.  I  believe  that  is  true  of  the  mutual  savings  banks  in 
this  country.  They  prefer  to  run  after  that  which  they  know  not 
of  than  to  take  the  good  security  that  lies  at  their  own  door.  They 
prefer  to  let  the  man  in  Colorado  make  a  tremendous  commission 
out  of  the  mortgage;  they  prefer  to  help  build  up  the  loan-shark 
business  in  this  country,  to  help  oppress  the  farmer  rather  than  hold 
out  a  helping  hand  that  the  rich  should  hold  out  to  the  weak. 

Mr.  Platt.  You  can  not  say  that  these  mutual  savings  banks  are 
owned  by  the  rich  men.  For  instance,  in  my  own  town,  which  is 
comparable  with  Senator  Hollis's  town,  we  have  a  savings  bank  with 
$15,000,000  deposits,  and  the  average  deposit  only  about  $400,  I 
believe. 

Mr.  Hill.  Not  owned,  but  directed.  Whose  money  is  it  in  the 
bank? 

Mr.  Platt.  It  is  the  poor  people's  money. 

Mr.  Hill.  If  it  is  the  poor  people's  money,  then  let  it  go  back  to 
the  poor  people. 

Mr.  Platt.  The  first  business  of  the  trustee  is  to  keep  it  safe;  not 
to  loan  on  poor  security. 

Mr.  Hill.  The  first  duty  in  all  banks  in  Europe  is  safety;  but 
I  tell  you  the  home  security  is  just  as  good  as  foreign  security.  I 
tell  you  that  the  mortgage  on  land  at  home  is  just  as  good  as  the 
mortgage  on  a  railroad  in  Colorado  or  any  Southern  State. 

Mr.  Platt.  Yes;  as  a  general  proposition,  that  is  probably  true; 
but  in  these  eastern  towns,  such  as  Concord,  N.  H.,  and  my  town, 
there  is  a  great  deal  more  money  collected  than  can  properly  be 
loaned  out  at  home  safely.  There  is  no  question  about  that  what- 
ever.    What  are  you  going  to  do  with  the  surplus  ? 

Mr.  Hill.  That  shows  that  there  should  be  an  organization  of  the 
farmers  and  the  poor  people  of  this  country  to  demand  their  rights. 
It  is  the  poor  people's  money  that  is  there,  and  the  poor  people  some 
day,  in  my  judgment,  will  rise  up  and  demand  their  rights.  It  is  a 
matter  of  education  of  the  men  who  are  sitting  there  and  directing 
the  great  banks  and  never  see  the  poor  man  that  is  on  the  ground. 
You  can  not  bring  relief  to  the  farmer  unless  you  bring  the  God- 
given  sunshine  to  the  farmer  down  on  the  ground.  Think  of  the 
man  on  the  ground  first,  because  he  has  furnished  the  money.  In 
my  judgment  it  is  the  altruistic  spirit  that  has  got  to  get  into  your 
mutual  directors,  in  your  banks  all  over  this  country ;  and  Congress 
should  start  a  campaign  of  education.  That  is  one  of  the  most 
important  things  in  this  business,  is  to  educate  the  people  of  America 
to  get  away  from  the  skinflint's  business,  oppressing  the  poor  man, 
taking  from  him  his  savings  and  spending  it  somewhere  else. 

Mr.  Platt.  Have  farms  in  your  territory  ever  been  sold  for  less 
than  the  mortgages  on  them? 

Mr.  Hill.  I  think  not.  My  own  record  is  that  we  have  never  lost 
a  dollar  on  a  mortgage.  We  find  that  the  mortgages  are  liquid; 
that  they  are  paid  off  within  four  years,  as  a  rule ;  that  they  are  con- 
stantly in  movement  of  liquidation;  that  is,  the  poor  man  pays. 
And  the  story  of  Europe  in  these  pages  everywhere  is  that  the  poor 
man  pays  his  debts;  that  the  small  mortgage  is  the  safest  security; 
that  it  is  good  business  and  the  best  business  to  go  out  and  reach 
down  to  the  poor  honest  man  that  has  security  and  lend  him  money. 

37031—14 30 


466  RURAL   CREDITS. 

Mr.  Platt.  I  think  this  bill  contemplates  doing  just  what  you  are 
talking  about — having  land-mortgage  associations  organized  in  con- 
nection with  the  savings  banks.  But  farm  mortgages  have  not  been 
considered  good  security  in  my  own  territory,  where  it  is  a  long- 
settled  country.  Many,  many  farms  have  been  sold  for  less  than  the 
mortgages,  and  it  is  not  regarded  as  good  security.  And  I  believe 
that  is  the  case  all  over  the  country,  or  it  was  a  few  years  ago. 

Mr.  Hill.  That  brings  up  a  good  many  questions  I  would  not 
have  time  to  discuss  now,  but  which  I  would  like  to  take  up  some 
other  time. 

Now,  under  the  heading  of  Denmark  (p.  553),  under  the  heading 
of  "  Credit  institutions  " : 

Yes;  it  started  quite  as  a  philanthropic  institution;  but  in  the  last  20  or  30 
years  many  of  the  big  banks  have  savings  departments  where  they  take  in 
savings,  too. 

Showing  you  that  in  Denmark  they  take  in  savings.  Now.  I  be- 
lieve it  is  unnecessary — I  have  a  great  many  of  these  statements  here. 
I  call  upon  these  gentlemen  to  produce  evidence  showing  that  land- 
mortgage  banks  in  Europe  that  lend  money  to  the  farmers  limit 
their  deposits  to  a  paltry  one-half  of  the  capital. 

Mr.  Platt.  They  do  a  commercial  business,  too,  don't  they — these 
landschaften  banks  in  Germany? 

Mr.  Hill.  I  am  not  sure  about  that.  The  rule  is  they  couple  up 
with  savings  business,  because  a  bank  doing  a  commercial  business 
loans  on  two-name  paper — strictly  accommodation  paper.  It  is  a 
different  commercial  banking,  in  my  opinion — is  a  different  proposi- 
tion entirely — from  the  savings-bank  business.  The  man  running  a 
savings-bank  business,  first,  is  safety;  second,  he  has  a  long  time 
proposition;  third,  his  overhead  charges  must  be  small,  because  his 
profits  are  small.  You  can  not  mix  the  two  very  well.  I  believe  it  is 
disastrous  to  most  banks  to  try  to  mix  the  savings-bank  business ;  and 
all  over  Europe,  so  far  as  I  could  see  (that  was  not  a  part  of  our 
particular  work)  the  commercial  banking  business  was  not  coupled, 
as  a  general  rule,  with  the  savings-bank  business.  I  believe  Dr. 
Coulter  will  bear  me  out  on  that. 

Mr.  Woods.  What  is  the  capital  stock  of  the  local  farm-land  banks 
in  Germany? 

Mr.  Hill.  I  could  easiW  find  out.     It  is  very  large. 

Mr.  Woods.  Of  the  local  institutions? 

Mr.  Hill.  Yes.  There  are  38  of  them,  and  I  could  easily  find  out. 
The  fact  that  they  did  not  lend  money  to  farmers  relieved  me  from 
further  investigation  of  those  banks.  Their  capital,  however,  was 
always  large.  The  model  of  these  banks  that  seem  to  have  impressed 
the  minds  of  some  of  our  commissioners  was  this  great  bank  that  had 
$10,000,000  capital  with  special  privileges  from  the  Government. 

I  have  dwelt  on  earning  capacity  and  overhead  charges  and  ad- 
ministration charges.  The  third  proposition  is  elasticity.  The 
whole  banking  business  must  be  considered  with  a  view  to  elasticity. 
The  bank  must  fit  the  community.  The  banks  that  fit  North  Caro- 
lina will  probably  not  fit  Texas.  My  own  personal  experience  with 
the  gentlemen  from  Texas  was  that  they  thought  quite  differently 
from  men  in  North  Carolina.  The  people  in  the  South  think  more 
like  people  in  the  Middle  West  and  the  East;  and  the  distinguished 
gentleman  from  Indiana  is  probably  good  North  Carolina  stock,  for 


RURAL   CREDITS.  467 

all  I  know.  What  will  fit  one  section  will  not  fit  another.  There- 
fore I  would  strike  down,  out  of  this  bill,  any  effort  to  make  a  grand 
national  system  with  all  of  its  petty  officers  to  be  appointed,  its  fidu- 
ciary agents,  its  red  tape,  its  tremendous  rate,  and  the  machinery. 
It  will  not  fit  in  many  localities.  I  believe  it  is  fundamentally  true, 
and  I  believe  you  will  all  bear  me  out,  that  the  same  kind  of  a  bank 
may  not  fit  all  localities. 

Now,  we  come  to  the  question  of  the  decentralization.  Mr.  Moss, 
in  his  statement,  dwells  upon  the  great  decentralized  system  of  Ger- 
many— I  will  tell  you  that  in  my  opinion  he  thoroughly  misunder- 
stood the  idea  of  decentralization.  The  decentralization  of  Germany 
is  the  big  bank  with  the  central  management,  but  with  its  arm  reach- 
ing out  into  every  section.  The  landschaft  had  its  committees  in 
every  county  in  Hungary ;  the  great  Hungarian  land-mortgage  banks 
had  their  committees  out  in  the  various  communities  of  Hungary. 
That  is  the  decentralization  they  are  talking  about.  It  is  a  decen- 
tralization of  organization,  as  there  is  no  such  thing  in  the  business 
as  the  decentralization  of  forming  these  little  banks  whose  securities 
you  could  carry  around  in  your  vest  pocket.  Any  plan  that  Congress 
places  upon  the  Amercan  people  should  be  the  simplest  sort  of  na- 
tional legislation,  so  simple  that  it  can  reach  all  the  States  alike, 
some  general  principles,  and  furnishing  some  capital  in  deposits  or 
a  fund  to  start  this  proposition  off,  on  certain  conditions.  Those 
conditions  are  best  to  be  carried  out  by  these  States  in  their  own  way. 
I  am  a  believer  in  the  great  fundamental  idea  that  the  American 
wants  to  carry  out  the  plan  in  his  own  way,  and  I  believe  that  any 
plan  that  seeks  to  fasten  a  rigid  system  upon  all  parts  of  this  country, 
several  times  greater  than  Germany,  Hungary,  or  any  other,  would 
fail.  I  think  that  is  a  fundamental  proposition  that  your  plan  must 
fit.  My  own  experience  in  banking  for  many  years  shows  me  you 
can  never  put  an  $80  saddle  on  a  $10  horse  and  win  the  race.  You 
must  fit  your  bank  to  your  community,  and  your  big  bank  to  your 
community,  to  the  needs  of  your  people. 

Senator  Hollis.  How  would  you  do  that,  Mr.  Hill?  Give  some 
one  particular  description? 

Mr.  Hill.  Yes,  sir;  I  will  give  the  plan.  I  would  not  come  here 
to  try  to  tear  down  a  plan  that  has  already  been  built  without 
trying  to  offer  another  plan.  I  will  say  here,  however.  I  did  not 
draw  a  bill  and  shall  not  attempt  to  frame  a  bill,  and  I  will  only 
give  out  some  suggestions  which  might  be  of  value  or  not. 

Section  19,  "  Federal  fiduciary  agent " — the  salary  and  some  of  his 
duties. 

The  committee  evidently  believed  that  they  had  found  some  thing 
new  here.  They  openly  stated  that  this  was  a  new  idea,  absolutely 
original.  I  am  glad  that  they  were  so  frank.  There  is  no  authority 
for  it  anywhere,  so  far  as  I  know,  in  any  bank  anywhere  else.  Hence, 
being  such  innovation  in  the  grand  plan  that  has  worked  in  Europe 
for  100  and  more  years  we  should  take  it  with  much  doubt  and  hesi- 
tation. 

Now,  here  is  a  man  appointed  by  the  Government.  This  bill,  ap- 
parently, in  the  minds  of  these  gentlemen  provides  for  a  great  num- 
ber of  little,  so-called,  competitive  banks — so-called  competitive 
fiduciary  agents,  representing  two  masters,  the  Federal  Government 
and  the  bank,  probably  employed  in  the  bank  at  a  salary  of  $1,500 
a  year.     Now,  one  of  the  duties  of  the  fiduciary  agent  is  that  he  has 


468  RURAL   CREDITS. 

to  see  that  these  mortgages  are  promptly  paid.  He  has  also  to 
credit  on  the  bond  issue,  the  collateral  trust  bonds,  the  installments. 
The  bill  does  not  exactly  say  that,  but  Mr.  Moss,  as  I  understand,  in 
his  statement,  claimed  that  is  one  of  the  strong  features  of  the  bill — 
one  of  the  great  securities  of  the  bill.  In  my  humble  opinion  it  is 
entirely  impracticable.  In  a  "  Ramskat,"  with  its  small  community, 
can  you  find  a  fiduciary  agent  capable  of  doing  this  complicated 
business  of  marketing  the  bonds,  to  stand  up  with  the  great  bond 
men  of  New  York,  Cincinnati,  Philadelphia,  and  Boston?  Why,  it 
it  increditable ;  it  is  unbelievable,  that  the  duties  of  this  fiduciary 
agent  should  be  to  sell  the  bonds  and  credit  the  little  payments  on 
the  little  collateral  trust  bonds. 

He  would  have  a  collateral  trust  bond,  that  every  six  months  there 
was  to  be  a  little  payment  credited  on  it.  I  understand  Mr.  Moss  to 
say  the  money  must  go  promptly  there.  Xow,  that  is  not  the  story 
of  Europe.  He  talked  to  this  committee,  making  a  great  point  about 
sinking  funds — the  danger  of  sinking  funds.  Well,  how  can  the 
business  be  otherwise  transacted?  Would  any  of  you  gentlemen 
have  a  bond  that  every  six  months — a  bond  pa3rable  to  bearer — there 
was  to  be  a  small  amount  taken  off  of  it?  That  would  ruin  the  sale 
of  the  bond.  In  the  first  place — I  am  not  talking  about  the  interest 
on  the  bond  that  is  clipped  off  in  coupons,  but  I  am  talking  about 
the  principal  of  the  collateral  trust  bonds — how  could  this  fiduciary 
agent  take  the  money  from  the  hands  of  the  farmer  and  carry  it  and 
put  it  on  the  bonds  payable  to  a  bearer  somewhere  else? 

Mr.  Hayes.  I  think,  Mr.  Hill,  you  are  under  a  misapprehension. 
I  do  not  think  that  is  the  idea  of  anybody. 

Mr.  Hill.  The  bill  does  not  say  that  clearly,  but  I  was  develop 
ing  Mr.  Moss's  statement;  I  am  talking  now  about  Mr.  Moss" 
statement. 

Mr.  Platt.  You  are  mixing  the  bond  up  with  the  mortgage. 

Mr.  Hill.  I  will  give  you  what  Mr.  Moss  says  on  that.  I  hope 
he  is  mistaken. 

Mr.  Moss.  Have  you  the  hearings  on  the  bill  that  you  are  referring 
to  in  which  my  statement  occurs? 

Mr.  Hill.  Yes.     Mr.  Moss,  on  page  58  of  his  statement,  says: 

The  fiduciary  agent  provided  here  is  a  broad  original  feature,  which  I  do 
not  think  you  will  find  in  any  mortgage  system  anywhere. 

I  am  glad  he  was  so  frank 

His  duty  is  to  credit  the  payments  on  the  mortgages  and  turn  the  money  over 
to  the  bondholders  directly. 

Mr.  Moss  made  a  point  of  that.  I  hope  he  is  mistaken,  and  if  he 
will  withdraw  that  conclusion,  I  have  nothing  more  to  say  about  it. 
I  read  the  words  of  the  bill,  and  the  bill  does  not  seem  to  call  for 
that  construction.  If  it  did  it  would  be  fatally  defective  right  there; 
but  Mr.  Moss  made  a  point  before  this  committee  of  the  wonderful 
duties  of  this  fiduciary  agent  of  transferring  the  money  from  the 
hands  of  the  borrower  to  the  hand  of  the  city  investor,  which  is  im- 
practicable. 

Senator  Hollis.  The  hour  has  now  arrived  when  we  take  a  recess, 
and  we  will  suspend  here. 

Thereupon,  at  12.55  o'clock  p.  m.,  the  subcommittees  took  a  recess 
until  2.30  o'clock  p.  m. 


>_ 


RURAL   CREDITS.  469 

AFTER    RECESS. 

The  subcommittees  reassembled  at  the  expiration  of  the  recess. 
STATEMENT  OF  JOHN  S.  HILL,  OF  DURHAM,  N.  C— Continued. 

Mr.  Woods.  Mr.  Hill,  you  spoke  this  morning  about  the  business 
done  by  the  large  savings  banks,  or  farm-land  banks  of  Europe,  and 
about  the  savings  accounts  of  all  those  institutions.  Do  not  the  same 
institutions  take  on  what  they  call  a  current  account,  keeping  such 
accounts  separate  from  the  others? 

Mr.  Hill.  Some  do. 

Mr.  Woods.  Loaning  such  money  on  short  time  ? 

Mr.  Hill.  So  far  as  I  was  able  to  see,  the  short-term  credit  busi- 
ness was  done  almost  entirely  separate  and  aloof  from  the  land  bank. 
It  was  done  by  the  local  credit  unions.  Most  of  them,  in  all  the  coun- 
tries, were  coupled  up  into  large  central  institutions,  and  once  in  a 
while  that  central  institution  had  a  connection  with  the  land  mort- 
gage bank,  as,  for  instance,  the  small  holders'  land-mortgage  bank  in 
Hungary  seemed  to  operate  very  much  through  the  central  of  small 
unions.  The  land-mortgage  bank  for  small  holders  in  Hungary 
undertook  at  one  time  to  do  a  personal  credit  business,  but  abandoned 
it  because  it  would  not  work  well  with  their  other  business. 

Mr.  Woods.  Well,  I  did  not  refer  to  the  personal  credit  feature  in 
a  broad  sense,  but  as  I  remember,  in  the  case  of  the  large  savings 
banks  of  Italy,  they  also  have  what  they  call  current  accounts? 

Mr.  Hill.  Yes,  sir. 

Mr.  Woods.  And  they  do  receive  quite  a  large  amount  of  deposits 
on  that  account? 

Mr.  Hill.  Well,  I  think  that  is  quite  likely,  though  I  am  not 
quite  positive  about  that  particular  point.  The  question  of  cur- 
rent accounts  was  noticed  by  us  in  a  good  many  places  in  Europe, 
especially  in  Scotland. 

Mr.  Moss  can  give  you  information  about  this  splendid  plan  that 
the  Scotch  people  have  of  using  current  accounts  in  banking.  He  is 
more  familiar  with  that  than  I.    It  struck  me  as  a  very  good  plan. 

Now,  applied  to  one  of  our  local  institutions,  it  would  mean  that 
a  farmer  would  simply  go  into  the  bank  and  give  his  security — his 
mortgage,  which  would  establish  him  a  line  of  credit — for  instance, 
for  $2,000.  The  interest  on  that  mortgage  would  not  run  for  $2,000, 
but  would  only  be  calculated  on  the  amount  that  he  actually  bor- 
rowed from  day  to  day.  That  is  what  I  understand  by  the  current- 
account  system  as  established  in  Europe.  It  is  a  very  valuable  thing 
to  all  the  poor  men. 

You  understand  that  the  system  in  America  is  that  a  man  takes 
a  loan,  and  he  pays  interest  generally  on  the  whole  loan,  in  advance. 

He  frequently  leaves  the  entire  loan  at  the  bank  for  three,  five,  or 
six  months,  and  in  some  cases  for  several  years,  for  some  peculiar 
reason.  He  gets  four  per  cent  interest,  if  it  is  left  for  three  months, 
on  the  money  deposited,  which  he  is  borrowing  at  6  per  cent,  hence 
there  is  a  great  deal  of  money  in  every  bank— — 

Mr.  Woood  (interposing).  I  never  heard  of  a  farmer  doing  that 
at  a  bank. 


470  RURAL  CREDITS. 

Mr.  1 1  hi..  Yes,  sir;  in  my  own  personal  experience  I  have  seen  it; 
it  is  quite  common. 

Mr.  Platt.  You  mean  a  fanner  leaving  the  money  that  he  has  bor- 
row cd  with  the  bank? 

Mr.  J I  ill.  Yes:  and  there  is  a  reason  for  it. 

Mr.  Platt.  In  the  Scotch  bank  the  deposit  automatically  pays  off 
so  much  on  the  mortgage. 

Mr.  Hill.  Ye-.     Mr.  Moss  is  more  familiar  with  that  than  I  am. 

Mr.  I>i  lkli:v.  Can  you  explain  that  expression  "peculiar  reason" 
that  you  just  mentioned? 

Mr.  1 1  ill.  Yes.  Frequently,  it  has  come  to  my  knowledge,  that 
a  man  wanted  to  buy  a  certain  piece  of  property;  and  a  great  many 
farmers  do  not  believe  in  options.  They  would  not  give  you  an 
option  at  all.  They  trade  a  little  differently  from  other  people; 
and  this  man  borrowing  the  money  would  have  to  have  the  actual 
money  in  the  bank  before  he  made  any  deals,  and  sometimes  the  deal 
is  delayed  for  weeks  on  that  account.  He  is  negotiating  for  it  around 
through  some  "  grapevine  "  channel.  That  is  generally  the  best  rea- 
son wrhich  I  have  ever  heard  for  that  custom.  There  are  other  minor 
reasons. 

Mr.  Platt.  In  such  case  does  the  man  actually  draw  the  money  out 
of  the  bank  and  pay  it  over  to  the  seller,  or  will  he  give  his  check 
to  the  seller  at  the  bank? 

Mr.  Hill.  He  generally  brings  the  seller  to  the  bank  and  draws 
the  money  right  out  of  the  bank  and  hands  it  over  to  him  in  cash. 
We  have  a  room  in  our  savings  bank  where  two  farmers  may  get 
together,  or  the  farmer  can  arrange  that  with  the  city  people,  if 
they  are  the  purchasers. 

Mr.  Bulkley.  You  did  not  mean  that  there  was  any  frame  up  by 
the  banker  for  the  purpose  of  keeping  the  deposit,  did  you  ? 

Mr.  Hill.  No,  sir;  you  understand  that  the  rule  of  the  banks  in 
most  of  the  Southern  States  is  that  whenever  a  loan  is  granted  to  a 
man  by  a  commercial  bank  he  must  leave  20  to  25  per  cent  of  the 
money  in  that  bank.  The  institution  with  which  I  am  connected 
believes  that  that  is  usury  and  will  not  allow  it.  No  man  should  be 
clubbed  into  leaving  his  money  in  a  bank.  He  should  deposit  only 
if  he  wTants  to  do  so.  In  our  institution  if  a  man  borrows  $1,000  we 
seek  to  give  him  the  $1,000. 

Mr.  Platt.  Well,  you  do  not  object  to  his  leaving  any  part  of  it 
there,  do  you? 

Mr.  Hill.  No;  we  may  politely  ask  him  to  leave  it  there;  we  do  not 
compel  him  to  leave  it  there ;  that  is  the  point ;  we  put  the  money  to 
his  account,  and  he  can  draw  it  out  at  once,  every  dollar  of  it.  And 
that  system  of  the  banks  which  enables  them  to  compel  a  man  to  de- 
posit a  part  of  his  loan  with  them  should  be  prohibited,  in  my  judg- 
ment it  is  wrong  in  principle,  and  it  frequently  makes  a  bank  loan 
money  to  a  man  when  otherwise  it  would  not  do  so,  in  order  to  swell 
its  deposits;  and  I  have  known  of  considerable  losses  coming  about 
in  that  way. 

Mr.  Platt.  This  system  that  you  speak  of.  the  farmers  of  this 
country  never  borrow  on  mortgages  in  that  way,  do  they? 

Mr.  Hill.  Frequently. 

Mr.  Platt.  Take  a  mortgage  to  the  bank? 


RURAL  CREDITS.  471 

Mr.  Hill.  Take  a  mortgage  to  the  bank  and  establish  a  line  of 
credit,  yes ;  that  is,  they  get  the  money,  in  the  case  of  our  institution. 
We  have  no  line  of  credit,  because  it  requires  a  lot  of  bookkeeping 
to  keep  the  daily  balances;  it  would  increase  the  overhead  charges 
considerably.  As  I  understand,  the  Scotch  have  worked  it  out  so  as 
to  get  it  on  a  very  economical  basis,  and  that  is  the  system  of  Scot- 
land, as  I  understand  it;  and  for  that  reason  they  have  no  interest 
in  this  European  land-mortgage  short-term  credit  proposition  at  all. 
That  is  what  I  was  informed  by  members  of  the  American  commis- 
sion who  saw  the  Scotch  system  working. 

Mr.  Platt.  Would  it  not  look  as  if  the  Scotch  system  was  simpler 
than  any  other  system  for  short-time  credit? 

Mr.  Hill.  Yes ;  it  looks  like  a  wonderful  thing,  and  it  ought  to  be 
looked  into  carefully  and  encouraged.  If  I  had  had  time  I  would 
have  made  a  special  visit  to  Scotland  just  for  that  purpose. 

Mr.  Platt.  I  should  think  the  cost  of  the  constant  partial  pay- 
ments, in  the  way  of  deposits,  and  keeping  track  of  those  things 
would  be  considerable,  unless  they  were  required  to  be  made  at 
regular  intervals  in  some  way. 

Mr.  Hill.  No,  .sir;  it  is  a  mere  matter  of  training  at  your  bank. 
You  understand  that  a  small  bank  generally  clears  through  the  large 
bank  in  this  country.  The  large  bank  allows  3  per  cent,  and  some- 
times 4  per  cent,  interest  on  daily  balances.  They  have  a  plan  of 
working  out  your  daily  balances.  In  fact,  a  great  many  New  York 
banks  pay  interest  now  on  daily  balances,  and  it  seems  to  be  quite 
simple.  We  never  instituted  that  plan  in  any  of  our  institutions,  be- 
cause I  was  not  familiar  enough  with  it. 

Mr.  Platt.  Yes.  That  is  the  Scotch  plan.  The  daily-balance 
plan. 

Mr.  Hill.  Yes;  it  is  the  Scotch  plan.  That  is  right,  is  it  not, 
Mr.  Moss? 

On  page  18  of  Mr.  Moss's  testimony  he  stated  as  follows : 

We  are  not  endeavoring  to  do  anything  more  than  provide  a  system  of  favor- 
able contracting  between  lender  and  borrower.  Government  supervision  should 
see  that  the  terms  of  the  contract  are  faithfully  carried  out;  but  it  seems. to  me 
to  lie  going  too  far  to  attempt  to  direct  the  expenditure  of  the  money. 

If  the  gentleman  means  the  contracting  between  the  banks  and  the 
farmer — which  would  appear  to  be  what  he  does  mean — then  that 
in  itself  should  defeat  the  bill.  If  the  gentlemen  who  drew  the  bill 
believed  that  this  whole  problem  hinged  around  the  question  of  con- 
tracting, or  providing  a  system  for  the  money  lender  to  loan  to  the 
farmer,  then  they  have  only  partially  seen  the  proposition.  The 
broad  proposition  is,  as  I  have  stated  before,  to  bring  the  cheap 
money  of  the  money  centers  to  the  farmers,  and  this  is  not  a  mere 
bargain  between  the  bank  and  the  borrower.  That  is  the  joint-stock- 
company  plan;  and  the  joint-stock-company  plan  is  always,  in  my 
opinion,  the  bargaining  plan,  and  that  is  the  wrong  idea — funda- 
mentally wrong. 

Mr.  Platt.  Is  it  your  idea  that  this  thing  could  be  put  on  what 
you  might  call  a  philanthropic  basis? 

Mr.  Hill.  Not  entirely  a  philanthropic  basis.  The  farmer,  in 
my  opinion,  is  not  entitled  to  any  special  privilege,  and  I,  represent- 
ing farmers  as  I  do,  and  being  in  close  touch  with  them  and  having 


472  RUEAL   CREDITS. 

their  confidence,  would  be  unwilling  to  stand  here  and  argue  for  any 
special  privilege  for  them. 

All  the  farmer  asks  is  a  certain  amount  of  Government  assistance 
to  enable  his  proposition  to  get  on  its  feet;  to  put  him  on  his  feet 
and  to  connect  him  with  the  money  center.  I  have  no  sympathy  with 
the  Government  issuing  mortgages  and  loaning  money  promiscu- 
ously to  farmers  nil  o\  er  the  United  States  on  a  3  or  4  per  cent  basis. 
The  French  Government  did  that  and  I  thought  it  was  a  great  piece 
id'  paternalism  :  and  I  believe  in  the  long  rim  that  it  is  wrong.  But  1 
do  think  that  the  farmers  of  the  United  States  who  have  the  security 
ought  to  be  able  to  have  the  hand  of  the  Government  behind  their 
security  sufficiently  strong  to  give  them  their  rights.  Every  other 
body  of  men  in  America  has  the  arm  of  the  Government  behind  them 
in  some  way;  the  national  bank  has 

Mr.  Stone  (interposing).  How  do  you  account  for  the  fact  that 
merchants  who  have  no  special  bank  devised  for  their  use  are  able  to 
get  lower  rates  of  interest  than  the  farmers? 

Mr.  Hill.  For  this  reason:  The  banker  is  looking  around  at  the 
merchants.  He  drops  in  their  place  every  day,  he  knows  them,  and 
he  has  been  so  used  to  crediting  the  merchant  that  he  gives  him  a 
line  of  credit  frequently  for  $2,000,  when  he  is  not  worth  over  $300 
or  $400  in  actual  property.  He  wants  to  do  business  with  him;  he 
has  been  trained  to  do  it;  and  the  banking  man,  as  a  rule — and  I 
speak  with  great  experience  in  association  with  him — is  not 
trained  to  reach  the  farmer.  For  some  reason,  some  unexplainable 
reason,  they  are  not  in  touch  with  each  other.  My  own  observation 
is,  in  the  country,  that  the  farmer  oftentimes  either  distrusts  the 
bank — he  looks  upon  the  bank  as  a  monopoly — or  he  thinks  that  city 
banks  will  not  give  him  his  money  when  he  wants  it. 

Mr.  Platt.  Would  you  say  that  that  was  true  of  Lancaster.  Pa.. 
and  Frederick,  Md.  ? 

Mr.  Hill.  I  would  not  know  about  that,  but  I  am  just  giving  my 
own  personal  experiences. 

Mr.  Platt.  Well,  there  is  a  town  in  Maryland  of  10,000  people — 
Frederick — which  has  a  bank  with  deposits  of  $3,500,000,  and  it  is 
only  one  of  four  or  five  banks  in  that  town.  Where  does  that  money 
come  from?  That  money  comes  from  the  farmers  only  in  the  sur- 
rounding section. 

Mr.  Hill.  That  must  be  an  unusual  situation.  It  may  be  true 
that  in  that  case  the  farmers  are  actually  in  touch  with  the  banks. 

Mr.  Stoke.  I  can  hardly  understand  from  your  argument  why  the 
merchants  can  get  the  low  rate  of  interest  when  they  are  not  organ- 
ized, and,  as  you  suggest,  they  have  no  better  security  and  no  better 
rights  given  to  them  under  the  law.  Yet  they  go  to  the  banks  and 
get  a  low  rate  of  interest,  whereas  the  farmers,  as  you  state,  can  not 
get  a  low  rate. 

Mr.  Hill.  I  think  I  can  explain  that.  As  a  rule  the  merchant  is 
thoroughly  organized.  In  every  town  of  any  size  they  have  a  mer- 
chants' association;  they  are  closely  affiliated;  they  have  Dun's  re- 
ports ;  they  keep  books,  and  they  are  in  daily  touch  with  the  banks. 

Mr.  Stone.  Then  it  is  simply  a  matter  of  organization  ? 

Mr.  Hill.  Yes ;  a  matter  of  organization. 


KUKAL   CREDITS.  473 

Mr.  Stone.  If  a  bill  should  propose  a  method  whereby  farmers 
could  organize  do  you  think  that  would  lower  the  rates  of  interest 
at  which  the  farmers  could  get  money  ? 

Mr.  Hill.  Yes;  organize  or  industrialize  their  security;  that  comes 
under  the  head  of  short-term  credit.  My  own  view,  stated  just  as 
briefly  as  possible,  on  that  is,  that  short-term  credit  will  come  to  the 
farmer  just  as  soon  as  he  is  organized. 

Mr.  Stone.  Does  not  this  bill  to  which  you  are  objecting  furnish 
a  method  whereby  the  farmers  can  organize  ? 

Mr.  Hill.  No,  sir.  There  is  a  cooperative  feature  in  there  which 
I  am  pleased  to  approve.  I  am  a  believer  in  cooperation  from  top  to 
bottom  as  the  best  method  of  bringing  cheap  money  to  farmers ;  but 
that  particular  cooperative  method  which  I  am  coming  to  in  a  few 
minutes  is  incomplete  as  it  is  in  this  bill.  I  want  to  develop  that 
idea  ;  that  is  what  I  came  here  for. 

Mr.  Platt.  Are  you  going  to  develop  your  objections  to  the  bill 
further  before  you  go  on  to  other  matters  ? 

Mr.  Hill.  Yes ;  I  have  only  a  few  more  remarks  in  regard  to  the 
objections  to  make. 

On  page  29  of  Mr.  Moss's  testimony  he  says : 

Your  commission  has  come  before  you  with  a  purely  competitive  bill.  It  has 
been  prepared  with  the  idea  of  creating  competition,  not  only  between  different 
institutions  but  between  different  types  of  institutions;  but  if  your  committee 
adopts  the  monopoly  idea,  if  you  are  to  accept  the  central-bank  plan,  then  you 
must  strike  out  of  this  bill  or  any  bill  that  you  report  either  cooperative  banks 
or  joint-stock  banks. 

That  is  not  a  proper  conclusion.  If  this  committee — as  I  believe 
it  will  do  when  it  thoroughly  considers  this  matter — drops  the  whole 
joint-stock  idea,  j7ou  do  not  have  to  fall  over  into  the  arms  of  the  first 
Fletcher  bill  and  adopt  one  great  national  land-mortgage  bank  op- 
erating over  the  whole  United  States,  which  is  several  times  larger 
than  Germany.  There  is  no  bank  in  the  world  that  has  such  a  field 
of  operations  as  that.  But  there  is  a  great  middle  course  to  pursue, 
and  that  is  the  plan  that  I  am  trying  to  develop  and  which  I  came 
here  to  develop. 

Roughly  speaking,  it  is  the  Hungarian  plan,  adapted  to  our 
country,  and  based  on  the  present  building  and  loan  plan. 

There  is  no  monopoly  about  the  plan  of  having  a  central  bank  in 
every  State  in  the  Union;  for  a  central  bank  handling  this  propo- 
sition would  give  no  monopoly  to  anybody. 

I  believe  that  the  farmers  do  not  come  here  and  ask  for  a  monopoly 
about  anything;  and  I  do  not  think  the  bankers  of  any  State  would 
have  any  just  right  to  come  here  and  object  to  a  central  bank  in 
North  Carolina,  for  instance,  loaning  money  to  farmers  on  30-year 
payments,  which  is  a  line  of  business  that  they  do  not  now  engage 
in,  an  absolutely  new  line  of  business  entirely.  The  plan  that  I  seek 
to  bring  before  you  is  a  decentralized  plan  of  the  right  kind.  It  is 
decentralized  sufficiently  to  be  elastic,  to  touch  the  needs  of  every 
State  and  of  every  people.  It  could  so  fit  North  Carolina  that  it 
would  work  out  our  salvation,  and  it  would  not  work  a  hardship 
upon  Texas  or  upon  Massachusetts. 

I  can  not  believe  that  it  is  necessary  to  speak  further  on  monopoly. 
There  is  no  intention  in  any  man's  mind,  so  far  as  I  have  been  able  to 


474  RURAL   CREDITS. 

see,  to  ask  you  gentlemen  to  turn  loose  upon  the  American  people  a 
grand  national  farm-land  bank,  with  red  tape  and  machinery  to 
carry  it  out;  I  would  not  stand  for  that  proposition.  And  I  be- 
lieve Senator  Fletcher  has  withdrawn  his  first  bill;  I  think  it  met 
with  universal  opposition  in  this  country. 

Coming  to  the  cooperative  side,  it  is  very  difficult  for  me  to 
thoroughly  grasp  the  cooperative  side  of  this  bill.  It  appears  to  me 
that  it  was  a  second  thought;  it  was  probably  the  inspiration  of 
.some  master  mind  on  the  committee  that  hung  on,  and  hung  on  to  the 
cooperative  idea,  despite  the  protests  of  his  associates.  It  therefore 
is  incomplete,  necessarily  a  weak  compromise,  which  would  not  work. 
The  fundamental  idea  is  right,  because  it  is  nonprofit  making  to  the 
money  lender.  It  seeks  to  give  the  profit  to  the  farmers  themselves, 
if  there  is  any,  which,  of  course,  is  the  right  idea,  and  is  the  real 
European  idea.  On  account  of  the  vagueness  of  the  organization 
of  the  cooperative  feature  in  this  bill,  I  am  unable  to  thoroughly 
analyze  it  within  the  very  brief  time  that  I  have  had  to  consider 
this  proposition.  It  is  only  three  or  four  days  since  I  received  a  com- 
munication from  Mr.  Bulkley  about  it. 

I  will  therefore  pass  on  quickly  to  some  of  Dr.  Coulter's  testimony, 
which  in  my  mind  should  be  answered  before  this  committee,  as 
impressions  which  may  have  been  fixed  in  the  minds  of  some  of 
the  members  of  the  committee  ought  to  be  removed. 

The  first  is  on  page  47  of  Dr.  Coulter's  testimony.  Dr.  Coulter 
is  a  man,  like  Mr.  Moss,  of  such  tremendous  information  and  ability 
that  I  hesitate,  as  I  did  in  the  case  of  Mr.  Moss,  to  find  fault 
with  anything  that  he  said.  But  my  knowledge  of  the  building  and 
loan  business  is  greater  than  his.  Ten  years  ago  I  took  hold  of  a 
small  building  and  loan  association  and  built  it  up  and  developed  it 
until  now  it  is  one  of  the  most  prosperous  in  our  part  of  the 
country.  It  has  a  surplus  of  $15,000,  which  is,  of  course,  appor- 
tioned every  six  months  among  the  holders  of  the  shares.  I  am 
familiar  with  the  workings  of  the  building  and  loan  association 
plan ;  but  I  will  bring  forward  first  Dr.  Coulter's  idea.    He  says : 

And  I  first  was  inclined  to  think  that  the  building  and  loan  association 
might  do  the  business  pretty  well ;  but  after  studying  it  and  after  interviewing 
the  leading  officers  of  the  national  buliding  and  loan  associations  of  the 
country  and  writing  letters  and  studying  it.  I  have  come  to  the  conclusion 
thai  the  building  and  loan  association  is  not  the  organization  for  this  purpose. 

Well,  I  am  sorry  the  gentleman  did  not  stick  to  his  first  impres- 
sions about  it.  I  am  satisfied,  absolutely  satisfied,  that  he  struck  the 
nail  on  the  head  in  his  first  impression;  he  probably  had  the  Ohio 
Building  and  Loan  Association  in  his  mind;  and  I  think  that  the 
farmers  there  have  grasped  the  right  idea  of  bringing  cheap  money 
to  the  farmer.  The  building  and  loan  association,  as  you  gentlemen 
all  thoroughly  understand,  is  entirely  mutual. 

Dr.  Coulter,  on  the  same  page,  objects  to  the  building  and  loan 
association  on  account  of  its  being  a  local  institution  and  depending 
on  the  savings  of  the  members  for  the  money  which  is  used  in  making 
loans.  It  is  not  necessarily  a  local  institution  at  all.  Building  and 
loan  associations  can  spread  all  over  the  State.  The  building  and 
loan  associations  need  not  be  dependent  upon  their  little  dues.  The 
building  and  loan  association  of  which  I  spoke  owes  the  trust  com- 
pany of  which  I  am  president  $20,000  now.     It  does  not  have  to 


RURAL   CREDITS.  475 

wait  until  it  gets  dues  from  members.  It  is  allowed  by  law  in  most 
States  to  borrow  from  banks  in  order  to  meet  the  demand  for  loans, 
from  25  to  50  per  cent  of  the  amount  that  is  unpaid  on  its  mortgages 
which  it  holds. 

Now,  there  is  the  germ  of  the  whole  thing.  There  is  no  practical 
reason  why  a  large  building  and  loan  association,  changed  and 
adapted  to  suit  the  farmers,  could  not  issue  bonds.  I  have  talked 
with  a  number  of  secretaries  of  building  and  loan  associations  and 
they  assured  me  that  to-day  the  weak  spot  in  the  building  and  loan 
business  is  the  failure  to  meet  the  demand  for  loans,  and  that  build- 
ing and  loan  associations  could  easily  issue  bonds. 

Now,  if  you  develop  the  building  and  loan  idea  along  the  land- 
mortgage  plan  and  let  it  reach  out  for  the  farmers  you  would  start 
with  a  guaranty  fund,  which  must  come  from  somewhere;  it  can 
not  just  float  out  from  self-help — it  must  come  necessarily  from  the 
State  and  the  Government. 

The  farmer  who  comes  in  to  apply  for  a  loan  would  take  stock  in 
the  building  and  loan  association,  and  immediately  his  loan  would 
be  considered,  and  in  the  course  of  a  few  days  it  would  be  granted. 

Now,  the  farmer  would  give  his  mortgage — numbers  of  farmers 
would  give  their  mortgages — to  the  building  and  loan  association, 
and  on  those  mortgages  it  would  go  ahead  and  issue  collateral  trust 
bonds.  The  great  beauty  of  the  thing  is  the  building  and  loan  asso- 
ciation, by  reason  of  its  ability  and  business  hustling  ways,  would 
not  be  issuing  all  the  bonds  to  flood  this  earth  with.  They  would 
not  have  to  issue  more  than  40  per  cent  of  the  amount  that  is  unpaid 
en  their  mortgages,  in  the  opinion  of  some  building  and  loan  experts 
with  whom  I  have  discussed  this  proposition. 

Now,  that  is  a  very  important  point,  I  think,  with  the  building  and 
loan  associations.  Do  not  let  the  farmer  have  the  idea  that  every 
man  could  get  a  loan  in  30  minutes  on  his  collateral  trust  bond  plan. 
Let  him  feel  that  he  has  got  to  pay  as  he  goes  along.  The  farmer 
wants  to  pay  his  way.  The  building  and  loan  plan  simply  permits 
him  to  pay  his  way  without  usury  and  oppression. 

Senator  Hollis.  Mr.  Hill,  I  wish  you  would  state,  briefly,  the  plan 
on  which  the  building  and  loan  associations  are  run,  for  the  record. 
I  am  tolerably  familiar  with  it,  but  many  people  who  read  the  record 
will  not  be. 

Mr.  Hill.  I  have  a  constitution  here  of  a  building  and  loan  asso- 
ciation, if  you  would  like  to  have  that  in  the  record. 

Senator  Hollis.  I  should  think  that  would  be  too  long.  I  think 
you  can  give  the  plan  in  a  few  words,  so  that  we  can  have  it  in  the 
record. 

Mr.  Hill.  The  building  and  loan  association,  briefly  stated,  is  a 
mutual  association,  semiphilanthropic,  of  borrowers,  generally  for 
the  purpose  of  building  homes  in  the  suburbs  of  cities,  but  in  some 
sections  it  extends  to  improved  farm  lands. 

Mr.  Platt.  Now,  that  is  not  quite  complete,  is  it?  It  is  a  mutual 
association  of  borrowers  and  investors,  is  it  not? 

Mr.  Hill.  Yes;  I  should  have  said  and  investors.  There  are  two 
branches  of  it.    One  is  the  investment  plan,  which  provides  that 

Senator  Hollis  (interposing).  You  mean  the  investment  feature? 

Mr.  Hill.  Yes;  investment  feature,  which  provides  that  A,  for 
instance,  who  is  desirous  of  saving  some  money,  is  allowed  to  be 


476  RURAL   CREDITS. 

extended  the  privilege  of  taking  stock  in  the  building  and  loan  asso- 
ciation, so  that  he  will  feel  that  he  is  compelled  to  save  25  cents  each 
week  on  every  share  of  stock.  The  compulsion  idea  is  very  impor- 
tant, because  my  own  experience  shows  me  that  it  soon  teaches  that 
man  the  greal  value  of  saving.  He  has  no  compulsion  to  go  to  the 
savings  bank  and  put  his  dollar  in  the  savings  bank;  if  it  rains  or  he 
feels  la/.v  he  may  not  do  it,  and  there  is  nothing  that  would  happen. 
But  he  would  get  to  the  building  and  loan  association  with  his  dollar 
every  time.  There  is  a  fine  of  5  cents  a  week  if  he  is  more  than  one 
week  behind.  It  looks  like  a  hardship,  but  as  an  actual  fact  it  is  a 
great  blessing  to  the  building  and  loan  association  man  in  most  cases, 
because  it  teaches  him  the  great  value  of  systematic  saving,  and  it 
has  an  educational  value  for  the  man.  I  am  equally  interested  in  the 
building  and  loan  association  and  in  the  savings  bank.  I  have  more 
stock  invested  in  the  building  and  loan  association  than  I  have  in 
the  savings  bank,  so  I  am  in  a  position  to  be  entirely  impartial. 

As  to  the  investment.  I  have  some  information  here  that  I  would 
like  to  read : 

Investment  of  $2.50  weekly  savings  in  a  building  and  loan  association : 
For  334  weeks  at  $2.50  per  week,  the  investment  would  amount  to  $835.    The 
earnings,  by  compounding.  51  times  a  year  at  6  per  cent,  under  the  building- 
and-loan  plan,  would  amount  to  $165.  making  a  total  of  $1,000  for  10  shares. 

Under  the  savings-bank  plan  $2.50  for  334  weeks  would  amount  to  $.835. 
Earning,  by  compounding,  every  four  months  at  4  per  cent,  $108.33.  Total, 
$943.33:  a  difference  in  favor  of  the  building  and  loan  association  of  $50.67. 

That  difference,  however,  is  made  up  out  of  the  earnings,  the  com- 
pound interest  on  those  installment  payments.  It  is  really  about  64; 
per  cent  investment.  A  man  who  simply  wants  to  invest  in  the 
building  and  loan  association,  finds  that  it  is  a  splendid  nontaxable 
6£  per  cent  investment.  There  is  no  better  investment  that  I  know  of. 
It  earns  a  little  more  than  6  per  cent,  because  the  building  and  loan 
association,  like  life  insurance  companies  and  some  other  institu- 
tions, earn  something  by  people  dropping  out  along  the  way.  The 
man  who  drops  out  of  the  building  and  loan  association  does  not  get 
anything  in  interest  on  his  installments  for  the  first  year.  The  man 
man  who  pays  fines,  of  course,  those  fines  go  to  the  profit  also.  There- 
fore, it  is  a  little  more  by  reason  of  persons  withdrawing,  not  get- 
ting the  full  6  per  cent,  and  by  reason  of  the  fines  and  other  little 
incidentals  that  might  come  in,  it  is  a  little  better  than  a  6  per  cent 
investment. 

The  other  side  of  the  building  and  loan  association  is  the  borrow- 
ing side.  Upon  a  vacant  lot.  which  he  has  generally  paid  for,  a  man 
wants  to  build  a  house.  He  figures  out  about  what  the  house  is  going 
to  cost,  and  generally  files  an  estimate  from  a  reputable  contractor, 
and  he  is  allowed  to  file  an  application  for  75  per  cent  of  the  fair 
valuation  of  the  lot  and  of  the  estimated  cost  of  the  house.  He  com- 
mences  to  pay  his  installments.  $2.50  each  installment 

Senator  Hollis.  He  is  allowed  to  bid  for  the  loan  in  our  part  of 
the  country. 

Mr.  Hill.  Yes:  I  will  come  to  that.  His  installments  continue 
to  pile  up.  and.  of  course,  the  theory  of  the  building  and  loan  associ- 
ation is  that  it  lends  out  only  the  aggregate  installments.  Now.  there 
is  the  weak  spot  in  the  building  and  loan  association.  All  the  build- 
ing and  loan  associations  that  I  know  anything  about  are  very  much 


RURAL   CREDITS.  477 

behind;  most,  of  them  a  year  behind.  Five  or  six  times  I  have  loaned 
the  association  with  which  I  am  connected  the  money  to  meet  the 
demands.    That  is  practically  coming  to  the  bond  basis. 

Mr.  Platt.  That  means  to  meet  the  loans  they  have? 

Mr.  Hill.  Yes;  to  meet  all  applications  for  loans  that  they  have. 
To  get  up  to  date.  That  is  the  way  to  make  a  large,  prosperous 
building  and  loan  association.  In  the  course  of  six  months  or  a  year 
the  average  man  reaches  his  time.  Perhaps  there  will  be  five  \vho 
will  file  applications  on  the  same  day  and  want  the  same  $1,000. 

Then,  the  secretary  of  the  building  and  loan  association  puts  it  up 
and  says,  "  How  much  will  you  give,  Mr.  A?"  Mr.  A  says,  "I  will 
give  you  $5."  Then,  the  secretary  says,  "  Mr.  B,  how  much  will  you 
give?"  He  says,  "I  will  give  $10";  and,  then,  Mr.  C  says  that  he 
will  give  $15. 

Well,  the  highest  bidder  gets  the  money,  and  the  association  gets 
the  premium.  Sometimes  there  is  quite  a  little  income  that  comes  in 
in  that  way.  I  will  not  allow  the  premium  idea  in  our  building  and 
loan  association.  I  believe  it  is  wrong.  It  is  making  a  man  pay  more 
than  6  per  cent  interest  for  his  money.  I  would  rather  loan  the 
money  at  6  per  cent  myself,  because  I  do  not  believe  in  that  system. 

Now,  when  the  loan  is  made  the  mortgage  is  placed  on  the  man's 
property.  The  loan  is  charged  to  him  on  the  books  as  he  draws  the 
money  out.  The  inspector  from  the  building  and  loan  association 
examines  the  house  from  time  to  time,  and  has  a  certificate  from  the 
contractor  stating  how  much  has  been  done  on  the  house;  and  the 
money  is  paid  out  in  proportion  to  the  work  done  on  the  house. 
When  the  house  is  completed,  the  total.  $1,000,  has  been  paid  out  and 
interest  has  only  been  paid  on  the  installments  as  the  man  actually 
drew  the  money;  so  the  building  and  loan  association  really  has  the 
current- account  feature  somewhat  developed. 

Mr.  Platt.  The  amortization  plan,  however,  is  not  based  on  the 
payment  of  installments. 

Mr.  Hill.  Now,  coming  to  the  amortization  plan — the  installments 
on  10  shares,  the  man  pays 

Mr.  Platt  (interposing).  $5  a  month,  in  my  neighborhood. 

Mr.  Hill.  He  paid  by  the  week;  334  weeks  his  standard  time,  at 
$2.50  a  week,  $835.  He  pays  interest  for  334  weeks  at  $1.16  a  week, 
that  makes  $378.44,  making  a  total  of  $1,222.74  for  the  whole  period 
of  time  to  the  maturity  of  the  stock.  The  matured  stock  then  works 
a  cancellation  of  the  $1,000  mortgage. 

Compared  with  a  bank,  if  he  borrowed  $1,000  from  a  bank,  at 
the  end  of  334  weeks  he  would  owe  $1,000.  He  would  have  paid 
interest  334  weeks  at  6  per  cent,  the  same  as  the  building  and  loan 
association,  $387.44.  In  the  bank,  therefore,  he  would  owe  $1,387.44 
as  against  $1,222.44  for  the  building  and  loan  association.  The 
difference  of  $165  in  favor  of  the  building  and  loan  association  is 
made  up  of  interest  compounded  on  his  installments.  So  that  it 
is  absolutely  clear  to  any  human  mind  that  the  man  who  borrows 
money  from  the  building  and  loan  association  gets  the  money  at 
about  6  per  cent.  While  his  interest  charge  remains  the  same  until 
maturity,  yet  he  is  getting  interest  on  all  his  installments  all  the  time, 
and  the  interest  on  the  installments  at  the  end  finally  offsets  the 
interest  on  the  mortgage. 


478  EUEAL  CREDITS. 

I  want  t<»  make  this  perfectly  clear,  because  a  great  many  banks 
arc  antagonizing  building  and  loan  associations  and  are  telling  people 
that  under  the  building  and  loan  association  plan  in  the  last  half  of 
the  period  you  are  paying  all  kinds  of  interest  up  as  high  as  20  per 
cent,  wheh  is  not  true,  as  has  been  absolutely  demonstrated. 

Another  side  of  the  building  and  loan  association  plan  is  this — the 
management  side  of  the  building  and  loan  association,  the  adminis- 
trative  side  of  it:  It  is  generally  operated  by  a  secretary  who  devotes 
a  part  of  his  time  to  it — two  afternoons  in  the  week,  perhaps.  It 
operates  under  the  lowest  possible  overhead  charges  of  any  institu- 
tion in  the  United  States.  They  are  limited  by  law,  in  some  of  the 
States  to  one-half  of  1  per  cent.  It  therefore  seeks,  and  is  compelled 
by  law  to  deliver  the  money  to  the  poor  man  without  enormous 
salaries  and  graft. 

And  that  is  one  of  the  grand  qualities  of  the  building  and  loan 
association,  that  the  hand  of  the  law  is  upon  it  all  the  time.  The 
very  minute  the  secretary  of  the  building  and  loan  association  under- 
takes to  run  up  his  salary  the  inspector  from  the  insurance  depart- 
ment of  North  Carolina  puts  his  finger  upon  him  and  says  "  hold 
on." 

Senator  Hollis.  What  class  of  men  perform  the  executive  work 
for  those  associations? 

Mr.  Hill.  They  are  generally  bookkeepers  or  real  estate  men; 
but  as  a  rule  they  are  philanthropists  of  the  highest  kind.  I  have 
never  yet  known  a  single  secretary  of  a  building  and  loan  association 
that  did  not  have  firmly  embedded  in  his  mind  the  philanthropic 
idea.  Mutuality  and^raft  do  not  go  together;  mutuality  and  profit 
seeking  do  not  go  together,  and  constantly  helping  a  man  would 
make  out  of  a  money  shark,  if  he  would  undertake  it,  a  good  man. 

On  the  other  hand,  the  constant  shaving  out  of  the  little  profit  and 
putting  it  into  your  pocket  for  a  stockholder  who  is  grasping,  and 
who  is  frequently  living  somewhere  else,  perhaps,  will  change  a  man 
from  a  philanthropist  to  a  hard-hearted  man — or  will  have  a  tend- 
ency to  do  that.  I  will  not  say  that  it  will  necessarily  do  that,  for 
there  are  a  great  many  good  men  who  do  that.  There  is  a  small 
charge  for  the  inspection  of  the  property.  That  is  generally  done  in 
the  association  I  am  connected  with  for  nothing,  and  we  pride  our- 
selves in  giving  money  to  the  working  people.  That  is  what  our 
association  is  organized  for,  and  what  it  is  going  to  continue  to  be 
organized  for,  as  long  as  I  have  anything  to  do  with  it. 

Its  bookkeeping  is  considerable.  As  the  payments  come  in  they 
are  credited  in  the  book  which  the  stockholder  in  the  building  and 
loan  association  holds  all  the  time.  That  is  an  evidence  of  payment. 
The  payment  as  well  as  the  interest  is  also  credited  on  the  building 
and  loan  association  books. 

Now,  the  building  and  loan  association  is  an  immensely  profitable 
concern.  The  one  with  which  I  am  connected  now  has  in  profits 
$15,000,  the  surplus  January  1,  1014.  on  3,753  shares. 

There  are  a  small  number  of  shareholders.  Tt  has  not  been  organ- 
ized many  years.     It  ha-  a  surplus  of  $ir>.734  on  3,753  shares. 

Mr.  1'i.att.  You  mature  your  shares  in  334  weeks,  do  you  not? 

Mr.  Hill.  Yes.  sir. 

Mr.  Platt.  That  is  about  seven  years? 

Mr.  Hayes.  No:  six  years  and  five  months. 


RUEAL   CREDITS.  479 

Mr.  Hill.  A  little  less  than  six  and  one-half  years.  This  surplus 
is  apportioned  every  six  months  among  the  shareholders.  The  build- 
ing and  loan  association  offers  a  premium  for  a  man  to  stick  to  the 
last.  The  man  who  stays  in  the  building  and  loan  association  gets  his 
money  at  a  little  under  6  per  cent,  5|  per  cent.  The  man  who  draws 
out  early  loses  the  first  year  the  interest  on  his  installments,  the 
second  year  he  gets  a  part  of  the  interest  only,  after  the  fourth  year, 
I  believe,  he  gets  as  much  as  6  per  cent,  compounded  on  all  install- 
ments paid  in. 

Mr.  Platt.  That  is  a  matter  of  local  regulation. 

Mr.  Hill.  Yes;  a  mater  of  local  regulation. 

Mr.  Platt.  Sometimes  the  State  laws  govern  that,  as  in  New  York 
State  ? 

Mr.  Hill.  Yes. 

Mr.  Platt.  There  is  no  hard-and-fast  rule  that  building  and  loan 
shares  should  be  matured  in  334  weeks.  In  New  York  State  I  think 
they  ordinarily  mature  in  12  years. 

Mr.  Hill.  The  matter  of  maturing  the  shares  and  the  period  for 
which  the  shares  run  is  a  mere  matter  of  detail;  each  association 
probably  has  its  own  term  period.  I  have  never  looked  up  the  statis- 
tics in  regard  to  building  and  loan  associations  particularly,  except 
as  to  carry  in  mind  that  there  are  several  million  stockholders  in  the 
building  and  loan  associations — two  or  three  or  four  million.  But 
what  I  do  know  is  that  in  the  great  Southland  the  building  and  loan 
association  is  in  the  minds  of  the  people  and  in  the  hearts  of  the 
people.  You  find  a  building  and  loan  man,  and  he  is  going  to  stand. 
He  is  not  going  to  pay  any  usury.  He  is  proud  of  his  building  and 
loan  association.     He  knows  what  a  blessing  it  is. 

You  have  to  educate  the  people  to  understand  the  building  and 
loan  association.  It  is  perfectly  clear  to  you  gentlemen,  as  it  is  per- 
fectly clear  to  my  mind,  how  it  works,  but  it  is  a  very  difficult  thing 
to  explain  the  workings  of  the  building  and  loan  association  to  the 
man  who  can  not  read  and  write.  Therefore,  in  a  manufacturing 
town  like  that  where  I  live,  where  a  great  many  people  are  unedu- 
cated, it  was  an  uphill  business  to  teach  the  people  the  building  and 
loan  idea.  All  of  which  comes  back  to  the  great  fundamental  idea 
of  education.  The  United  States  Government,  in  my  judgment,  must 
prepare  itself  promptly  to  furnish  tremendous  aid  along  educational 
lines  for  rural  economics,  for  building  and  loan  plans,  and  circularize 
about  the  advantages  of  these  philanthropic  propositions — show  the 
people  how  to  organize.  We  need  that  in  the  building  and  loan 
association  plan.  The  building  and  loan  people  all  over  the  United 
States  will  unite  and  ask  Congress  to  circularize  about  the  advan- 
tages of  helping  the  man  to  build  his  own  home ;  and  I  tell  you  gen- 
tlemen frankly  that  I  do  not  know  anything  that  a  man  can  do  in 
this  country  higher  and  better  than  helping  the  man  to  build  his 
home  and  helping  a  man  to  improve  his  home.  And  that  is  why  I 
am  here  to-day,  to  make  this  fight  if  I  can. 

Mr.  Platt.  You  would  not  say  that  a  25-cents-a-week  plan  could 
be  carried  out  with  farmers,  would  you,  or  even  $1  a  month? 

Mr.  Hill.  Yes;  the  25-cents-a-week  plan  would  not  apply  gener- 
ally to  the  farmers.  But  farmers  in  my  country  are  being  taught  to 
diversify  farming.  The  one-crop  idea  is  being  discouraged.  Every- 
where farmers  are  taught  to  have  three  or  four  crops;   they   are 


480  RURAL  CREDITS. 

taught  ih.it  dairy  farming  is  profitable;  they  are  taught  that  egg 
farming  is  profitable  and  that  truck  farming  is  profitable.  I  come 
from  a  truck-farming  section  and  have  a  truck  farm  myself.  They 
start,  in  with  asparagus  the  loth  of  March,  and  with  different  truck- 
ing crops  go  clear  on  up  to  September  and  ship  something  every 
week.  The  tenant  farmer  can  pay  his  dues.  All  the  tenants  on  my 
farm  are  engaged  in  trucking.  Those  men  can  pay  their  building 
and  loan  association  dues  just  like  anybody  else;  the}''  pay  by  the 
month.  There  is  no  reason,  fundamentally,  in  the  operation  of  the 
building  and  loan  plan  why  you  should  pay  by  the  week. 

The  farmer  could  pay  three  months  in  advance,  and  the  same 
money  would  be  compounded.    I  would  like  to  see  this. 

If  the  farmer  now  borrows  in  the  South,  he  not  only  pays  his  in- 
terest in  advance  for  three  or  six  months,  but  pays  the  commission, 
and  pays  every  other  charge  in  advance.  So  why  could  not  the 
farmer  pay  in  installments  in  a  building  and  loan  association  three 
months  in  advance,  or  pay  them  six  months  in  advance?  It  is  noth- 
ing more  than  he  is  doing  now.  But  I  believe  the  building  and 
loan  plan  can  be  so  standardized  and  developed  that  he  can  pay  it 
at  the  end  of  the  six  months.  It  simply  means  a  little  longer  in 
maturity. 

But  coming  to  the  great  thing,  which  to  my  mind,  is  absolutely 
fundamental,  let  us,  by  all  that  is  holy  and  good,  give  this  money  to 
the  farmers  at  actual  cost,  and  demonstrate  to  him  that  it  is  at  actual 
cost.  If  a  man  is  to  pay  6  per  cent  for  his  mone}^,  let  it  be  actual  cost. 
If  he  pays  5  per  cent  for  his  money,  let  that  be  at  actual  cost;  and 
it  is  my  opinion,  based  on  experience,  that  you  will  get  all  the  money 
for  him  that  you  want  to  at  actual  cost,  5  per  cent. 

Now,  the  building  and  loan  association  plan  can  be  adapted  to 
the  farmer  by  carrying  the  plan  a  few  more  weeks  longer;  instead  of 
334  weeks,  make  it  350  weeks,  enabling  him  to  pay  at  the  end  of  the 
period,  and  he  simply  loses  the  small  interest. 

Dr.  Coulter  also  says,  on  page  48  of  his  testimony : 

That  (borrowing  money  I  is  a  very  exceptional  and  rare  part  of  their  business. 

Of  course.  I  have  shown  that  that  is  not  in  accordance  with  the 
custom  of  building  and  loan  associations  in  our  part  of  the  country. 
They  do  borrowT  money  largely  from  the  banks  or  individuals  who 
are  friendly,  and  they  pay  6  per  cent  for  it.  The  idea  of  Dr.  Coulter  on 
community  loans  is  shown  on  page  62,  w7here  he  says  that  he  changed 
his  Avhole  idea,  because  he  got  information  that  small  municipalities 
and  small  parts  of  the  county,  or  the  township,  and  so  on,  were  bor- 
rowing money  at  low  rates  of  interest  without  any  difficulty.  I  want 
to  ask  if  he  saw  the  real  difficulty?  In  my  State,  just  as  I  was 
leaving,  a  small  county  sold  its  bonds,  $30,000  of  bonds  (Warren 
County,  X.  C.)  at  5  per  cent.  And  what  do  you  suppose  the  charge 
was?  The  lawyers'  fees  in  New  York  City,  the  roundabout  grapevine 
fees  and  commissions,  amounted  to  $3,200  for  selling  a  $30,000  bond 
issue.     Now.  that  is  the  actual  fact  as  to  Warren  County.  X.  C. 

Mr.  Seldomridge.  Let  me  interrupt  you  there.  Mr.  Hill.  My 
city.  of  35,000  people,  floated  a  bond  issue  of  $100,000  among  its  own 
people,  without  paying  any  commission  whatever. 

Mr.  1 1  hi..  Tun  obtained  the  money  from  your  own  people. 

Mr.  Plait.  How  long  ago  was  that.  Mr.  Seldomridge? 


RURAL   CREDITS.  481 

Mr.  Seldomridge.  Within  the  last  three  or  four  months. 

Mr.  Hayes.  Our  people  in  California  have  got  money  from  their 
own  people,  and  sold  the  bonds  at  a  premium  without  paying  any 
commission  at  all. 

Mr.  Hill.  I  think  the  reason,  however,  for  floating  municipal  bonds 
is  the  community  interest,  the  great  strength  behind  it.  I  have  not 
any  idea  that  if  a  small  $10,000  bank  was  started  there  and  you 
undertook  to  float  those  bonds  these  people  would  buy  them.  But 
you  let  that  be  a  lien  upon  the  whole  community  and  you  have  got  a 
belief  in  the  minds  of  the  people  that  you  have  got  something  strong; 
and  if  your  bonds  are  sold  locally  they  are  sold  cheaply,  showing  that 
they  are  sold  without  much  rake-off  and  showing  the  community 
spirit  that  there  is  in  the  transaction. 

But  the  plan  that  I  have  in  mind  provides  for  making  a  State  in- 
stitution the  fiscal  agency  for  all  bonds  issued  by  municipalities, 
counties,  or  any  public  corporation  in  the  State  issuing  bonds. 

Mr.  Platt.  Municipal  bonds  are  largely  taken  by  the  savings 
banks  in  our  country. 

Mr.  Hill.  Yes.  Unless  something  is  done  to  check  the  whole  bond 
busfness  in  the  South  there  is  going  to  be  a  great  financial  collapse. 
People  are  issuing  bonds  for  all  sorts  of  purposes.  In  at  least  one- 
third  of  the  instances  that  come  under  my  observation  the  bonds  were 
irregular.  Members  of  the  legislature  have  frequently  told  me  that 
a  certain  bond  bill  was  drawn  up  by  the  local  city  attorney  or  the 
county  attorney  and  rushed  through  the  legislature,  and  nobody 
paid  any  particular  attention  to  it,  and  they  have  had  to  go  to  the 
supreme  court  time  and  time  again  contending  for  the  validity  of 
those  bonds. 

Mr.  Platt.  That  is  the  reason  for  having  to  pay  the  legal  expenses, 
etc.,  that  you  mentioned  a  moment  ago. 

Mr.  Hill.  That  is  one  of  the  reasons.  Suppose  a  small  munici- 
pality in  North  Carolina — we  will  call  it  "  Ramscat " — should  start 
in  to  repudiate  an  issue  of  $20,000  of  bonds.  It  has  been  done ;  that 
is  no  flight  of  the  imagination.  Immediately  the  credit  of  North  Caro- 
lina would  be  ruined.  It  would  be  advertised  all  over  the  financial 
centers  of  the  United  States  that  North  Carolina  had  repudiated  her 
bonds. 

Now,  there  might  be  some  reason  in  the  minds  of  those  people  for 
that.  But  we  want  some  central,  stable  body  standing  there  between 
the  man  in  New  York  that  loans  us  his  good  money  and  the  man 
down  in  North  Carolina  that  is  spending  that  money  on  streets  and 
sidewalks  and  good  roads,  which  soon  wash  away  and  wear  away. 

I  can  imagine  no  greater  service  that  this  central  bank,  under  the 
Hungarian  plan,  adapted  to  the  building  and  loan  association  plan, 
would  perform  in  North  Carolina  than  to  act  as  a  fiscal  agent,  with 
the  State  certifying  to  the  regularity  of  those  bonds,  selling  those 
bonds  and  establishing  an  everlasting  sentiment  against  any  sort  of 
attempted  repudiation  of  those  bonds — in  short,  organizing  the  bond 
business  of  North  Carolina  and  other  States. 

That  is  one  of  the  most  profitable  businesses  in  Europe,  and  is 
done  by  many  of  these  institutions,  as  the  evidence  shows.  I  have 
not  time  to  give  you  a  number  of  illustrations  which  I  have  of  that, 
because  I  believe  you  will  agree  with  me  that;  it  is  a  great  business. 

37031—14 31 


482  RURAL   CREDITS. 

And  it  is  an  immensely  profitable  business.  Would  you  send  a  boy 
to  do  a  great  man's  work?  Would  you  send  an  average  fiduciary 
agent  to  New  York  to  sell  an  issue  of  bonds?  He  would  get  lost  in 
New  York ;  he  would  never  sell  his  bonds.  What  is  the  practice  ?  A 
general  junketing  trip  of  the  city  attorney,  and  probably  the  mayor 
and  the  mayor's  son.  and  two  or  three  other  people,  and  get  lost;  and 
finally  they  land  in  the  office  of  some  trust  company,  and  a  smart 
boy  in  the  trust  department  finally  makes  the  trade  with  them — about 
the  fees  and  about  the  marketing  of  the  bonds,  and  the  regularity  of 
the  bonds. 

The  profit  of  this  concern  from  this  business  alone  would  probably 
take  care  of  the  overhead  charges.  Why  not  send  the  secretary  of 
your  institution,  your  big  institution?  That  is  his  business;  he 
studies  markets  everywhere.  If  there  is  anything  true  about  finance, 
it  is  that  when  you  go  to  market  a  security  you  want  a  man  to  do  it ; 
you  do  not  want  a  boy;  you  do  not  want  a  blundering  ignoramus 
marketing  bonds.  You  want  a  man  to  market  the  bonds  who  can  go  to 
New  York  or  to  Cincinnati  or  anywhere  else.  I  have  marketed  bonds 
myself,  and  I  know  what  it  is.    It  is  a  man's  job. 

Mr.  Platt.  The  man  is  not  the  man  ordinarily  for  the  job,  then? 

Mr.  Hill.  I  should  not  think  so.  Now,  I  have  figured  as  to  the 
plan  which  I  have  in  mind,  which  I  will  only  develop  roughly,  be- 
cause of  lack  of  time  to  consider  it:  and  I  want  to  say  that  I  do  not 
consider  it  perfect  at  all ;  and  I  expect  you  gentlemen  can  make  im- 
provements in  it. 

Following  up  the  idea  of  the  State  central  land-mortgage  bank 
having  charge  of  the  issue  of  bonds  of  public  corporations,  I  submit 
that  it  would  be  of  very  great  advantage  to  the  corporations  in  at 
least  some  of  the  States  to  standardize  the  issue  of  these  bonds,  to 
standardize  the  methods  of  establishing  sinking  funds,  to  standardize 
the  rates  of  interest  paid  by  banks  for  sinking  funds,  and  to  require 
that  at  least  a  part  of  the  sinking  fund  be  paid  into  this  central  bank, 
thereby  guaranteeing  organized  supervision  over  the  whole  bond- 
issue  business  of  public  municipal  corporations. 

Generally  speaking,  the  plan  which  I  desire  to  submit  to  these  com- 
mittees is  the  modified  Hungarian  plan,  applied  to  our  building  and 
loan  associations  that  may  be  organized  to  meet  the  needs  of  the 
farmers. 

The  history  of  European  business  shows  that  it  has  been  the  co- 
operative land-mortgage  companies,  or  partly  cooperative,  like  the 
Hungarian  land-mortgage  institute,  which  have  set  the  pace  for  cheap 
long-time  money  and  have  educated  the  public  into  purchasing  deben- 
ture bonds.  There  can  be  no  objection  to  the  legal  provision  whereby 
the  joint  stock  companies  of  ordinary  type,  organizing  for  profit,  may 
be  permitted  to  go  into  the  land-mortgage  business. 

In  my  opinion,  the  farmers  of  the  country  do  not  ask  any  special 
privilege  along  this  line,  and  do  not  ask  any  legislation  that  would 
prevent  private  capitalists  from  going  into  the  land-mortgage  busi- 
ness. But  they  do  not  want  the  whole  business  of  marketing  their 
securities  intrusted  to  the  money  lenders.  They  want  a  State-con- 
trolled institution  to  help  them  secure  their  money  at  cost. 

I  respectfully  submit  that  the  great  agricultural  interests  of  the 
United  States  should  not  be  left  to  the  mercy  of  joint-stock  institu- 
tions.    I  submit  that  they  need  in  each  State  at  least  one  large  State 


RURAL   CREDITS.  483 

land-mortgage  institute,  with  sufficient  foundation  capital  of  the 
building  and  loan  investment  kind  and  a  sufficient  guaranty  fund  fur- 
nished by  the  State  and  by  the  National  Government,  bearing  interest 
at  the  rate  of  3  per  cent  from  the  National  Government  and  4  per 
cent  from  the  State,  to  act  as  a  revolving  fund  to  be  used  to  start  off 
the  business  and  thereafter  to  be  gradually  repaid  as  the  reserve 
fund  or  the  profits  of  the  business  shall  accumulate. 

There  should  be  a  limitation  requiring  that  founders"  shares,  or 
paid-up  building  and  loan  shares,  should  not  draw  a  greater  interest 
than  5  per  cent.  There  should  be  a  provision  whereby  the  farmers 
themselves  can  have  a  large  voice  in  the  management  of  the  institu- 
tion. In  all  probability  the  institution  could  be  established  by  the 
joint  efforts  of  three  commissioners,  one  appointed  by  the  United 
States  Government  for  each  State,  one  appointed  by  each  State  gov- 
ernment, and  one  appointed  by  organized  bodies  of  farmers  in  each 
State. 

After  the  business  has  been  once  thoroughly  established,  then  in 
all  probability  a  plan  could  be  worked  out  by  which  the  local  stock- 
holders in  each  State  of  this  mutual  land-mortgage  association  would 
have  the  right  and  power  to  elect  one  commissioner.  The  other 
minor  officers  of  the  institution  could  be  selected  by  the  three  com- 
missioners referred  to. 

This  institution  should  act  as  fiscal  agent  of  the  State  government, 
in  whole  or  in  part.  This  institution  might  reasonably  control  the 
issue  of  bonds  of  public  corporations,  and  sinking  funds  thereunder, 
and  thereby  do  a  profitable  business.  This  institution  should  be 
allowed  to  do  what  is  commonly  called  a  mutual  savings-bank  busi- 
ness, and  allowed  to  take  unlimited  deposits.  Its  savings-bank  de- 
posits should  be  used  for  making  short-time  loans  of  less  than  five 
years  on  dependable  property,  possibly  city  property,  as  well  as 
farm  property. 

I  also  respectfully  submit  that  from  the  municipal  bond  business, 
and  from  the  savings-bank  business,  the  overhead  charges  of  the 
institution  would  be  paid,  or  largely  paid.  If  not,  however,  the 
farmer  applying  for  a  loan  should  be  compelled  to  take  out  a  certifi- 
cate of  stock  in  the  association  to  the  amount  of  his  loan.  He  should 
then  pay  interest  at  no  higher  than  5  per  cent  on  the  loan,  and  the 
loans  might  run  at  periods  of  as  long  as  20  or  30  years,  and  be 
repaid  on  the  installment  plan. 

The  borrower  should  pay  the  proper  amortization  charge,  and  also 
a  small  premium  charge  or  entrance  fee,  which  said  entrance  fee 
should  be  transferred  at  once  to  the  reserve  fund  for  the  purpose  of 
building  up  a  large  reserve  in  order  to  return  the  loans  in  the  shape 
of  deposits  from  the  State  government  and  the  Federal  Government. 

I  also  respectfully  submit  that  a  large  institution  of  this  kind 
would  earn  great  profits.  These  profits  should  be  devoted,  first,  to 
the  building  up  of  a  reserve;  second,  to  bringing  down  of  the  rate  of 
interest  to  the  farmers. 

Under  all  circumstances  it  should  be  clearly  and  absolutely  demon- 
strated that  the  farmers  in  the  State  are  securing  their  money  at 
actual  cost,  all  charges  counted  in. 

The  organization  of  this  large  State  association,  with  a  guaranty 
fund  furnished  in  the  shape  of  deposits  by  the  Federal  Government 
of  at  least  $500,000,  should  be  started,  in  all  probability,  by  an 


484  RURAL   CREDITS. 

appropriation  from  the  Treasury  of  the  United  States,  or  by  a 
law  requiring  the  postal  deposits,  to  the  extent  of  not  to  exceed 
$20,000,000,  to  be  placed  in  these  large  State  land-mortgage  institu- 
tions, 48  in  number. 

Mr.  Bulkley.  By  way  of  deposits,  Mr.  Hill  ? 

Mr.  Hill.  Either  by  way  of  deposit  upon  a  stated  period  of  time, 
not  to  be  withdrawn  until  the  sinking  fund  permits  it  to  be  with- 
drawn, and  gradually  retired  by  the  entrance  fees  and  other  sinking- 
fund  fees.  There  are  many  ways  of  securing  the  money;  and  I 
would  not  like  to  be  held  responsible  for  offering  a  perfect  plan  of 
securing  the  money.  I  am  informed  by  eminent  authority  that  there 
is  no  constitutional  objection  in  the  way,  either  in  the  Constitution 
of  the  United  States  or  in  the  constitutions  of  most  of  the  States. 
Under  the  Federal  reserve  act,  as  a  last  resort,  the  United  States 
Government  is  permitted  to  take  stock  in  the  reserve  banks 

Mr.  Bulkley.  Well,  do  you  suggest  that  the  United  States  should 
take  stock  in  these  banks? 

Mr.  Hill.  No,  sir;   only  to  deposit. 

Mr.  Bulkley.  Well,  did  you  not  suggest  that  there  was  some  al- 
ternative besides  deposits? 

Mr.  Hill.  I  say  there  are  so  many  plans  that  I  have  not  had  the 
opportunity  to  develop  them;  but  there  are  several  plans  that  could 
be  worked  out,  all  of  which  are  satisfactory,  so  far  as  I  am  concerned. 

Mr.  Bulkley.  Which  is  the  Hungarian  plan? 

Mr.  Hill.  The  Hungarian  Land  Mortgage  Institute  is  as  follows: 

On  May  31  a  small  committee  from  the  American  commission  examined  the 
Hungarian  Land  Mortgage  Institute  at  Budapest,  Hungary,  which  was  organized 
in  1S63  on  altruistic  principles.  It  has  a  capitrl  of  $200,000  loaned  to  it  by  the 
State  at  4  per  cent  and  a  further  capital  of  $470,000  in  the  shape  of  founders' 
shares,  limited  as  to  dividends  to  5  per  cent.  Only  10  per  cent  was  paid  in  on 
founders'  shares.  The  balance  was  guaranteed  by  deed,  and  in  the  first  12 
years  of  operation  of  the  institution  all  the  founders'  shares  were  remitted  out 
of  the  profits  of  the  concern.  The  chief  aim  of  the  institution  was  to  give  the 
cheapest  credit  possible  to  its  members.  The  membership  in  the  institute  was 
composed  of  its  founders  and  its  largest  debtors  and  delegates  elected  by  groups 
of  small  debtors.  The  small  borrowers,  grouped  by  districts,  elected  their  rep- 
resentatives to  the  national  meetings.  Thirty-six  members  of  the  institution 
constitute  a  committee  of  control. 


The  loans  of  this  institution  were  made  on  real  estate  on  a  50  per  cent  basis, 
-on  dependable  land.  The  loans  were  made  generally  for  63  years  at  a  rate  of 
4\  per  cent  interest,  0.29  per  cent  was  added  as  a  mortization  fee  or  annual 
payment  on  the  principal,  and  0.06  per  cent  was  charged  for  administration, 
making  total  of  4.85  per  cent  to  cover  all  expenses.  The  loans  could  be  repaid  at 
any  time  by  the  borrowers  without  penalty.  Application  for  a  loan  was  made  in 
writing  to  the  institution,  then  turned  over  to  a  legal  department  for  investiga- 
tion. The  institution  had  a  committee  on  loans  in  every  county,  and  the  appli- 
cation for  a  loan  was  referred  to  the  committee  on  loans  in  the  particular 
county  in  which  the  property  was  located.  This  committee  served  without 
salary  and  membership  was  considered  to  be  a  mrk  of  great  honor.  Other 
outside  information  was  also  secured  by  the  institution  about  the  value  of  the 
land,  but  the  institution  relied  mainly  upon  the  report  of  the  county  committee. 
If  the  report  of  the  committee  was  favorable  the  institution  proceeded  to  make 
the  loan,  and,  instead  of  paying  over  the  amount  of  money  directly  to  the  bor- 
rower, it  delivered  to  him  collateral  trust  bonds  issued  against  a  great  number 
of  aggregated  individual  mortgages.  These  trust  bonds  were  payable  to  bearer 
and  paid  Interest  at  the  rate  of  4  per  cent.  The  borrower  found  ready  market 
for  bis  bonds  at  from  9S  to  93.  These  collateral  ti'ust  bonds  were  exempt  from 
State  taxation  and  were  considered  the  safest   investment  in  Hungary.     They 


RURAL  CREDITS.  485 

sold  on  about  the  same  basis  as  Government  bonds,  and,  in  time  of  financial  dis- 
tress, were  considered  to  be  stronger  security  than  Government  bonds.  The 
land-mortgage  institute  was  inspected  by  commissioners  appointed  by  the  Gov- 
ernment each  year.  It  confined  it  operations  to  loans  on  land  in  Hungary. 
No  charge  was  made  for  investigating  the  title  to  the  land  and  no  commission 
was  charged  for  placing  the  loan.  The  institution  received  savings  deposits 
from  the  general  public  and  paid  interest  on  them  at  a  slightly  lower  rate  than 
savings  banks.  The  loans  made  by  the  Hungarian  Land  Mortgage  Institute 
and  now  outstanding  amount  to  $400,000,000,  and  during  the  first  47  years  of 
operation  the  institution  has  paid  back  all  of  its  founders'  shares  and  has  accu- 
mulated a  surplus  fund  of  $2,000,000. 

Each  State  might  be  granted  by  the  Federal  Government  a  deposit 
of  $200,000  and  then  a  further  deposit  not  to  exceed  $300,000  addi- 
tional, in  proportion  to  the  rural  population  of  that  State.  The 
State  institution  might  be  decentralized  in  its  government  as  soon 
as  farmers  applied  for  loans  and  became  stockholders.  In  the  be- 
ginning it  might  be  advisable  to  require  the  chairman  of  the  board 
of  county  commissioners  of  each  county,  the  chairman  of  the  board 
of  education  of  each  county,  and  the  register  of  deeds  of  each  county 
in  each  State  to  act  as  an  advisory  committee  to  the  State  central 
land-mortgage  bank. 

There  are  many  plans  offered  by  the  foreign  authorities  for  decen- 
tralizing the  work  of  appraising  the  property,  and  making  it  easy 
for  the  money  to  reach  the  farmers  themselves  without  expensive 
charges,  traveling  expenses,  and  red-tape  obstructions. 

The  Hungarian  plan  is,  in  substance,  a  capital  furnished  by  the 
Hungarian  Government  as  a  loan,  to  be  repaid  in  an  estimated  period 
of  20  years ;  also  a  capital,  composed  of  founders'  shares,  upon  which 
founders'  shares  a  dividend  of  not  to  exceed  5  per  cent  is  paid,  which 
permits  well-meaning  persons  in  Hungary  to  help  in  this  great  work 
of  bringing  cheap  money  to  the  door  of  the  farmer. 

I  respectfully  submit  that  there  is  a  great  deal  of  money,  and  there 
are  a  great  many  men  in  every  State  in  the  United  States,  who  would 
be  willing  to  take  out  founders'  shares  in  such  institutions. 

After  the  institution  had  been  operated  for  a  short  period  of  time, 
a  natural  result  of  its  organization  would,  in  all  probability,  be  the 
formation  of  local  cooperative  credit  unions,  organized  partly  by  the 
members  of  the  State  central  building  and  loan  association,  and  part 
of  its  members  would  probably  be  other  farmers  who  did  not  desire 
long-term  credit,  or  were  not  in  a  position  to  secure  long-term 
credit,  but  would  want  short  credit.  The  loans  to  the  farmers 
should  be  on  dependable  land,  on  a  50  per  cent  basis,  without 
direct  consideration  of  the  value  of  the  buildings  on  the  same;  and 
the  natural  result  of  these  loans  would,  it  is  respectfully  submitted, 
mean  better  farming  and  better  business  and  more  enthusiasm  in  the 
local  county  association  or  township  association. 

I  have  said  that  it  would  be  the  duty  of  the  chairman  of  the  board 
of  county  commissioners,  the  chairmen  of  the  board  of  education,  and 
the  register  of  deeds  of  the  county,  who  generally  acts  as  clerk  of  the 
county  commissioners,  to  be  especially  charged  that  these  organiza- 
tions should  meet  at  least  once  a  year,  and  in  a  properly  organized 
manner,  so  as  to  receive  reports  in  regard  to  loans  and  transmit 
such  information  to  the  central  State  office. 

I  also  respectfully  submit  that  the  great  problem  of  short-term 
credit  would  be  greatly  helped  by  the  institution  of  this  State-aided 
bmldintr  and  loan  plan. 


486  ,      RUKAL   CREDITS. 

In  the  light  of  European  experience  it  does  not  seem  wise  to  at- 
tempt to  couple  directly  the  State  land  loan  association  with  the 
short-term  credit  proposition,  except  indirectly,  as  I  have  outlined. 
It  is  the  history  of  Europe  that  State-aid  institutions  somewhat  sim- 
ilar to  the  one  I  have  outlined  have  laid  the  way  toward  bringing 
cheap  money  to  the  farmer. 

In  the  book  published  as  Senate  document  214,  Agricultural  Co- 
operation and  Rural  Credit  in  Europe,  where  the  evidence  is  col- 
lected, we  find  the  following: 

Q.  Have  all  the  banks  in  Hungary  been  forced  to  place  loans  on  real  estate 
on  nearly  the  same  basis  as  your  institution  and  those  similar  to  it? — A.  They 
are  forced  to  grant  money  practically  on  the  same  conditions,  but  a  little 
dearer.  Only  the  provincial  savings  banks  give  a  bigger  loan,  compensated 
for  by  the  higher  rate  of  interest. 

Q.  The  two  branches  of  institutions  for  the  loaning  of  money  are  in  active 
competition  with  each  other? — A.  Yes;  land-mortgage  institutes  act  against 
the  banking  institutes. 

This  institution  and  the  provincial  saving  banks  are  in  distinct 
antagonism,  by  reason  of  the  fact  that  in  former  times  before  the 
institution  of  cooperative  societies  the  banks  were  able  to  lend  money 
to  the  people  in  want  of  it  at  enormous  rates  of  interest. 

Wolf  on  Cooperative  Banking  (p.  244)  says: 

Another  most  successful  offshoot  of  the  landschaft  system  is  the  Boden  Credit 
Institute  of  Hungary,  which  has  to  some  extent  been  based  upon  the  possession 
of  an  independent  capital  figuring  as  a  reserve  fund.  In  addition  to  the 
1,000,000  crowns  (something  over  £40,000)  granted  by  the  Government,  209 
founders  subscribed  collectively  £13,900,  with  liability  for  nine  times  the  same 
amount,  held  in  reserve.  This  seems  to  have  been  considered  necessary  for 
making  the  institution  go  on  new,  untried  ground. 

I  respectfully  submit  that  no  cooperative  institution  for  providing 
cheap  money  on  farm  lands  would  be  able  to  start  off  of  its  own 
initiative  without  the  help  of  some  outside  capital  furnished  by  the 
State,  or  by  individuals,  to  enable  it  to  make  a  start. 

Wolf  further  says: 

Gone  it  certainly  has,  and  that  exceedingly  well.  So  well  as,  in  course  of 
time,  to  susgest  the  formation  of  a  similar  institute  for  mortgage  loans  for 
peasant  lands.  The  Boden  Credit  Institute  is  intended  for  large  properties 
only.  It  grants  no  loans  below  the  amount  of  2,000  crowns  (or  $400)  ;  and  the 
majority  of  its  advances  to  landowners  are  above  that  amount. 

On  page  249  Wolf  says : 

The  Government  institutions  have  plainly  done  good,  and  have,  above  all 
things,  achieved  their  particular  purpose  of  bringing  appropriate  assistance  to 
the  small  agriculturist. 

On  page  250  Wolf  says : 

The  Government  institutions  have  certainly  succeeded  exceedingly  well — 
better  than  our  own  joint-stock  companies  formed  for  the  same  purpose,  and 
that  without  loss  to  the  taxpayer. 

Wolf  (p.  253)  says: 

The  State-endowed  institutions  then  have,  on  the  whole,  not  a  bad  record  to 
exhibit.  They  have  placed  money  within  the  reach  of  the  peasant  proprietor, 
who  was  previously  too  small  for  the  savings  banks,  which  are  abroad  the  great 
purveyors  of  mortgage  money,  to  look  af,  since  his  business  was,  in  each  in- 
dividual case,  only  petty  and  troublesome;  who,  furthermore,  if  not  too  small, 
was  at  any  rate 'too  distant  from  the  pay  office  of  the  landschaften  to  deal 
with  and  who  was  deemed  altogether  unworthy  of  the  notice  of  the  joint-stock 
mortgage  banks.  They  have  done  this  m  an  efficient,  appropriate  way  by 
Stationing  their  officers  in  every  district  and  making  application,  valuation,  and 
borrowing  decidedly  easier  for  those  peasantry. 


RURAL    CREDITS.  487 


On  page  256  Wolf  says 


They  are  borrowers'  institutions.  They  may  be  regarded  as  landsehaften 
with  the  cramping  and  hampering  features  of  those  institutions  removed.  They 
are  borrowers'  institutions,  which  admit  any  agricultural  borrowers  as  mem- 
bers who  may  desire  to  become  so  in  their  district.  In  respect  to  one  point, 
they  have  departed  rather  materially  from  the  principle  of  the  landsehaften. 
Persons  desirious  of  furthering  the  movement  are  eligible  as  well  and 
many  of  them  do  take  shares.  In  Saxony  such  members  are  required  to  be 
either  agriculturists  or  landowners.  The  idea  of  proceeding  without  a  command 
of  ready  cash  appears  to  have  presented  itself  to  the  originator  of  this  mod- 
ern movement  as  so  inconsistent  with  business  principles  that  in  both  of  the 
two  countries  to  provide  the  first  working  funds  an  advance  from  the  Govern- 
ment was  accepted. 

In  the  Saxony  society  it  amounted  to  37,500  pounds  and  was  paid  off  within 
four  years.  In  the  Bavarian  society  it  was  considerable,  beginning  with  50,000 
pounds',  advanced  free  of  interest,  and  another  50,000  pounds,  since  increased  to 
200,000  pounds,  advanced  at  3  per  cent  interest. 

On  page  258  Wolf  says : 

Absence  of  funds  of  their  own  would  place  such  institutions  absolutely  at 
the  mercy  of  the  confraternity  of  bankers.  With  money  in  their  pockets,  the 
societies  are  able  to  meet  such  machinations  and  to  regulate  the  supply  of  the 
market  so  as  to  keep  it  absolutely  at  a  steady  quotaton,  which  is  not  only 
desirable  in  itself  and  certainly  benefits  their  credit,  but  it  is  in  addition 
specially  important  to  their  members. 

Cahill,  on  page  21,  mentions,  as  one  of  the  characteristic  features 
of  the  State,  provincial,  and  district  mortgage  banks  "  a  certain  de- 
centralization of  business  by  the  utilization  of  local  officials." 

And,  on  page  30,  Cahill  says : 

The  organization  of  the  latter — 

Meaning  the  joint-stock  land-mortgage  banks — 

was  not  capable  of  sufficient  decentralization  consistent  with  adequate  returns 
upon  the  expenses  incurred  by  the  maintenance  of  local  representatives  or 
offices  necessary  for  such  business.  In  the  case  of  the  other  banks,  which 
limit  their  operations  to  a  province  or  a  small  district,  adequate  knowledge  of 
intending  borrowers  and  supervision  over  mortgaged  estates  is  more  easily 
secured  and  the  general  expenses  of  administration  are  reduced  by  the  fact 
that  their  administration,  apart  from  those  actually  in  permanent  office  em- 
ployment, is  largely  honorary;  nor  were  the  land-mortgage  banks  inclined  to 
seek  such  business. 

In  brief,  the  simple  plan  of  a  proposed  bill  is  for  the  Congress  of 
the  United  States  to  appropriate  out  of  the  Treasury  to  be  deposited 
an  amount  not  to  exceed  $20,000,000,  upon  some  general  conditions. 
Those  conditions  have  been  largely  outlined  in  detail,  but  may  be 
briefly  summed  up  as  follows: 

(1)  That  the  deposit  or  loan  from  the  United  States  draw  3  per 
cent  interest. 

(2)  That  the  amount  be  granted  on  condition  that  each  State  con- 
tribute a  like  amount  for  a  like  purpose,  except  that  the  State  fund 
shall  draw  4  per  cent  interest. 

(3)  This  joint  cooperation  of  the  State  and  the  Federal  Govern- 
ment in  providing  a  fund  shall  act  as  a  revolving  fund  for  the  pur- 
pose of  starting  off  the  institutions,  and  shall  be  gradually  retired 
as  a  surplus  accumulates  from  the  operations  of  these  State  land- 
mortgage  banks. 

(4)  The  United  States  should  have  one  commissioner,  who  should 
have  full  and  proper  powers  for  the  inspection  of  the  bank  at  all 
times,  requiring  monthly  reports  and  frequent  examinations. 


488  RURAL  CREDITS. 

(5)  Upon  condition  that  the  institution  be  cooperative,  nonprofit 
seeking,  and  all  profits  remaining  after  meeting  expenses  of  manage- 
ment to  go  toward  the  building  up  of  a  sufficient  reserve  fund,  and 
after  that,  to  the  benefit  of  the  borrowers,  by  lowering  the  rate  of 
interest  on  their  mortgages;  or  in  cutting  down  the  administration 
charge  from  one-half  of  1  per  cent  to  one-quarter  of  1  per  cent  or  less. 

(6)  Upon  further  condition  that  the  founders'  shares  of  said  insti- 
tution shall  be  nontaxable  for  all  purposes,  both  State  and  national ; 
and  that  the  collateral  trust  bonds  shall  be  made  nontaxable  by 
State  and  national  governments. 

(7)  That  the  management  of  said  institution  shall  keep  in  view 
the  interests  of  the  small  borrowers,  for  the  purpose  of  lending  aid 
wherever  necessary  and  advisable  to  the  small  farmer,  to  buy  and 
develop  his  land,  thereby  bringing  into  cultivation  millions  and 
millions  of  acres  of  good  farming  land  now  uncultivated.  (In  the 
State  of  North  Carolina  there  are  now  14,000,000  acres  of  land  classi- 
fied as  farm  land  not  in  a  state  of  cultivation.) 

(8)  For  the  purpose  of  securing  the  interest  of  the  general  invest- 
ing public  in  the  United  States,  that  such  institutions  be  made  fiscal 
agent  and  have  direct  supervision  over  the  issue  of  all  public  bonds 
within  certain  prescribed  limits. 

There  are  many  other  characteristics,  which  are  roughly  outlined 
in  the  report  of  the  Agricultural  Credit  Commission  of  the  Province 
of  Saskatchewan,  page  199,  and  also  on  page  217,  which  gives  recom- 
mendations for  a  State-aided  cooperative  land-mortgage  bank.  For 
lack  of  time  I  will  not  read  that  into  the  record. 

In  closing  I  wish  to  say  that  already  the  committee  appointed  by 
the  governor  of  North  Carolina,  composed  of  men  familiar  with  con- 
ditions there,  has  reported  as  follows: 

There  is  pressing  need  in  North  Carolina  for  a  great  State  land-mortgage  in- 
stitute  

Mr.  Bulkley  (interposing).  You  may  incorporate  that  report  in 
the  record,  Mr.  Hill. 

(The  report  referred  to  is  as  follows:) 

The  Needs  of  North  Carolina  Farmers  with  Kkgard  to  Credits,  Marketing, 

and  Cooperation. 

To  His  Excellency  Hon.  Locke  Craig.  Governor  of  North  Carolina: 

We,  the  undersigned  committee  appointed  by  your  excellency  to  report  on  con- 
ditions affecting  agricultural  credit,  marketing,  and  cooperation  in  North  Caro- 
lina, beg  leave  to  submit  the  following  report  for  transmission  to  the  American 
Commission  on  Agricultural  Finance,  Production.  Distribution,  and  Rural  Life: 
It  is  clear  that  there  is  something  radically  wrong  with  the  facilities  for  bor- 
rowing money  on  farm  lands  in  North  Carolina.  From  general  inquiry  in  many 
parts  of  the  State  the  fact  is  revealed  that  few  banks  in  North  Carolina  lend 
on  farm  lands  and  that  the  average  farmer  desiring  to  borrow  money  on  his 
land  is  compelled  to  deal  with  the  land  loan  shark,  and  is  compelled  to  pay 
from  6  to  20  per  cent  on  money  borrowed.  As  a  general  rule  he  is  subjected  to 
many  kinds  of  extortion,  usury,  and  exploitation,  and  naturally  the  average 
farmer  of  North  Carolina  is  very  much  dissatisfied  with  the  present  land  loan 
shark  business  and  avoids  borrowing  money  whenever  possible.  Frequently  the 
land  loan  shark  preys  upon  the  necessities  of  the  distressed  fanner  and.  re- 
gardless of  law  against  usury,  without  conscience  and  without  heart,  gets  all 
for  the  money  loaned  that  his  victim  will  pay.  Another  curious  fact  about  this 
business  in  North  Carolina  is  that  the  more  remote  the  farmer  lives  from  the 
larger  money  centers,  the  greater  the  usury,  the  higher  the  commission  and  re- 
newal fees,  and  the  more  exacting  the  oppression  and  the  extortion. 


RURAL   CREDITS.  489 

Hardly  any  greater  blessing  could  befall  tbe  farmers  of  North  Carolina  than 
the  institution  of  a  system  of  land-mortgage  credit  that  will  bring  money  to  the 
farmers  and  land  owners  at  a  low  rate  of  interest,  and  by  the  process  of  amorti- 
zation or  annual  installments,  extend  to  them  the  privilege  of  repaying  this 
money  over  a  long  period  of  years.  Our  farmers  are  willing  to  pay  what 
money  is  worth  in  the  markets  of  the  world,  but  they  are  not  willing  to  be 
robbed  by  land  loan  sharks  and  "blood  suckers."  Rather  than  subject  them- 
selves to  oppression,  they  prefer  to  allow  about  14,000,000  acres  of  land  to  re- 
main in  a  state  of  waste  that  is  a  menace  to  the  health  and  happiness  of  the 
entire  population  of  our  State. 

COLLECTIVE   CREDIT   OF   CITIES   UTILIZED;    WHY   NOT   COLLECTIVE   CREDIT   OF   FARMERS? 

Collective  credit  for  public  purposes  and  at  from  4  to  5  per  cent  has  already 
been  extended  by  investors  to  nearly  all  the  counties  of  North  Carolina  and  to 
many  townships  upon  satisfactory  amortization  basis,  but  collective  credit  has 
been  denied  the  citizen  in  his  individual  capacity.  The  result  has  been  that  the 
counties  and  cities  in  North  Carolina  in  their  corporate  capacties  have  made 
such  marvelous  progress  as  to  attract  the  attention  of  the  rest  of  the  country, 
yet  the  farmer  in  North  Carolina  is  making  little  progress  in  developing  his 
lands.  The  average  Tar  Heel  farmer  is  only  making  a  bare  living.  He  enjoys 
none  of  the  profits  derived  from  the  business  handling  of  his  products. 

It  is  a  fairly  established  fact  that  there  is  a  great  deal  of  money  in  North 
Carolina  that  would  be  invested  in  land-mortgage  bonds  bearing  5  per  cent  in- 
terest payable  to  bearer  and  secured  by  aggregated  mortgages  on  farm  lands, 
but,  in  order  that  money  for  such  investment  may  be  attracted,  we  should  first 
make  some  reforms  in  our  present  system  of  taxation ;  second,  we  must  insti- 
tute the  necessary  financial  machinery  for  handling  land-mortgage  bonds;  and 
third,  we  must  remove  from  the  minds  of  the  bankers  their  unjust  prejudice 
against  lending  money  on  real  estate.  The  actual  experience  of  a  few  banks  in 
different  parts  of  our  State  shows  that  this  prejudice  is  unjust,  and  that  loans 
on  real  estate,  especially  small  loans  on  real  estate,  when  handled  with  in- 
telligence, are  just  as  liquid  and  active  as  loans  on  other  security  and  are  safer 
and  better  loans  than  the  average  loan  found  in  commercial  banks. 

But  in  view  of  the  fact  that  the  great  commercial  bank  is  highly  organized 
for  the  purpose  of  supplying  credit  to  the  manufacturers,  merchants,  and  busi- 
ness men,  it  would  be  difficult  for  such  a  bank  to  extend  its  business  to  the 
handling  of  land  mortgages.  There  is  pressing  need  in  North  Carolina  of  a 
great  State  land-mortgage  institution  (or  some  institution  rendering  similar 
service)  with  proper  capital  and  with  proper  equipment  for  mobilizing  in- 
dividual land  mortgages  placed  on  property  located  in  the  various  counties,  and 
issuing  bonds  against  these  aggregated  individual  land  mortgages,  controlled  by 
the  farmers.  The  form  of  organization  of  this  great  land-mortgage  institution 
should  be  largely  determined  by  the  security  behind  the  collateral  trust  bonds 
and  the  ability  of  the  institution  to  find  a  satisfactory  market  for  its  issues  of 
bonds,  whether  at  home  or  abroad. 

While  the  greatest  need  of  the  farmer  is  probably  for  long-time  credit,  yet 
there  is  also  a  great  and  pressing  need  of  short-term  credit  for  North  Carolina 
farmers. 

At  the  present  time  the  manufacturers,  the  merchants,  and  business  men  in 
the  cities  of  North  Carolina  have  a  practical  monopoly  of  short-time  credit. 
The  average  farmer  either  has  no  credit  at  all  or  is  compelled  to  use  such  forms 
of  high-priced  credit  as  he  can  obtan  from  the  merchant.  We  have  a  great 
many  banks  in  North  Carolina,  but  we  have  scarcely  any  banks  willing  to  do 
the  banking  business  of  the  poor  man.  The  farmer  who  has  little  or  no  prop- 
erty which  can  be  taken  by  law  for  debt — the  man  who  has  no  stored-up 
capital  in  North  Carolina — has  practically  no  standing  at  its  banks.  This  great 
body  of  borrowers  does  not  receive  consideration  at  the  banks  because  the 
average  bank  is  not  organized  to  handle  this  class  of  business. 

It  is  estimated  that  there  are  at  least  200,000  persons  engaged  in  agriculture 
iu  North  Carolina  that  have  not  sufficient  stored-up  property  to  give  them 
standing  either  at  land-mortgage  banks  or  at  the  present  commercial  banks,  but 
these  people  greatly  need  money  at  reasonable  rates  of  interest  for  purchasing 
supplies,  fertilizers,  seed,  and  for  paying  for  labor.  A  cheap,  safe,  and  elastic 
form  of  credit  which  could  be  reached  by  this  tremendous  class  of  small  farmers 
would  work  wonders  in  upbuilding  agriculture  and  bring  much  new  business  to 
our  commercial  banks. 


490  RURAL   CREDITS. 

PRESENT    BANKING    FACILITIES    UNSUITED    TO    FARMER'S    NEEDS. 

The  small  Tar  Heel  farmer  has  no  use  for  a  90-day  loan  that  the  commercial 
bank  handles,  and  upon  which  it  charges  interest  in  advance  and  requires  25 
per  cent  of  the  money  borrowed  to  be  left  in  the  bank  without  interest.  The 
farmer  wants  money  for  6,  9,  and  12  months  with  the  privilege  of  renewing  the 
loan  until  he  has  marketed  his  crop,  and,  in  the  event  of  crop  failure,  until  he 
can  raise  another  crop.  Rather  than  pay  from  8  to  20  per  cent  for  his  money 
and  have  himself  subjected  to  the  uncertainty  of  call  by  the  bank,  he  will  either 
join  (or  be  forced  to  join)  the  great  hosts  of  farmers  who  have  moved  to  the 
cities,  or  become  a  crop-lien  farmer,  closing  entirely  the  door  of  hope  for  land- 
ownersbip  and  home  building. 

It  is  respectfully  submitted  that  the  collective  paper  of  neighborhood  groups 
of  North  Carolina  farmers  is  as  good  security  as  the  collective  paper  of  neigh- 
borhood groups  of  farmers  in  any  other  country  in  the  world.  There  is  a  great 
and  pressing  need  for  steps  to  be  taken  as  rapidly  as  practicable  to  organize 
neighborhood  cooperative  credit  unions  among  our  farmers  in  order  that  they 
may  secure  short-term,  cheap,  safe,  and  elastic  credit  to  which  they  are  so 
justly  entitled. 

THE  NEEDED  FORM   OF  CREDIT  FNION  OR  FARMERS'   BANKS. 

The  particular  form  of  this  credit  union  can  be  determined  by  the  particular 
locality  in  which  it  is  to  be  organized.  The  credit  union  of  each  neighborhood 
should  be  thoroughly  adapted  to  its  necessities.  Generally  speaking,  the  consti- 
tution and  by-laws  of  the  credit  union  must  conform  to  the  means  of  securing 
funds. 

If  the  organizers  believe  that  sufficient  deposits  can  be  secured  from  the  com- 
munity to  take  care  of  the  loans  of  the  farmers,  then  the  cooperative  credit 
union  would  take  the  form  of  a  savings  and  loan  association  and  naturally 
would  follow  somewhat  after  the  Raiffeissen  model. 

If  the  organizers  believe  that  the  deposits  secured  from  the  neighborhood 
would  only  be  sufficient  to  take  care  of  a  part  of  the  loans  required  by  the 
farmers,  and  the  balance  of  the  money  needed  is  to  come  from  rediscounting 
the  paper  of  the  union,  the  form  of  organization  would  probably  follow  some- 
what after  the  Hungarian  model. 

If  the  organizers  did  not  take  into  consideration  at  all  the  deposits  from  the 
neighborhood  and  expected  to  rely  entirely  upon  rediscounting  the  paper  of  the 
credit  union  in  order  to  raise  funds  to  meet  the  demands  for  loans  by  the 
farmers,  then  the  form  would  probably  follow  somewhat  after  the  French  model. 

No  matter  what  cooperative  form  the  local  credit  union  adopted,  the  foun- 
dation principle  would  be  the  same— that  is,  that  any  man  of  good  character 
and  industrious  habits  may  secure  financial  assistance  if  needed  for  productive 
purposes,  and  that  this  necessary  credit  shall  be  advanced  to  him  at  as  low  a  rate 
as  the  rate  charged  by  banks  to  any  other  citizen  of  the  State.  Many  of  these 
unions  may  find  it  advisable  to  incorporate  some  specific  features  of  our  town 
building  and  loan  associations. 

RELATIONS   TO    EXISTING    BANKS. 

As  any  cooperative  system  of  local  credit  unions  would  substitute  industry 
and  honesty  for  stored-up  property  as  security,  it  is  respectfully  submitted 
that  they  should  be  organized  separate  and  apart  from  our  highly  organized 
inercial  banks.  It  is  not  only  possible  but  highly  desirable  that  this  new 
agency  shall  be  connected  with  the  existing  banks  and  not  projected  against 
them,  provided  that  the  banking  institutions  of  our  State  be  willing  to  redis- 
count the  paper  of  the  neighborhood  credit  unions  on  a  satisfactory  basis, 
and  thus  share  in  the  great  volume  of  new  business  that  the  organization  of 
these  cooperative  credit  unions  will  be  sure  to  create. 

But  if  our  existing  banks,  through  neglect,  stupidity,  or  selfishness,  fail 
to  meet  this  great  movement  kindly  and  assist  in  its  organization  and  develop- 
ment, then  it  will  be  up  to  the  farmers  of  North  Carolina  to  go  it  alone  and 
organize  a  big  central  cooperative  bank  to  act  as  a  monetary  adjustment 
institution,  a  clearing  house  for  all  the  local  credit  unions  in  the  State. 

SAFETY    OF    COOPERATIVE    BANKS    ASSURED. 

Under  the  provisions  of  the  pending  national  currency  bill  such  a  State 
central  cooperative  bank  would  have  little  difficulty  in  rediscounting  the  bulk 


RURAL    CREDITS.  491 

of  the  paper  of  the  local  credit  union  with  the  nearest  regional  bank  of  issue 
of  the  United  States.  The  power  to  rediscount  agricultural  paper  by  order 
of  the  Federal  Government  at  a  fixed  rate  of  interest  granted  by  this  currency 
bill  ought  to  be  sufficient  argument  to  induce  our  existing  banks  to  make  a 
thorough  study  of  this  great  problem  and  do  all  in  their  power  to  give  us  the 
very  great  blessing  of  cheap,  safe,  elastic  credit  for  our  North  Carolina  farmers. 

There  need  be  nothing  startling  about  the  proposition  to  the  banks  to  redis- 
count for  our  local  cooperative  credit  unions  a  reasonable  amount  of  the 
paper,  which  is  secured  by  the  earning  capacity  of  our  best  farmers  instead 
of  by  land,  buildings,  stocks,  and  bonds. 

Experience  shows  that  the  earning  capacity  of  farmers  organized  in  coop- 
erative credit  unions  is  about  the  best  banking  security  in  all  the  world.  A 
signed  statement  from  Dun's  agency  in  Austria  states  that  this  agency  did 
not  have  any  record  of  a  single  failure  of  the  Ltaiffeissen  (cooperative)  banks, 
and  that  the  system  was  founded  on  such  a  strong,  conservative  basis  that 
failure  was  practically  impossible.  In  Germany,  where  there  are  many  thou- 
sand cooperative  credit  unions,  there  are  57  failures  of  commercial  banks  to  1 
failure  of  the  cooperative  credit  unions. 

In  Hungary,  during  a  recent  financial  crisis,  all  of  its  2,412  cooperative 
banking  institutions  stood  the  strain  without  failure,  while  52  banks  of  the 
ordinary  joint-stock  kind  which  we  have  in  North  Carolina,  or  10  per  cent  of 
the  entire  number  of  such  banks  in  the  country,  were  compelled  to  close  their 
doors. 

INEFFECTUAL     MARKETING     SYSTEM     HINDERS     PRODUCTION. 

Reports  from  the  agricultural  department  show  that  last  year  North  Caro- 
lina imported  $5,000,000  worth  of  corn  for  feed  purposes,  $4,000,000  worth  of 
vegetables.  $15,000,000  worth  of  hay,  12,000,000  pounds  of  butter;  and  despite 
the  fact  that  probably  no  country  in  the  world,  in  proportion  to  its  acreage, 
offer  better  facilities  for  raising  hogs  and  cattle,  we  imported  last  year 
52,000,000  pounds  of  meat  in  order  that  our  people  might  be  fed.  All  in  all, 
the  value  of  food  products  imported  into  North  Carolina  during  the  past  year 
reached  the  enormous  sum  of  $50,000,000.  It  is  clear  from  the  above  facts 
that  our  farmers  either  have  not  learned  the  great  lesson  of  diversified  farm- 
ing or  they  have  not  learned  how  to  produce  food  products  as  cheaply  as 
farmers  of  other  parts  of  the  country. 

It  is  clear  that,  step  by  step,  the  farmers  of  other  States  are  capturing  our 
markets  for  foodstuffs  and  our  farmers  are  driven  more  and  more  to  the  one- 
crop  system  of  production.  It  is  necessary  to  place  farming  in  North  Carolina 
on  a  business  basis.  Step  by  step  the  great  manufacturing  centers  in  North 
Carolina  are  capturing  the  markets  of  tbe  world.  Why  can't  our  farmers  do 
likewise?  Perhaps  our  farmers  might  profitably  learn  from  our  captains  of 
industry  the  secret  of  thoroughly  industrializing  the  business  of  farming.  In 
order  to  accomplish  this  great  result  there  is  need  of  organized  community 
effort;  the  farmers  in  North  Carolina  need  to  follow  the  example  of  farmers 
of  other  parts  of  the  world  and  turn  to  cooperation  as  the  great  working 
system  that  will  give  them  a  fair  sbare  of  the  profits  of  their  labors,  by  bring 
ing  them  in'  closer  relationship  with  the  consumers. 

STANDARDIZATION    OF    FARM    PRODUCTS 

must  be  the  rule  in  North  Carolina  if  our  farmers  expect  to  meet  outside 
competition.  In  all  probability  one  of  the  greatest  reasons  for  the  failure  of 
our  farmers  to  present  a  better  showing  in  the  production  of  foodstuffs  for 
our  people  in  their  persistent  refusal  to  standardize  the  products  they  sell. 

The  strawberry  farmer  who  fills  tbe  bottom  of  his  baskets  with  small,  knotty 
strawberries  and  crowns  the  top  with  delicious,  large,  red  berries,  is  only  cut- 
ting off  his  nose  to  spite  his  face.  When  his  crate  of  berries  reaches  the  mar- 
ket the  consumer  overturns  the  baskets  and  penalizes  the  farmer  by  refusing 
to  buy  his  crate  of  berries  at  all  or  by  paying  the  price  of  knotty  berries  for  the 
whole  crate,  one-half  of  which  would  bring  first-class  prices. 

The  good,  honest  housewife  who,  in  her  ignorance,  sends  to  town  a  couple  of 
dozen  eggs  which.,  by  mistake,  include  six  of  uncertain  age,  is  sure  to  get  a 
low  price  for  her  eggs ;  and  furthermore,  she  brings  about  hard  feelings  between 
the  merchant  and  the  consumer. 

The  apple  grower  who  "  faces  "  his  barrel  of  apples  and  fills  the  center  of  the 
barrel  with  off-color,  off-shape,  undersize.  and  wormy  apples  is  bringing  dis- 


492  RURAL   CREDITS. 

credit  upon  his  State  and  low  prices  for  himself  and  his  neighbors.  Upon  reach- 
ing the  market  the  barrels  have  to  be  opened,  every  apple  standardized  and  re- 
packed,  and  all  this  work  must  be  paid  for  at  high  prices,  plus  many  extras. 
The  producer  la  thereby  penalized  and  the  consumer  is  made  to  pay  for  the 

extra  work  of  repacking  the  apples.  A  properly  labeled,  standardized  barrel 
will  obviate  the  necessity  for  repacking,  bring  better  prices  for  the  farmers,  and, 
by  cutting  out  waste,  lower  the  price  to  the  consumer,  bring  smiles  to  the  faces 
of  American  wives,  and  encourage  them  to  use  more  apples. 

If  the  farmers  of  North  Carolina  will  only  standardize  their  products  and 
label  them  "  North  Carolina  "  they  will  quickly  build  up  a  world-wide  market 
for  all  their  products  and  secure  at  least  25  per  cent  better  prices.  Irish  farm- 
ers captured  the  London  markets  by  standardizing;  why  can't  North  Carolina 
farmers  capture  the  market  of  New  York  by  standardization?  Sharp  dealing 
in  the  marketing  of  farm  products  brings  low  prices,  overproduction,  and  tre- 
mendous waste,  while  square  dealing  and  standardizing  in  marketing  farm 
products  bring  greatly  increased  prices  and  world-wide  markets. 

DISTRIBUTION    OF    FARM    PRODUCTS 

in  North  Carolina  is  characterized  by  tremendous  waste,  complicated  methods, 
outworn  ideas,  and  general  dissatisfaction.  Lack  of  proper  system  of  market- 
ing and  distribution  of  our  farm  products  is  costing  North  Carolina  fanners  an 
annual  tribute  of  millions  of  dollars. 

One  illustration,  the  marketing  of  eggs,  will  be  sufficient  to  show  the  waste 
and  duplication  of  service,  the  loss  to  the  farmer,  and  the  loss  to  the  consumer. 
Eggs  that  are  served  on  the  breakfast  table  of  the  leading  men  in  the  leading 
cities  of  North  Carolina  have  frequently  passed  through  a  wonderful  around 
the-country  trip.  They  have  been  collected  by  the  farm  wives  at  odd  times  and 
kept  until  the  number  was  sufficient  to  carry  them  to  the  nearest  store.  From 
the  country  merchant  they  pass  to  the  collector,  who  makes  it  a  business  to  go 
through  the  country  gathering  egss  from  the  storekeepers.  The  collector  ships 
the  eggs  in  large  quantities  to  cities  like  Richmond  and  Baltimore,  where  they 
are  received  by  wholesale  dealers,  known  as  commission  men.  The  commission 
men  then  sell  the  eggs  in  large  quantities  to  jobbers,  who  in  turn  sell  the  eggs 
to  the  retailer,  the  small  corner  groceryman.  Then  our  city  housekeeper  orders 
the  eggs  over  the  telephone  and  the  groceryman  delivers  the  eggs,  which  are  of 
ancient  age,  to  the  home  of  the  consumer;  and  finally  the  family  cook  stops  the 
merry-go-round  of  the  eggs  from  the  hands  of  the  farm  wife,  the  storekeeper, 
the  collector,  the  commission  man.  the  jobber,  the  corner  groceryman,  to  the  city 
consumer.  At  each  transfer  there  is  loss  in  handling,  expense  for  trucking, 
storage,  and  margin  of  profit. 

The  same  amount  of  unnecessary  waste  in  more  or  less  degree  is  found  in 
handling  the  poultry,  vegetables,  fruit,  peanuts,  and  other  articles  of  farm 
produce  other  than  staple  crops  as  cotton  and  tobacco. 

There  is  something  radically  wrong  with  the  present  method  of  marketing 
when  rhe  farmer  of  Halifax  County  gets  $2  a  bag  for  neanuts,  which,  after 
taking  the  merry-go-round  journey  of  the  commission  merchant  and  the  jobber, 
finally  lands  in  Guilford  County  at  $7  per  bag. 

It  is  poor  encouragement  to  the  farmer  of  Craven  County  when  he  can  get 
only  $1.50  a  barrel  for  white  potatoes  which  finally  reach  the  consumer  in  Dur- 
ham County  at  a  price  of  $4.80  per  barrel. 

The  Buncombe  County  farmer  is  going  slow  in  mortgaging  his  land  for  cheap 
money,  repayable  in  small  installments  over  a  long  period  of  years,  in  order  that 
he  may  acquire  sufficient  capital  to  plant  his  waste  farm  land  in  apple  orchards 
when  he  is  compelled  to  sell  his  apples  at  $1  per  barrel  that  have  to  take  a 
round-about  journey  through  several  States  and  several  cities  and  finally  reach 
the  consumer  of  Wake  County  at  $6  per  barrel. 

We  n 1  to  establish  a  great  system  of  community  marketing  whereby  the 

best  brains  and  the  best  energies  of  the  State  are  employed  in  bringiag  the  pro- 
ducer  and  the  consumer  closer  together.  Individual  marketing  by  the  farmer, 
as  well  ns  individual  marketing  by  the  consumer  of  the  city,  has  proven  a 
failure  in  North  Carolina  as  elsewhere  in  the  world.  We  need  a  system  of 
cooperation,  or  association  marketing,  whereby  the  products  of  the  farmer  are 
offered  to  the  consumer  in  uniform  quantities,  thoroughly  standardized,  and 
guaranteed  in  quality,  and  thoroughly  suited  to  the  requirements  of  the  con- 
sumer. The  Tarheel  farmer  will  then  receive  a  fair  market  price  for  all  the 
marketable  produce  that  he  can  grow  upon  his  farm. 


RURAL   CREDITS.  493 

PEOPEB    ORGANIZATION 

of  tlie  faniers  of  North  Carolina  is  greatly  needed  to  devise  the  ways  and 
means  for  establishing  institutions  that  will  provide  long-term  and  short-term 
credit  desired  by  the  farmers,  and  that  will  institute  proper  systems  of  coopera- 
tive production  and  cooperative  distribution. 

The  last  census  shows  that  about  four-tenths  per  cent  of  the  population  of 
North  Carolina,  or  1  person  out  of  every  250,  was  foreign  born;  hence  it  is 
apparent  that  the  two  and  a  half  millions  of  white  people  in  our  State  are 
about  the  most  homogeneous  body  of  white  people  on  the  face  of  the  globe. 
There  would  seem  to  be  no  serious  obstacles,  therefore,  in  the  way  of  finally 
organizing  our  white  farmers  along  cooperative  lines  after  they  have  had  suffi- 
cient opportunity  to  learn  what  cooperation  really  means  and  after  they  have 
had  time  to  acquire  the  true  cooperative  spirit. 

Let  us  proceed  on  the  principle  that  cooperation  means  "  organized  self-help  " ; 
all  these  needed  reforms  must  be  brought  about  mainly  by  the  farmers  them- 
selves. What  the  farmers  can  do  for  themselves  along  these  lines  is  immensely 
more  valuable  than  what  well-meaning  friends  in  the  cities  and  subsidies  from 
the  State  can  do  for  them ;  but  there  is  great  need  of  encouraging  the  voluntary 
efforts  of  the  farmers  in  these  organizations  by  the  judicious  aid  of  the  State 
itself,  mainly  along  educational  lines.  There  is  urgent  need  that  all  institutions 
controlled  by  the  State  capable  of  rendering  such  service  should  lend  a  helping 
hand  in  the  launching  of  this  great  movement  for  the  upbuilding  of  the  State. 
There  is  need  in  North  Carolina  for  a  great  agricultural  forward  movement  in 
order  that  our  Federal  Department  of  Agriculture  and  our  State  department  of 
agriculture  and  our  rural  public  schools  and  our  educational  institutions  offer- 
ing courses  in  agricultural  economy,  forestry,  and  domestic  science,  can  come 
in  closer  contact  with  and  widen  their  usefulness  to  the  farmers  themselves. 

Now  that  the  farmers  are  greatly  interested  in  the  subject  of  cooperation, 
there  is  immediate  need  for  a  great  central  bureau  of  information  with  the 
hearty  cooperation  of  State  and  National  Governments,  where  persons  inter- 
ested in  the  formation  of  cooperative  enterprises  can  promptly  secure  all  the 
proper  legal  forms  and  the  proper  system  of  bookkeeping  for  the  organization 
of  such  enterprises  in  North  Carolina  and  to  provide  ample  information  on 
marketing  subjects.  There  is  also  great  need,  even  at  this  early  stage  of  this 
movement,  for  the  services  of  experts  in  cooperative  credit,  cooperative  produc- 
tion, and  cooperative  distribution,  in  order  that  the  farmers  may  start  their 
organizations  on  the  right  basis  and  with  the  best  expert  information  that  the 
State  can  afford. 

SUMMARY 

1.  We  find  that  credit  costs  the  average  North  Carolina  farmer  8  to  20  per 
cent  normally. 

2.  We  believe  that  some  form  of  rural  credit  society  not  dependent  upon  our 
present  system  of  commercial  banks  must  be  evolved,  based  on  the  European 
models  but  adapted  to  American  conditions,  with  the  addition,  perhaps,  of  certain 
other  features  of  our  building  and  loan  associations  There  is  great  need  both 
for  short-time  credit  and  for  providing  money  on  long-time  and  low  rate  to 
enable  worthy  citizens  to  build  houses,  buy  land,  drain  it  and  stock  it,  provide 
home  conveniences,  etc. 

3.  North  Carolina  has  just  adopted  the  Torrens  system  of  registering  land 
titles,  a  system  which  will  greatly  cheapen  and  facilitate  agricultural  credit,  and 
which  we  would  commend  to  other  States. 

4.  At  the  same  time  our  system  of  taxation  should  be  reformed  so  as  to  dis- 
courage speculation  in  lands,  stimulate  home  ownership,  and  stop  taxing  the 
farmer  on  the  full  value  of  a  farm  he  has  just  contracted  for  when  perhaps  he 
has  only  paid  for  one-fourth  of  it. 

5.  Largely  because  of  our  undeveloped  marketing  system  we  find  that  North 
Carolina  is  importing  $50,000,000  of  food  or  feed  products  which  should  be  pro- 
duced in  the  State. 

6.  One  of  the  chief  needs  in  providing  markets  for  these  potential  products 
and  in  economical  marketing  of  what  we  already  produce  is  the  proper  stand- 
ardization of  these  products. 

7.  We  believe  that  the  main  dependence  of  our  farmers  must  be  self-help, 
but  that  it  is  the  duty  of  the  State  through  its  agricultural  agencies  to  educate, 
stimulate,  and  guide  their  efforts  in  these  respects. 


494  KUKAL   CREDITS. 

S.  Our  farmers  Deed  to  develop  a  complete  system  of  cooperation  in  (1)  get- 
ting credit  :  (2)  in  buying  supplies:  (3)  in  buying  and  using  machinery;  (4) 
in  converting  raw  products  into  more  finished  forms  as  in  ginning  cotton,  grind- 
ing grain,  converting  cotton  seed  into  meal  and  oil,  milk  into  cream,  butter, 
and  cheese,  etc.;  and  (5)  in  marketing  the  linished  product  directly  to  the 
consumer. 

Respectfully  submitted. 

E.   L.  Dacghtridge, 
H.  Q.  Alexander, 
Clarence  Poe, 
John   Sprunt  Hill, 
Subcommittee  on  Report. 
Full  committee:  E.  L.  Daughtridge,  chairman;  Clarence  Poe,  secretary;  A.  E. 
Tate,  J.  II.  Evans,  S.  H.  Hobbs,  U.  G.  Vaughn,  H.  Q.  Alexander,  John  Sprunt 
Hill. 

It  has  been  called  to  my  attention  that  the  governor  of  New  York 
has  also  recommended  a  large  State  land-mortgage  institute,  which 
appears  to  be  very  much  of  the  same  kind  as  is  above  recommended. 

Sir.  B.  F.  Harris,  chairman  of  the  agricultural  commission  of  the 
American  Bankers'  Association,  an  eminent  authority  upon  banking, 
and  especially  agricultural  banking,  states  as  follows : 

My  notion  is  that  if  your  State  laws  provided  for  the  organization  of  such 
land-mortgage  banks,  these  banks  would  not  issue  the  debenture  bonds,  but. 
would  pass  their  local  mortgages  up  to  a  central  State  bank,  which  would  use 
these  hundreds  of  local  mortgages  as  a  basis  for  centi-al  bank  debenture  issues. 
You  will  get  quickest  action  and  lowest  rates.  This  would  contemplate  most 
careful  legal  safeguards  and  supervision  of  local  bank  guaranties,  etc.  The 
State  should  have  no  legal  liability,  but  the  high  moral  one  of  so  hedging  about 
the  system  and  central  bank  that  these  bonds  would  have  the  State's  good 
faith  and  security  back  of  them.  Such  a  bond  would  have  a  wider  market, 
and  therefore  lower  the  rate  that  the  average  individual  bank  debenture  would 
have. 

I  have  now  finished,  gentlemen,  and  I  thank  you  very  much  for 
your  patient  indulgence. 

Mr.  Bttlkley.  We  are  very  much  obliged  to  you  for  your  state- 
ment. 

(Thereupon,  at  5.07  o'clock  p.  m.,  the  subcommittees  adjourned 
until  to-morrow,  Thursday.  March  5,  1914.  at  10.30  o'clock  a.  m.) 


THURSDAY,  MARCH  5,  1914. 

United  States  Senate, 

Washington,  D.  0. 
The  subcommittees  assembled  in  joint  session  at  11  o'clock  a.  m., 
Hon.  Henry  F.  Hollis  presiding. 

Present  also:  Kepresentatives  Bulkley,  Stone,  Seldomridge,  and 
Moss. 

STATEMENT    OF   ROBERT   B.   VAN    CORTLANDT,    MOUNT    KISCO, 
WESTCHESTER  COUNTY,  N.  Y. 

Senator  Hollis.  Your  full  name,  Mr.  Van  Cortlandt,  is  Kobert  B. 
Van  Cortlandt 

Mr.  Van  Cortlandt.  Yes. 

Senator  Hollis.  And  you  live  in  New  York  City? 

Mr.  Van  Cortlandt.  I  live  in  Mount  Kisco,  Westchester  County, 
N.  Y. 

Senator  Hollis.  What  is  your  occupation? 

Mr.  Van  Cortlandt.  I  am  a  retired  banker  and  farmer.  I  was  in 
the  private  banking  business  for  about  17  years,  and  I  retired  3 
years  ago,  and  I  have  owned  my  own  farm  for  about  12  years. 

Senator  Hollis.  You  were  a  member  of  the  commission  that  went 
to  Europe  last  summer? 

Mr.  Van  Cortlandt.  I  was  one  of  the  New  York  delegates. 

Senator  Hollis.  Which  commission  was  that? 

Mr.  Van  Cortlandt.  The  American  commission. 

Senator  Hollis.  You  accompanied  the  others  on  the  trip? 

Mr.  Van  Cortlandt.  I  sailed  with  them  and  was  with  them,  yes. 

Senator  Hollis.  You  may  go  on  in  your  own  way  and  give  the 
committee  such  information  as  you  care  to. 

Mr.  Van  Cortlandt.  The  committee  has  been  holding  hearings 
for  some  time,  and  I  have  read  a  great  deal  of  the  testimony,  and 
you  have  had  before  you  Mr.  Moss  and  Dr.  Coulter,  and  both  of 
these  gentlemen  are  thoroughly  qualified  on  this  subject.  I  know 
from  my  own  experience  that  Mr.  Moss  made  a  most  thorough  study 
of  this,  and  I  can  say  that  while  Mr.  Moss  is  only  a  farmer,  the 
farmers  do  not  need  much  banking  assistance  if  they  have  men  like 
Mr.  Moss.  Dr.  Coulter,  as  we  all  know,  is  a  most  wonderful  statis- 
tician, and  also  a  thorough  student  of  this  whole  question,  and  so 
I  think  I  will  attack  it  from  a  little  different  angle  and  just  present 
to  you  an  address  which  I  delivered  before  the  New  York  State 
Agricultural  Society,  giving  rather  more  of  the  fundamental  prin- 
ciples rather  than  a  lot  of  statistics  again,  which  you  have  already 
had  from  these  other  gentlemen,  and  then  later  on  there  are  some 

495 


49 G  EUBAL   CREDITS. 

different  points  which  I  think  might  be  interesting  and  which  I 
think  it  might  be  well  to  make. 

I  have  been  often  asked,  "  What  is  agricultural  credit  ?  What  is 
it  trying  to  do?  " 

The  subject  in  all  its  ramifications  is  a  vast  one  and  many  hours 
might  be  consumed  in  its  consideration.  What  I  am  going  to  try 
to  do  is,  as  briefly  and  succinctly  as  possible,  to  state  some  of  the 
fundamental  principles  and  aims  of  the  movement. 

I  think  it  may  be  said  that  there  are  three  leading  features  which 
are  not  necessarily  related,  but  which  a  successful  realization  of  the 
purposes  sought  must  embody. 

First.  It  is  sought  to  place  agriculture  on  a  better  business  basis. 

Second.  It  is  sought  to  mobolize  land  and  land  mortgages. 

Third.  It  is  sought  to  form  institutions  where  the  primary  interest 
considered  will  be  that  of  the  borrower  and  not  that  of  the  lender. 

Let  me  enlarge  briefly  on  each  of  these  points.  Heretofore  in 
America  farmers  have  made  little  attempt  to  be  business  men.  Their 
work  is  hard  and  at  the  end  of  the  day  they  have  small  desire  to 
pore  over  accounts,  and  so  if  at  the  close  of  the  year  their  unpaid 
bills  are  not  too  large  and  their  stock  on  hand  up  to  the  average,  with 
the  farm  and  buildings  in  fair  shape,  they  are  pretty  well  satisfied. 
In  the  early  development  of  our  country  this  state  of  affairs  did  very 
well.  We  had  vast  areas  of  fertile  land  which  were  cheap  and  did 
not  require  much  cultivation  to  yield  good  returns ;  labor  was  fairly 
plentiful  and  wages  comparatively  low.  That  happy  state  of  affairs 
has  gone  never  to  return.  The  best  land  is  now  practically  all  occu- 
pied. Its  virgin  richness  is  gradually  disappearing,  so  that  it  can 
no  longer  produce  as  heavily  under  similar  conditions.  On  the  other 
hand,  our  population  has  been  increasing  rapidly  and  our  standard 
of  living  has  been  rising,  multiplying  the  demand  for  good  food 
even  more  rapidly  than  the  increase  of  population. 

One  of  our  great  sources  of  wealth  has  been,  as  we  all  know,  fur- 
nishing other  nations  with  food  supplies  out  of  our  surplus.  This 
fortunate  position  is  now  being  gradually  weakened,  and  if  not 
checked  one  of  our  chief  elements  of  prosperity  will  in  time  dis- 
appear. 

The  remedy,  however,  lies  in  our  own  hands.  Science  has  taught 
us  the  elements  of  which  land  fertility  is  composed,  and  we  know  how 
to  counteract  and  repair  the  exhaustion  resulting  from  the  raising 
of  crops.  We  know  that  fertilizers,  proper  cultivation,  and  rotation 
not  only  render  the  land  practically  exhaustless,  but  even  increase 
its  yield. 

"  But,"  says  the  farmer,  "  that  is  all  very  well ;  but  it  costs  a  lot 
of  money,  and  I  haven't  got  it  and  don't  know  where  to  get  it."  And 
so  we  are  brought  faces  to  face  with  a  situation  with  which  so-called 
agricultural  or  rural  credit  seeks  to  deal  in  one  of  its  phases,  carry- 
ing with  it  not  only  better  credit  facilities,  but  also  the  whole  ques- 
tion of  country  life  and  its  betterment,  so  that  the  boys  and  girls 
on  the  farm,  as  they  grow  up,  will  be  content  to  marry  and  live  in  the 
country,  furnishing  an  adequate  food  supply  to  the  whole  popula- 
tion and  plenty  of  sturdy  youngsters  to  the  State. 

The  existing  banking  system  is  designed  for  industry  and  com- 
merce.   It  seeks  as  much  as  possible  liquid  assets  that  can  be  turned 


RURAL   CREDITS.  497 

into  cash  at  short  notice.  For  merchants,  three  months'  credit  enables 
them  to  do  their  business  satisfactorily,  with  perhaps  partial  re- 
newals, because  the  turnover  of  their  goods  is  normally  completed 
within  such  a  period. 

The  processes  of  nature,  however,  with  which  agriculture  is  con- 
cerned, are  slower.  From  the  application  of  fertilizer  to  the  har- 
vesting and  sale  of  the  crop  often  a  year  elapses.  The  crop  of  one 
season  is  sold  before  the  other  season  comes  on.  I  think  that  has  a 
good  deal  to  do  with  this  90-day  credit,  which  is  almost  universal  in 
Europe. 

Senator  Hollis.  There  is  probably  closer  connection  there  than 
there  is  between  the  sun  spots  and  panics? 

Mr.  Van  Cortlandt.  Yes,  sir;  I  think  so. 

In  raising  animals  two  or  three  years  are  required  before  a  full 
return  can  be  secured  and  the  loan  discharged  through  the  natural 
working  out  of  the  operation.  The  benefit  derived  from  a  piece  of 
machinery  is  only  gradual  and  requires  time  to  reimburse  the  farmer 
for  the  necessary  expenditure.  So  the  conclusion  has  gradually 
forced  itself  on  those  who  have  made  a  study  of  this  subject  that 
if  agriculture  is  to  be  put  upon  a  proper  business  basis,  if  the  full 
development  of  which  it  is  capable  is  to  be  reached,  it  can  only  be 
through  the  organization  of  lending  institutions  especially  adapted 
to  its  needs. 

The  second  aim  I  stated  to  be  the  mobilization  of  land  and  land 
mortgages. 

Our  present  system  of  borrowing  on  land  is  by  mortgages  running 
generally  from  three  to  five  years,  the  entire  principal  coming  due 
at  one  time.  This  is  expensive,  involving  nearly  always  renewals, 
and  dangerous  from  the  possibility  of  the  mortgage  falling  due  at 
a  time  of  restricted  credit,  so  that  it  can  not  be  renewed,  this  danger 
being  greater  for  the  farmer  than  for  the  owner  of  improved  city 
property.  On  the  Continent  of  Europe  this  business  is  handled  by 
so-called  land-mortgage  banks,  or  rather  associations.  These  asso- 
ciations are  formed  along  varying  lines,  some  being  formed  with 
stock,  like  the  great  French  institution,  the  Credit  Foncier;  some 
having  no  stock,  like  the  German  Landschaften;  some  being  guar- 
anteed by  a  State  of  Province,  as  in  Austria;  and  the  principal  one 
in  Hungary,  combining  ingeniously  various  features  peculiar  to 
itself.  All  these  institutions,  however,  are  formed  along  certain  gen- 
eral fundamental  lines,  as  follows: 

The  mortgages  which  are  granted  are  pledged  for  the  security  of 
bonds  which  the  institution  issues  and  sells  in  the  general  market. 
These  bonds  have  no  fixed  maturity,  but  can  be  retired  at  par  or 
some  small  premium  at  any  time.  When  the  borrower  mortgages 
his  land  to  the  bank  he  agrees  to  pay  a  certain  fixed  sum  per  annum, 
payable  semiannually.  This  fixed  amount  is  called  the  "  annuity/' 
and  is  composed  of  the  annual  interest  plus  an  amount,  generally 
^  per  cent,  toward  the  reduction  of  the  principal  of  the  debt  and 
known  as  "  amortization,"  and  an  additional  amount,  about  |  per 
cent,  toward  the  expenses  of  the  bank.  The  borrower,  therefore,  at 
•once  begins  to  extinguish  the  principal  of  the  debt,  and  as  each  year 
the  principal  decreases,  the  interest,  of  course,  decreases  also,  and  the 

37031—14 32 


-198  RUEAL   CfiEDFIS. 

annuity  being  fixed,  the  proportion  of  it  applicable  toward  the  ex- 
tinction of  the  mortgage  increases;  and  so  it  happens  that,  beginning 
with  a  payment  of  £  per  cent  toward  principal,  the  mortgage  bearing 
4  to  4}  per  cent,  which  are  the  general  rates,  the  entire  debt  is  ex- 
tinguished in  between  50  and  60  years. 

All  these  banks  are  under  close  State  supervision,  and  every  pre- 
caution is  taken  to  insure  proper  administration  and  valuations  of 
land.  They  are  usually  accorded  certain  privileges,  such  as  exemp- 
tion from  some  forms  of  taxation;  often,  also,  the  right  of  immedi- 
ately entering  into  possession,  called  sequestration,  and  quick  fore- 
closure in  case  of  default  in  the  annunity,  and  in  addition  the  bonds 
they  issue  are  generally  legal  for  trust  funds. 

The  result  is  that  these  bonds  sell  freely  and  on  almost  as  good  a 
basis  as  Government  securities.  The  bond  market,  as  you  know,  has 
been  poor  all  over  the  world  lately,  but  an  annual  payment  of  o\  per 
cent  would  even  now  cover  every  item  and  extinguish  the  debt  in 
about  60  years. 

The  borrower  has  the  right  at  any  time  of  paying  off  the  mort- 
gage, a  small  penalty  being  generally  exacted,  but  the  lending  insti- 
tution can  not  require  payment  from  the  mortgagor,  thus  guarding 
against  any  higher  rate  of  interest  being  exacted  during  the  life  of 
the  loan;  whereas  should  interest  rates  fall  the  borrower  can  antici- 
pate the  payment  of  the  mortgage  and  secure  the  benefit  of  the  lower 
rate  of  interest. 

If  payment  of  a  mortgage  is  anticipated,  or  when  the  semiannual 
payments  are  received  by  the  bank,  it  enters  the  market  and  buys 
or  retires  a  corresponding  amount  of  its  bonds,  so  that  its  outstanding 
bonds  never  exceed  in  the  aggregate  the  total  of  the  mortgages  it 
holds  against  them.  This,  also,  has  the  additional  advantage  of 
making  a  constant  market  for  the  bonds,  and  there  is  no  necessity  of 
sinking  funds  for  special  mortgages,  as  they  are  under  a  general 
pledge.  These  banks  do  not  look  to  deposits  to  provide  funds  for 
lending.  In  some  cases  they  are  forbidden  from  receiving  them,  in 
others  they  are  restricted  to  a  proportion  of  their  capital;  in  this 
way  they  do  not  compete  with  ordinary  commercial  banks. 

The  mortgaging  of  land  is  known  as  long-term  credit,  and  it  may 
be  handled  as  stated  above  by  joint-stock  institutions  or  by  associa- 
tions of  borrowers,  the  nature  of  the  business  being  such  that  both 
forms  of  institutions  have  advantages  and  defects  which  may  make 
the  one  form  more  adaptable  to  one  community  and  the  other  form 
more  adaptable  to  another;  but  in  institutions  furnishing  the  credit 
required  by  farmers  for  working  capital,  such  as  the  purchase  of 
seeds,  fertilizer,  payment  for  labor,  etc.,  which  is  known  as  short-term 
credit,  the  third  aim  of  which  I  spoke,  viz,  the  forming  of  institu- 
tions in  which  the  borrower  should  be  primarily  considered  rather 
than  the  lender,  assumes  fundamental  importance. 

On  the  Continent  of  Europe  a  solution  is  found  in  the  organization 
of  banks  by  the  application  of  so-called  cooperative  principles.  The 
purpose  is  to  provide  organizations  where  the  borrower  receives  con- 
sideration rather  than  the  lender,  and  also  to  keep  the  money  of  any 
body  of  individuals  for  the  use  of  that  body,  it  being  a  fact  that 
under  the  present  system  a  great  deal  of  money  belonging  to  farmers 
finds  its  way  into  Wall  Street  and  into  securities. 


KUKAL  CREDITS.  499 

In  our  banking  system  a  bank  is  organized  by  inviting  people 
with  money  to  subscribe  to  the  stock,  and  these  stockholders  have  the 
sole  voice  in  electing  the  directors  and  managers  of  the  bank  and  in 
disposing  of  the  deposits  that  may  be  secured.  This  is  the  practice, 
because  it  is  felt  that  if  the  money  is  provided  there  will  be  little 
difficulty  in  finding  a  profitable  use  for  it.  In  business,  however, 
there  must  always  be  two  parties  to  the  transaction,  the  buyer  and 
seller;  or,  in  the  case  of  loans,  the  lender  and  borrower.  At  present 
the  lenders  are  organized,  whereas  the  borrower  stands  alone.  In  a 
joint-stock  bank  the  primary  consideration  is  that  of  the  stock- 
holders. The  loans  taken  will  naturally  be  not  only  the  best  that  in 
the  opinion  of  the  directors  may  be  offered,  but  they  will  also  be  the 
most  profitable  to  the  bank,  and  the  borrower  has  no  alternative  but 
to  accept  or  decline  the  loan. 

The  initial  capital  is  secured  by  entrance  fees  and  subscription, 
to  shares  where  the  principle  of  limited  liability  is  adopted,  or,  if 
there  are  no  shares,  resort  must  be  had  to  the  principle  of  unlimited 
liability — i.  e.,  the  equal  and  unlimited  liability  of  all  members  who 
join  the  bank  for  every  obligation  the  bank  may  contract,  which  is 
prevalent  particularly  in  Germany,  because  experience  has  shown 
that  there,  at  any  rate,  it  involves  practically  no  risk.  In  the  United 
States  it  would  hardly  be  accepted,  certainly  not  generally. 

After  the  cooperative  bank  is  formed  the  problem  of  securing 
funds  to  loan  is,  of  course,  the  chief  one,  but  as  one  of  the  principles 
followed  is  to  limit  dividends  on  the  stock  to  4  or  5  per  cent,  a  reserve 
can  be  gradually  accumulated  and  deposits  come  in  as  it  is  seen  that 
the  bank  is  doing  a  safe  business,  all  speculative  business  being 
avoided. 

Other  important  features  are  that  every  stockholder  should  have 
but  one  vote,  no  matter  how  many  shares  he  owns,  although  it  is 
provided  that  no  one  person  shall  own  more  than  a  certain  number 
of  shares,  generally  10  per  cent,  and  another  absolutely  essential 
feature,  where  the  bank  is  formed  with  unlimited  liability,  is  that  the 
area  in  which  it  operates  should  be  restricted  so  that  the  members 
can  all  know  and  watch  each  other.  The  loans  must  be  for  a  pro- 
ductive purpose  and  not,  for  instance,  for  living  expenses,  so  that 
when  the  purpose  sought  has  had  time  to  accomplish  the  result  aimed 
at,  varying  in  agriculture  from  six  months  to  two  or  three  years — as 
would  be  the  case  in  buying  a  cow  and  raising  and  selling  the  heifer — 
the  borrower  will  receive  funds  to  liquidate  the  loan.  Loans  are  only 
granted  to  members  of  the  bank,  although  deposits  are  accepted  from 
outsiders.  This  has  the  double  effect  of  making  a  borrower  person- 
ally interested  in  repaying  his  loan,  and,  secondly,  as  undesirable 
men  would  not  succeed  in  being  elected  to  membership,  the  bank  is 
protected  in  the  character  of  those  it  is  loaning  to. 

I  should  speak  to  you  of  other  features  of  these  cooperative  banks* 
such  as  the  encouragement  of  thrift  which  they  exercise  and  the 
beneficial  effects  they  have  had  on  the  character  of  a  community, 
but  in  this  brief  article  I  am  confining  myself  to  the  business  side. 

The  chief  difficulty  is  that  of  securing  funds  sufficient  to  supply 
the  needs  of  borrowers,  and  so,  after  a  time,  the  advisability  of  form- 
ing a  central  bank  for  a  group  of  local  banks  was  clearly  seen.  The 
central  bank  acts  as  a  sort  of  clearing  house  for  the  funds  of  the 


500  RURAL   CREDITS. 

local  banks,  some  of  which  have  a  surplus  of  deposits  above  the  loan 
requirements  of  their  neighborhood,  although  as  a  rule  it  may  be 
said  to  be  the  other  way  around,  but  in  addition,  the  central  bank, 
being  an  institution  with  very  considerable  resources,  is  in  a  position 
to  do  business  with  the  large  commercial  banks  and  with  the  Govern- 
ment banks  of  issue  which  exist  practically  in  all  European  coun- 
tries. That  this  whole  system  of  cooperative  banks  is  of  no  mean 
proportions  is  at  once  shown  by  the  fact  that  in  Germany,  for  in- 
stance, their  deposits  amount  to  nearly  $500,000,000,  and  the  turn- 
over or  36  out  of  40  central  banks  in  1910  was  about  $2,000,000,000. 
You  gentlemen,  of  course,  all  know  what  the  word  "  turnover " 
means.  It  may  come  in  and  go  out  six  or  seven  times  during  the 
year  and  each  time  it  is  counted,  and  that  is  the  reason  why  it  brings 
that  figure  up  so  high. 

It  is  not  hard  to  see  many  obstacles  to  the  successful  working  out 
in  this  country  of  institutions  formed  along  similar  lines.  One  of 
the  great  requirements  being  that  expenses  must  be  kept  down  to  the 
lowest  point  in  order  that  they  can  loan  cheaply,  it  is  essential  that 
they  secure  much  of  their  service  gratuitously.  Nevertheless  the 
benefits  to  agriculture  and  the  results  obtained  for  the  betterment  of 
rural  life  in  general  have  been  undeniable  and  far-reaching. 

The  prospect  certainly  is  not  alluring  to  anyone  considering  join- 
ing the  movement.  Hard  work,  no  pay,  probably  little  thanks.  I 
have  lived  now  for  a  good  many  years,  and,  as  happens  to  us  all, 
some  of  my  illusions  have  been  shattered,  and  yet  I  am  still  opti- 
mistic enough  to  believe  that  competent  men  will  offer  themselves 
to  guide  the  movement  simply  because  it  is  worth  while. 

Of  course,  that  is  one  great  feature,  that  we  must  find  many 
public-spirited  men,  that  a  great  deal  of  this  service  has  to  be  given 
gratuitously,  or  else  you  can  not  get  the  benefits  out  of  it.  All  Euro- 
pean countries  always  have  honors  that  they  can  give,  and  very  often 
a  man  will  work  just  as  hard  for  a  piece  of  ribbon  as  he  will  for  a 
million  dollars.  But  we  have  not  got  that  here,  and  it  is  a  different 
problem  with  us. 

Senator  Hollis.  They  have  been  giving  some  medals  lately  to  Col. 
Goethals. 

I  would  like  to  get  your  personal  judgment  as  to  the  advisability 
of  the  Government  undertaking  to  make  direct  loans  to  farmers. 

Mr.  Van  Cortlanut.  I  think  wherever  that  is  done  it  is  only  from 
sheer  necessity.  It  is  only  where  the  people  are  poor  and  ignorant. 
I  think  in  this  country  we  have  every  element  for  the  strongest  and 
best  system  of  agricultural  credit.  I  think  the  Americans  are  intelli- 
gent and  resourceful,  and  we  have  great  wealth  in  this  country,  and 
I  think  it  is  a  thing  which  they  are  perfectly  competent  to  Avork  out 
themselves,  which  is  the  best  way  of  doing  it. 

Senator  Hollis.  Then,  generally  speaking,  you  do  not  advise  di- 
rect loans? 

Mr.  Van  Cortlandt.  Xo. 

Senator  Hollis.  Do  you  advise  any  Government  financial  assist- 
ance to  the  banks  in  the  way  of  deposits  or  purchasing  their  bonds? 

Mr.  Van  Cortlandt.  I  think  it  is  necessary  that  the  Government 
should  supervise  these  land-mortgage  banks  very  closely,  and  as  they 
do  that  then  they  are  perfectly  justified  in  making  them,  for  instance, 
legal  for  trust  funds.     If  they  did  not  supervise  them  they  would 


RURAL   CREDITS.  501 

not  be  justified  in  doing  it.  I  think  that  is  the  reason  why  they  are 
supervised.  The  two  things  go  together — the  close  supervision,  and 
then  in  return  for  that  certain  privileges  which  the  Government  is 
perfectly  justified  in  granting  them  on  account  of  the  supervision, 
such  as  making  them  legal  for  trust  funds.  The  exemption  from 
taxation  is  a  matter  of  general  judgment;  it  has  nothing  to  do  with 
the  question  of  supervision.  I  think  the  other  two  things,  i.  e.,  re- 
ceiving deposits  and  making  them  legal  for  trust  funds,  come  directly 
from  the  fact  that  they  are  closely  supervised,  and  that  is  the 
justification  for  the  Government  doing  it. 

Senator  Hollis.  Do  you  believe  that  the  system  can  be  put  into 
successful  practice  in  the  United  States  without  some  Government 
assistance  ? 

Mr.  Van  Cortlandt.  I  think  so.  I  think  in  the  matter  of  land- 
mortgage  banks  that  probably  they  will  gradually  develop  into  very 
large  institutions.  If  you  assume  that  a  bank  has  $10,000  capital, 
and  has  only  $150,000  it  can  loan,  it  might  loan  that  very  quickly, 
and  then  the  only  source  of  further  loans  would  be  its  amortization 
payments,  which  would  be  very  small;  and  if  they  want  to  keep  on 
loaning  they  must  raise  additional  capital;  but  I  think  in  a  district 
where  that  bank  has  been  operating  it  will  have  a  good  effect  on  the 
district,  and  it  will  become  more  prosperous,  and  therefore  there  will 
not  be  any  great  difficulty  in  raising  additional  capital  as  it  is  found 
necessary,  and  I  think  through  competition  the  larger  banks  will 
be  able  to  do  business  somewhat  cheaper,  and  I  should  say  the  tend- 
ency of  the  long-term  credit  business  will  be  to  pass  into  the  hands 
of  that  institution,  which  will  gradually  become  large,  and  as  it  will 
be  a  gradual  thing  it  seems  to  me  there  should  be  no  danger  in  their 
increasing  in  that  way.  For  instance,  the  Credit  Foncier  had  reached 
the  limit  of  the  number  of  bonds  that  it  could  put  out,  so  they  had — 
as  they  are  limited  to  20  times  their  capital  stock,  as  you  gentle- 
men know — to  issue  $5,000,000  new  stock  in  order  to  keep  on  doing 
business,  and  they  gradually  increased  their  stock  until  it  is  now 
$45,000,000,  and  the  total  number  of  their  bonds  outstanding  is 
nine  hundred  million. 

Senator  Hollis.  Did  I  understand  you  to  say  you  have  been  a 
banker  ? 

Mr.  Van  Cortlandt.  For  17  years ;  yes. 

Senator  Hollis.  I  would  like  your  idea  as  to  whether  the  deposits 
that  might  be  made  with  these  banks  should  be  limited  or  unlimited 

Mr.  Van  Cortlandt.  I  feel  very  strongly  that  if  they  were  long- 
term  banks  they  should  be  limited. 

Senator  Hollis.  And  how  would  you  limit  them  ? 

Mr.  Van  Cortlandt.  That  is,  of  course,  a  matter  of  judgment, 
but  I  think  the'  provision  in  this  bill  is  a  reasonable  one. 

Mr.  Hayes.  Do  you  see  any  objection  to  our  making  the  deposits 
equal  to  the  capital  and  surplus,  giving  them  a  little  more  chance 
to  take  care  of  other  deposits? 

Mr.  Van  Cortlandt.  That  is  a  matter  also  of  judgment,  but  I  do 
not  want  too  large  deposits  where  they  can  get  them  tied  up. 

Mr.  Hayes.  I  agree  to  that. 

Mr.  Van  Cortlandt.  You  would  want  to  have  just  enough  for  a 
working  capital  for  a  revolving  fund.  I  am  afraid  I  am  using  my 
own  stuff  a  good  deal  and  it  might  be  thought  that  I  am  throwing 


502  RURAL   CREDITS. 

bouquets  at  myself,  but  this  is  the  way  I  put  it  here,  and  this  is  a 
little  pamphlet  that  I  prepared  for  my  farming  neighbors,  but  which 
I  gave  out  to  some  gentlemen  like  Mr.  Victor  Morowetz  and  some 
others  of  those  gentlemen,  and  Mr.  Morowetz  was  kind  enough  to 
write  me  back  that  it  was  very  clear. 

Mr.  Hayes.  Before  you  begin  with  that  let  me  ask  you,  the  reason 
they  limit  deposits  is  so  that  there  will  not  come  a  sudden  call  against 
an  institution  whose  assets  are  not  liquid? 

Mr.  Van  Cortlandt.  That  is  just  the  point  I  make. 

Mr.  Hayes.  If  we  have  our  deposits  in  such  shape  that  they  are 
easily  and  quickly  salable,  then,  of  course,  we  can  accept  more  de- 
posits, and  the  more  deposits  we  accept  the  more  we  have  to  do  busi- 
ness with,  of  course. 

Mr.  Van  Cortlandt.  Yes;  but  as  soon  as  you  use  these  deposits 
you  are  then  indulging  in  the  risks  of  commercial  business,  and  I 
think  one  of  the  fundamental  principles  of  these  banks  is  that  they 
shall  do  no  business  which  involves  any  risk.  I  think  to  do  that 
would  hurt  the  sale  of  their  debentures,  and  the  fundamental  prin- 
ciple of  the  thing  is  to  make  these  debentures  salable,  because  in  that 
way  you  get  a  free  market  and  the  best  rate  of  interest.  If  they  are 
to  do  commercial  business  then  they  are  assuming  the  risks  that 
commercial  business  must  involve.  They  buy  securities — and  we 
have  seen  these  securities,  even  good  bonds,  within  the  last  five  years, 
go  down  10  to  20  points.  Buying  commercial  paper  may  involve 
losses,  and  if  they  do  much  of  that  business  it  will  affect  their  credit 
and  the  sal  ability  and  rate  of  interest  at  which  they  can  put  these 
bonds  out. 

Mr.  Hayes.  Is  there  not  this  danger  to  commercial  business  done 
on  a  large  deposit  line — the  loan  of  deposits  is,  of  course,  much  more 
profitable  to  the  bank? 

Mr.  Van  Cortlandt.  Yes,  sir. 

Mr.  Hayes.  And  would  there  not  be  a  temptation  for  them  to  leave 
this  business  for  which  they  are  organized  and  go  into  a  strictly 
■commercial  business? 

Mr.  Van  Cortlandt.  Yes ;  there  is  danger  of  that,  it  seems  to  me. 

Senator  Hollis.  I  understand,  Mr.  Van  Cortlandt,  that  there  is 
no  proposition  to  make  commercial  loans — their  proposition  is  to 
allow  them  to  take  deposits. 

Mr.  Van  Cortlandt.  What  are  they  going  to  do  with  their  de- 
posits to  make  monev  out  of  them? 

Senator  Hollis.  The  only  way  that  they  could  get  away  from  the 
disadvantage  that  you  have  suggested  is  by  having  the  bond  so  good 
that  it  is  readily  and  quickly  saleable. 

Mr.  Van  Cortlandt.  If  it  is  felt  that  they  are  taking  a  business 
risk,  and  in  order  to  take  deposits  they  have  got  to  pay  2  or  3  per 
cent  for  them,  and  perhaps  more,  and  they  have  to  make  those  de- 
posits work,  and  in  making  them  work  they  begin  to  take  the  risk 
that  commercial  business  involves. 

Mr.  Hayes.  Is  it  not  contemplated  that  these  deposits  shall  be 
used  to  meet  the  temporary  and  urgent  needs  of  the  fellows  that 
borrow  from  them?     Oh,  no;  this  is  cooperative. 

Mr.  Van  Cortlandt.  Not  the  long  term;  only  the  short  term. 
They  can  buy  bonds  if  the  market  declines.  They  can  protect  the 
market  for  their  bonds. 


RURAL    CREDITS.  503 

Senator  Hollis.  Now,  if  you  will  read  what  you  referred  to. 

Mr.  Van  Cortlandt.  It  is  just  a  few  sentences.  I  have  attached 
a  great  deal  of  importance  to  that,  because  over  here  in  America 
I  think  the  ideas  on  the  subject  are  not  clear,  and  it  seems  to  me  that 
it  is  important. 

It  will  have  been  noticed  that  the  land-mortgage  banks  do  not  secure  their 
resources  through  accepting  deposits  but  through  issuing  bonds  secured  by  the 
mortgages  they  grant.  This  is  because  deposits  are  subject  to  recall,  either 
through  checks  payable  on  demand  or,  if  they  are  what  bankers  call  time 
deposits,  through  giving  notice  a  few  months  ahead.  With  funds  such  as  these, 
a  bank  would,  of  course,  be  in  danger  should  it  loan  them  out  for  a  period  of 
a  number  of  years,  because  if  the  depositors  demanded  their  money  the  bank 
would  not  be  able  to  call  in  its  loans  to  pay  its  depositors. 

An  institution,  however,  dealing  in  short-time  credit  is  in  quite  a  different 
position.  As  it  only  makes  loans  for  short  periods  it  is  perfectly  safe  for  it  to 
invite  deposits  and  to  employ  these  deposits  to  meet  the  needs  of  its  customers, 
provided  that  ordinary  business  judgment  is  used  in  limiting  loans  to  a  reason- 
able amount,  and  in  stringing  them  out,  so  that  money  is  coming  in  all  the  time 
as  the  loans  are  repaid.  I  would  like  you  to  keep  well  in  mind  the  radical  dis- 
tinction between  the  two  kinds  of  institutions— those  furnishing  long-time 
credit  and  those  furnishing  short-time  credit,  which  in  a  well-organized  country 
like  Germany  is  practically  always  observed,  because  here  there  seems  to  be 
a  constant  tendency  to  confuse  the  two  and  to  endeavor  to  inject  dangerous 
principles  into  this  kind  of  banking. 

Mr.  Hayes.  That  is  perfectly  sound. 

Mr.  Van  Cortlandt.  I  have  two  or  three  other  points  here  that  I 
thought  might  be  interesting  to  the  committee. 

Senator  Hollis.  Perhaps  it  would  be  best  for  you  to  go  ahead 
and  finish  what  you  have  to  say,  and  then  we  will  allow  questions. 

Mr.  Van  Cortlandt.  I  was  just  going  to  bring  up  some  specific 
cases  which  seem  to  be  rather  interesting. 

This  is  a  book  that  was  issued  by  one  of  the  great  German  banks, 
the  Dresdner  Bank,  on  its  fortieth  anniversary. 

Senator  Hollis.  Is  that  a  Munich  bank? 

Mr.  Van  Cortlandt.  No;  this  is  a  commercial  bank  in  Berlin. 
From  time  to  time  I  would  have  talks  with  the  big  commercial  banks 
and  ask  them  what  they  thought  about  this  system  of  agricultural 
credits,  agricultural  banks,  and  they  were  all  very  favorable  to  it,  and 
in  fact  this  bank  acts  as  the  central  bank  for  the  Schulze-Delitzsch 
system  of  banks,  the  banks  that  offer  credit  to  the  workingmen  in 
the  towns  more  than  to  farmers.  They  give  various  statistics  about 
the  development  of  Germany,  and  there  are  some  things  in  here 
which  I  thought  quite  interesting. 

In  the  first  place,  they  claim,  of  course,  which  we  all  concede,  that 
their  return  per  acre  of  land  is  very  much  larger  than  it  is  with  us. 
These  figures  are  given  in  German  measures,  but  the  percentages,  of 
course,  would  not  be  affected.  For  instance,  the  yield  of  wheat  per 
acre  in  Germany  increased  from  12.8  to  20  per  cent,  between  1885  and 
1912;  that  is,  the  yield  of  wheat  per  acre  in  Germany  increased  57 
per  cent ;  the  yield  of  rye  increased  73  per  cent ;  the  yield  of  barley 
increased  51  per  cent;  the  yield  of  oats  increased  80  per  cent;  the  yield 
of  potatoes  increased  61  per  cent,  and  the  yield  of  hay  increased  52 
per  cent.  In  the  fifth  volume  of  our  census  there  is  a  comparison. 
It  does  not  go  back  as  far  as  25  years,  so  that  we  can  not  make  the  com- 
parison absolutely  the  same,  but  there  is  a  comparison  of  our  yields 
in  the  last  10  years,  which  I  think  is  interesting  as  bearing  on  the 
subject.     This  is  in  volume  5  of  the  census.     The  value  of  all  cereals 


504  RURAL   CREDITS. 

combined  increased  in  acreage  from  1899  to  1909,  3^  per  cent,  and 
the  increase  in  production. was  1.7  per  cent,  showing  that  in  those  10 
years  the  yield  per  acre  not  only  has  not  increased  but  has  actually 
decreased.  The  increase  in  value,  of  course,  was  nearly  80  per  cent. 
And  there  we  have,  in  those  figures,  the  whole  subject  of  the  high 
cost  of  living. 

In  Germany  this  great  increase  has  come  coincident,  at  any  rate — 
and  it  may  be  only  a  coincidence — but  at  any  rate  it  has  come  at  the 
same  time  as  the  development  of  their  rural  banking  systems,  of  the 
long-term  and  short-term  credits.  So  that  it  seems  to  me  that  this  is 
an  interesting  thing.  That  is  an  important  feature  of  this  whole 
thing,  if  we  want  the  public  to  be  interested  in  it.  It  is  the  high 
cost  of  living  that  interests  them,  and  if  we  can  devise  a  system  by 
which  the  farmer  makes  more  money  by  raising  two  blades  of  grass 
where  before  he  only  raised  one,  it  seems  to  me  that  there  is  a  chance 
for  the  purchaser  or  consumer  to  get  his  food  at  perhaps  a  consider- 
able reduction,  and  then  it  passes  out  of  the  class  legislation  and 
becomes  a  great  national  question.  In  fact  this  whole  subject  is  so 
big  when  you  study  it,  it  is  almost  staggering  in  the  ramifications 
through  which  it  reaches.  It  seems  to  me  that  that  is  the  real  crux 
of  the  thing,  to  make  farming  more  profitable  and  at  the  same  time 
make  to  benefit  to  the  Nation  as  a  whole,  which  I  believe  it  will  be  if 
we  get  a  proper  system. 

Senator  Holljs.  I  do  not  believe  we  are  going  to  be  frightened 
much  by  the  class-legislation  cry. 

Mr.  Van  Cortlandt.  But  still  if  the  people  at  large  should  realize 
that  it  is  something  that  might  benefit  them  they  will  take  a  great 
deal  of  interest  in  its  development. 

Mr.  Adt.  I  would  like  to  ask  the  gentleman,  if  I  may,  to  explain 
more  fully  how  it  is  that  the  credit  system  has  assisted  in  the  increase 
in  acreage  production? 

Mr.  Van  Cortlandt.  Because  it  has  enabled  the  farmer  to  buy 
fertilizer,  employ  labor,  etc. 

Mr.  Ady.  That  is  the  point  I  wanted  to  bring  out. 

Mr.  Van  Cortlandt.  And  at  the  same  time  helps  the  laborer,  be- 
cause if  he  can  raise  twice  as  much  per  acre  he  can  pay  better  wages. 
The  ramifications,  as  I  say,  are  very,  very  wide  in  this  whole  thing, 
and  it  makes  it  a  very  great  question. 

Senator  Hollis.  I  want  to  ask  you,  Mr.  Van  Cortlandt  as  a  prac- 
tical farmer,  if  you  find  it  actually  pays  to  buy  large  amounts  of  ar- 
tificial fertilizer,  so-called  chemical  fertilizer? 

Mr.  Van  Cortlandt.  Of  course  my  farm  is  about  350  acres,  and 
I  ran  my  farm,  when  I  was  a  business  man,  very  largely  as  a  diver- 
sion, so  that  I  would  not  like  to  say  absolutely  from  my  own  prac- 
tical experience  on  that  point;  but  I  think  that  undoubtedly  you  can 
get  it  not  only  cheaper,  but  you  can  get  a  better  quality,  and  that  is 
even  of  more  importance. 

Senator  Hollis.  I  own  a  farm  myself,  and  I  was  wondering  what 
your  experience  was. 

Mr.  Hayes.  In  California  we  spent  $4.50  an  acre  for  artificial 
chemical  fertilizer,  and  we  raised  three  times  the  amount  of  crop 
that  my  neighbor  just  on  the  other  side  of  the  fence  raised  without 
fertilizer,  on  the  same  kind  of  land. 


RURAL   CREDITS.  505 

Mr.  Van  Cortlandt.  There  is  no  question  but  that  fertilizer  is  a 
great  benefit  to  the  land. 

Mr.  Bulklet.  How  long  does  the  benefit  from  the  fertilizer  last? 

Mr.  Van  Cortlandt.  Of  course,  fertilizer  does  not  last  the  way 
good  manure  does,  and  proper  rotation  of  crop  is  a  very  important 
feature  in  addition  to  fertilizer. 

Mr.  Bulkley.  The  question  I  had  in  mind  is  whether  the  pur- 
chase of  fertilizer  is  a  proper  purpose  for  a  mortgage  loan  or  long- 
time loan. 

Mr.  Van  Cortlandt.  I  do  not  think  so.    That  is  a  short-time  credit. 

Mr.  Bulkley.  It  is  a  short-time  credit? 

Mr.  Van  Cortlandt.  It  is  a  short-time  credit,  yes,  sir,  which  you 
must  get  your  benefit  from  within  a  year  or  two.  The  whole  crux 
of  the  thing  is  how  long  will  it  take  you  to  realize  the  loan  with  a 
reasonable  profit,  so  that  you  can  pay  the  loan  and  benefit  yourself. 
Of  course,  on  the  long  term  you  can  make  enough  to  pay  off  a  50 
per  cent  mortgage  only  when  you  have  a  long  time  to  do  it  out  of  the 
operation  of  the  farm;  but  in  buying  a  cow,  for  instance,  you  can 
get  all  that  back  in  two  or  three  years,  as  you  know.  Also  in  the 
fertilizer — you  get  it  back  in  a  year,  and  if  you  use  any  judgment  in 
the  use  of  the  fertilizer  and  properly  cultivate  the  land  you  will  get 
the  whole  profit  back  within  a  year,  and  you  will  get  all  the  money 
back,  enabling  you  to  pay  your  loan  on  the  fertilizer  plus  the  profit, 
if  you  are  a  good  farmer. 

Mr.  Hayes.  Which  profit  is  sometimes  very  large  ? 

Mr.  Van  Cortlandt.  Yes;  certainly. 

Mr.  Bulkley.  Do  you  think  we  have  something  to  learn  from  the 
Hungarian  agricultural  credit  system? 

Mr.  Van  Cortlandt.  Well,  they  have  a  long-term  institution, 
which  I  think  is  quite  interesting,  and  I  spent  some  time  with  the 
manager  of  that  bank,  who  spoke  English  fairly  well,  and  also  spoke 
French,  with  which  language  I  am  very  conversant,  and  in  that  way 
it  helped  me.  As  the  result  of  that  conversation  I  got  a  statement 
from  him  and  went  over  it  with  him,  and  where  he  used  words  which 
the  American  would  not  understand  I  talked  the  thing  over  with 
him  so  as  to  see  what  was  exactly  in  his  mind,  and  then  put  in  the 
words  that  the  American  business  man  could  understand. 

That  institution  was  founded  about  50  years  ago,  and  at  the  time 
200  founders  subscribed  about  $600,000,  but  they  only  put  up  10  per 
cent.  They  only  paid  in  cash  10  per  cent,  and  the  State  loaned  about 
$200,000  and  that  was  their  foundation  capital.  Then  the  rest  of 
the  90  per  cent  of  the  founders'  capital  was  put  up  gradually  out  of 
the  profits  of  the  bank.  That  institution  was  founded  50  years  ago. 
It  has  been  growing  since  that  time,  and  now  it  is  an  institution 
with  $10,000,000  of  capital  and  surplus,  with  something  like  $100,- 
000,000  of  bonds  outstanding,  and  all  the  dividend  they  have  paid  is 
5  per  cent  on  the  10  per  cent  actually  subscribed  until  the  taking  up 
in  dividends  of  the  90  per  cent  made  up  out  of  the  earnings. 

They  have  what  you  might  call  a  great  institution,  organized  50 
years  ago,  with  a  $100,000,000  bond  issue. 

And  there  was  a  combination  of  the  principles  of  cooperative  and 
joint-stock  banks.  Of  course,  with  the  cooperative  principle  the 
question  is  how  you  can  sell  your  bonds.     The  cooperative  bank,  I 


506  EUEAL   CREDITS. 

think,  started  almost  from  necessity.     The  people  cooperated  because 
they  had  to  do  so. 

Mr.  Bulkley.  Was  there  any  Government  aid  for  that  institu- 
tion? 

Mr.  Van  Cortlandt.  That  the  loan  was  given  them  of  $200,000; 
that  is  all. 

Mr.  Bulkley.  At  what  rate  of  interest? 

Mr.  Van  Cortlandt.  It  was  not  very  high.  It  was  5  or  6  per 
cent.  They  paid  5  per  cent  interest  on  this  10  per  cent  that  was 
actually  subscribed.  But  it  is  such  a  small  proportion  now  of  all 
their  resources  that  whether  they  pay  4  or  6  per  cent  on  that  it  is 
very  small,  comparatively  speaking. 

Mr.  Bulkley.  At  the  time  it  was  made  it  was  a  large  proportion, 
I  understand. 

Mr.  Van  Cortlandt.  Yes.  I  have  forgotten  then  whether  it  was 
4  or  5  or  6  per  cent,  but  it  was  no  high  rate  of  interest, 

Mr.  Bulkley.  You  stated  that  you  differed  from  Mr.  Moss  on 
some  point  in  connection  with  some  institution. 

Mr.  Van  Cortlandt.  Yes.  That  is  the  big  French  institution, 
the  Credit  Foncier,  and  there  are  some  points  there  which  Mr.  Moss 
and  I  differ  on.  I  have  got  Mr.  Moss's  statement  to  this  committee 
before  me. 

Mr.  Moss.  Do  you  and  I  differ  about  the  Credit  Foncier  being  a 
joint-stock  bank?     Do  we  differ  on  that? 

Mr.  Van  Cortlandt.  No;  it  is  a  joint-stock  bank.  I  do  not  think 
there  is  any  question  about  that.  It  is  paying  7  per  cent  dividends 
now  and  its  shares  are  selling  at  about  180  and  it  increased  its  divi- 
dend last  year  up  to  7  per  cent. 

Mr.  Hayes.  It  has  a  very  much  higher  price,  too,  has  it  not? 

Mr.  Van  Cortlandt.  The  book  value  is  somewhere  up  near  200, 
about  what  the  shares  are  selling  at,  I  think.  The  head  of  the  Credit 
Foncier,  who  is  called  the  governor,  and  two  vice  governors  are  ap- 
pointed by  the  President  of  France.  The  board  has  to  be  not  less 
than  20  and  not  over  23,  I  think  it  is.  Three  of  these  have  to  be 
Government  officers.  The  reason  for  that  is,  as  I  said  before,  because 
they  get  certain  privileges  from  the  Government.  The  two  things 
go  together — the  Government  privileges  and  the  right  of  the  Govern- 
ment to  supervise  them,  and  in  this  case  to  even  more  than  supervise 
them  by  appointing  their  president  and  two  vice  presidents. 

Senator  Hollis.  You  may  Sfo  ahead,  Mr.  Van  Cortlandt,  on  the 
points  where  you  differ  with  Mr.  Moss. 

Mr.  Van  Cortlandt.  Is  that  agreeable  to  you,  Mr.  Moss? 

Mr.  Moss.  Certainly.  As  soon  as  you  make  your  statement  I  will 
make  a  statement  showing  wherein  we  differ.  I  am  very  much  inter- 
ested in  what  Mr.  Van  Cortlandt  has  said. 

Mr.  Van  Cortlandt.  Mr.  Moss  says: 

The  deposits  of  the  Credit  Foncier  come  largely  from  the  system  of  lottery. 
They  have  a  drawing  that  takes  place,  we  will  say.  every  six  months  or  oftener, 
as  the  case  may  he.  A  ticket  is  really  a  bond.  You  buy  a  ticket,  and  that  is 
rea'ly  a  bond  of  the  same  par  value  as  the  price  of  the  ticket,  repayable,  we 
will  say.  in  7F>  years,  and  it  bears  a  low  rate  of  interest  payable  semiannually. 
There  is  no  security  given  except  the  good  will  of  the  bank.  Now,  then,  when 
the  drawings  take  place,  if  your  particular  ticket  draws  a  prize,  then  you  sur- 
render your  bond  at  once  and  get  a  large  cash  payment;  but  there  are  only  one 
or  two  who  get  these  large  cash  prizes  or  bonuses. 


RURAL   CREDITS.  507 

On  that  question  I  can  give  you  the  number  of  prizes.  It  is  in 
the  report  here. 

If  you  do  not  draw  a  prize  you  would  have  the  bond,  which  is  a  note  of  the 
Credit  Foncier,  payable  in  about  75  years  and  drawing  interest  every  6  months. 
It  has  no  lottery  feature  except  in  that  way — not  in  the  sense  that  you  put 
something  in  and  get  nothing  back. 

That  is  all  correct,  that  all  these  bonds  are  not  lottery  tickets. 

Senator  Hollis.  There  are  no  blanks. 

Mr.  Van  Cortlandt.  There  are  no  blanks ;  that  is  right. 

You  put  something  in,  and  you  may  get  a  great  deal  back,  and  you  are  sure 
of  getting  a  small  rate  of  interest  and  at  the  end  of  75  years  getting  your  money 
back.  And  the  gambling  instinct  of  the  French  nation  has  been  so  great  that 
it  has  in  fact  enabled  the  Credit  Foncier  to  secure  the  great  bulk  of  the  savings 
of  the  French  nation. 

The  Credit  Foncier  emits  two  distinct  classes  of  obligations  to  secure  loan- 
able funds,  neither  one  of  which  is  payable  on  demand.  The  first  class  of  these 
obligations  represents  deposits,  and  under  the  terms  of  this  bill  would  be  either 
demand  or  time  deposits.  The  French  bank,  however,  sells  lottery  tickets. 
Each  ticket  is  a  bond  or  long-time  note  against  the  bank  bearing  interest  pay- 
able semiannually.  The  bond  itself  usually  matures  75  years  after  the  date  of 
issue.  The  obligations  have  no  security  except  that  of  the  good  will  of  the 
bank. 

In  that  I  think  Mr.  Moss  is  wrong. 

In  this  manner  the  French  bank  escapes  carrying  a  long  line  of  demand  or 
short-time  obligations  and  can  loan  its  deposits  very  freely  on  long-time  amorti- 
zation mortgage  loans.  The  risk,  whatever  it  may  be,  is  carried  by  the  holders 
of  the  lottery  bonds. 

The  second  class  of  obligations  is  land  bonds,  similar  in  every  feature  to  the 
same  class  of  obligations  issued  by  the  banks  under  the  terms  of  this  bill,  ex- 
cepting that  the  French  bank  can  issue  twenty  times  its  capital  and  surplus  in 
land  bonds,  whereas  under  this  bill  banks  are  restricted  to  fifteen  times. 

Now,  I  spent  two  hours  with  one  of  the  head  men  of  the  Credit 
Foncier,  who  was  designated  to  give  me  any  information  that  I 
wanted,  and  I  would  like  to  say  that  I  am  very  familiar  with  the 
French  language,  because  I  spent  several  years  there  as  a  boy,  and, 
then,  in  connection  with  my  banking  business,  I  have  been  abroad 
very  frequently  since  then.  So  that  in  that  way  the  conference  was 
all  carried  on  in  French,  but,  I  think,  I  understood  everything  per- 
fectly that  this  gentleman  said. 

This  is  a  sort  of  popular  book,  but  they  gave  it  out  themselves,  and 
I  can  translate  readily  for  you  how  tney  describe  their  bonds,  at 
least  one  feature  of  it.  The  Credit  Foncier  gets  funds  for  its  oper- 
ations in  mortgages  by  putting  out  bonds  which  are  like  the  loans  of 
two  sorts.  Two  sorts,  but  not  in  the  least  the  sorts  that  Mr.  Moss 
speaks  of.  Mortgage  loans  and  communal  loans,  because  they  loan 
largely  to  communities,  instead  of  communities  putting  out  their 
bonds  direct  the  way  it  is  done  here.  The  first  are  specially  guar- 
anteed by  the  total  of  the  mortgages  of  the  society.  The  second  by 
the  total  of  the  credits  of  the  departments,  towns,  etc.  That  means 
the  credit  of  the  department  or  town — that  is,  the  towns  and  com- 
munities are  behind  those  communal  loans. 

The  total  of  those  bonds  put  out  can  not  exceed  the  total  of  the  mortgages 
of  the  lender,  is  the  way  they  put  it.  The  bonds  in  circulation  must  always, 
according  to  law,  be  secured  by  at  least  equivalent  credits. 

Mr.  Moss.  Mr.  Van  Cortlandt,  of  course,  those  two  classes  come 
under  what  I  said  of  one  class  of  secured  bonds.    I  did  not  divide 


508  RURAL   CREDITS. 

them  into  communal  and  land  bonds,  but  they  are  the  ones  that  are 
secured  by  the  bank. 

Mr.  Van  Cortlandt.  But  in  this  book  here,  or  in  their  annual 
statement,  I  can  not  find  any  reference  except— as  I  told  you — one 
statement  there  which  I  am  going  to  point  out. 

Mr.  Moss.  I  wish  you  would  discuss  the  deposits  feature  of  the 
Credit  Foncier. 

Mr.  Van  Cortlandt.  There  [indicating  in  pamphlet]  is  a  picture 
of  the  wheel  that  they  use  there,  and  here  is  a  picture  of  when  they 
have  one  of  their  drawings. 

The  pamphlet  continues: 

And  lastly,  we  have  reserved  for  the  end  the  last  character  of  the  bonds  of 
the  Credit  Foncier. 

These  are  the  bonds  that  we  use  the  word  "  lottery  "  for,  but  the 
French  word  "  lot "  is  not  what  we  mean  by  "  lottery."  It  is  simply 
a  drawing.  The  word  "  lottery  "  in  this  country  has  gotten  into  dis- 
repute and  has  now  a  rather  disagreeable  significance  over  here, 
whereas  this  French  "  lot "  has  nothing  of  that  meaning.  It  is 
simply  that  you  are  entitled  to  some  premium  if  you  draw  a  certain 
number,  but  it  has  no  disagreeable  meaning  to  them  at  all  in  the  way 
our  word  "  lottery  "  has  here. 

Mr.  Hayes.  It  has  not  to  the  German  either. 

Air.  Van  Cortlandt.  No,  sir ;  it  has  not. 

Senator  Hollis.  Betting  on  horse  races  over  there  has  not  the  same 
disagreeable  sound  that  it  has  here  either,  has  it? 

Mr.  Van  Cortlandt.  No.  At  any  rate  we  want  to  get  the  point 
there.  We  will  call  them  lottery  bonds  then;  that  is,  in  each  issue 
a  certain  number  of  bonds  are  reimbursed  as  the  result  of  the  draw- 
ing by  lot,  not  100,  200,  or  500  francs,  but  they  have  a  chance  of 
receiving  1,000,  5,000,  10,000,  25,000,  50,000,  100,000,  or  200,000  francs. 

Mr.  Moss.  I  see  Col.  Jordan  is  about  to  leave  the  room.  I  should 
like  to  have  Col.  Jordan  hear  this  discussion,  because  he  and  I  were 
together  discussing  this  matter,  and  I  would  like  to  have  him  pay 
attention  to  these  remarks,  because  I  think  he  has  the  same  opinion 
I  had  about  the  French  batiks. 

Mr.  Van  Cortlandt.  I  am  now  reading  from  a  document  that  the 
Credit  Foncier  themselves  gave  me. 

Mr.  Hayes.  It  is  quite  likely,  is  it  not,  that  they  would  not  be  apt 
to  put  out  to  you  their  lottery  scheme  quite  so  fully  as  they  might  to 
some  one  else? 

Mr.  Van  Cortlandt.  I  want  to  say  that  they  have  no  feeling  about 
it  at  all  about  offering  a  prize  to  be  able  to  sell  the  bond  at  3^  per 
cent  instead  of  4  per  cent.  Of  course  the  people  want  their  security, 
but  they  are  satisfied  with  3|  per  cent  instead  of  perhaps  4  per  cent 
interest  on  the  chance  of  getting  $40,000  when  they  have  only  to  put 
up  a  few  hundred.  And  that  is  where  the  bank  makes  its  profit. 
Of  course  it  is  to  the  interest  of  the  Credit  Foncier  to  do  that,  for 
they  save  one-half  per  cent  interest  for  50  or  60  years ;  therefore  they 
are  perfectly  willing  to  spend  a  few  million  francs  in  these  premiums. 
It  says  these  chances  of  which  the  annual  total  of  prizes  is  actually, 

instead   of  being  is   2.800,000   francs.     That   is   what   they 

put  up  there,  apparently,  annually,  and  it  says  "  they  exercise  a  con- 
siderable attraction."     [Laughter.] 


RUEAL   CREDITS.  509 

Here  is  the  last  annual  report  available.  This  might  be  interesting 
to  you,  gentlemen.  This  is  what  you  might  call  the  standard  joint- 
stock  institution  for  long-term  bonds,  as  distinguished  from  the  co- 
operative ones.  This  report  shows  that  they  have  43.852  share- 
holders.    Is  this  interesting  to  you,  gentlemen? 

Senator  Hollis.  We  would  be  very  glad  to  hear  it. 

Mr.  Van  Cortlandt.  We  will  not  go  into  the  details,  but  out  of 
these  43.000 

Mr.  Moss  (interposing).  In  order  that  the  record  may  not  be  too 
much  encumbered  call  off  from  that  the  amount  of  deposits  that  the 
Credit  Foncier  has. 

Mr.  Van  Cortlandt.  I  will  just  finish  this  one  thing,  Mr.  Moss.  It 
says  that  out  of  the  43.800  shareholders — this  is  very  interesting.  I 
think — over  35,000  have  between  1  and  10  shares,  showing  how 
widely  scattered  that  stock  is. 

Mr.  Myrick.  What  is  the  par  value? 

Mr.  Van  Cortlandt.  The  par  value  is  500  francs.  About  four- 
fifths  of  those  shares  are  held  by  people  who  have  less  than  $1,000 
invested,  showing  that  it  is  a  pretty  popular  institution,  I  think. 

Under  their  charter  they  are  allowed  to  receive  50  per  cent  of  their 
capital — not  capital  and  surplus,  but  capital — in  deposits.  Their 
capital  now  is  $45,000,000.  so  that  they  would  have  a  maximum  that 
they  could  receive  of  $22,500,000,  according  to  this  statement.  Their 
deposits  are  about  $17,000,000.  This,  in  the  main,  is  where  the  mis- 
understanding has  come,  possibly.  There  is  no  representative  of  the 
Credit  Foncier  that  I  know  of  in  New  York,  so  that  I  have  got  to 
wait  until  I  go  abroad  and  confirm  it.  But  thev  have  an  item  here 
which  is  not  very  large,  considering  the  size  of  the  institution,  of 
38.000.000  francs."  which  is  about  $7,600,000.  which  they  speak  of  as 
these  "  bons  a  lots  " — That  is,  lottery  bonds — in  circulation.  I  think 
that  it  may  be  that  instead  of  paying  these  premiums  in  cash  that 
they  keep  the  cash  and  give  the  winners  bonds.  That  is  what  I  want 
to  find  out,  whether  that  is  the  item.  It  might  very  easily  be  that, 
that  thev  do  not  have  to  pay  out  the  cash  in  that  way. 

Mr.  Hayes.  These  bonds  that  are  won  are  bonds  secured.  I  sup- 
pose, by  either  communal  obligations  or  by  mortgages? 

Mr.  Van  Cortlandt.  In  the  statement  I  read  they  said  "  almost 
all  "  are  secured.  I  think  the  reasou  why  they  say  "  almost  all  "  is 
because  of  this  item  of  38.000.000  francs,  which,  of  course,  is  very 
small,  because  the  total  number  of  their  bonds  outstanding  now, 
if  we  were  to  put  it  in  dollars,  is  $900,000,000. 

Mr.  Hayes.  Yes;  but  what  I  am  getting  at  is.  the  bonds  that  they 
put  up  in  this  game  of  chance  are  bonds  that  are  secured  by  mort- 
gage, so  that  they  would  not  appear  in  their  statement  as  separate 
bonds  at  all — they  are  all  bonds.  Possibly  what  you  suggest  may  be 
simply  the  premiums  or  the  prizes. 

Mr.  Van  Cortlandt.  That  is  what  I  am  saying,  that  they  do  not 
pay  those  prizes  in  cash,  possiblv.  but  thev  give  a  bond  for  them,  and 
that  is  the  item  of  38.000,000  francs  which  is  in  their  report,  but 
which  is  nothing  at  all  in  comparison  with  the  total  volume  of  bonds. 

Mr.  Hayes.  A  very  large  percentage  of  these  bonds  secured  by 
mortgage  may  have  been  secured  through  the  lottery  operation  ? 


510  RURAL   CREDITS. 

Mr.  Van  Courtlandt.  That  is  the  fact;  yes.  But  as  I  under- 
stand, Mr.  Moss  he  thinks  that  a  great  number  of  their  bonds  do  not 
have  the  lottery  feature.     I  think  they  all  have  the  lottery  feature. 

Mr.  Hayes.  No  ;  he  states  that  all  of  them  do. 

.Mr.  Van  Cortlandt.  What  is  your  statement,  Mr.  Moss? 

Mr.  Moss.  I  have  not  had  any  opportunity  to  consult  with  Col. 
Jordan,  but  Col.  Jordan  and  I  had  the  honor  and  pleasure  of  having 
an  interview  with  the  officers  of  the  Credit  Foncier,  and  the  secretary 
of  the  Anerican  ministry  and  embassy  was  our  interpreter.  I  recog- 
nize the  fact  that  Mr.  Van  Cortlandt,  who  speaks  French  language 
fluently,  has  an  advantage  in  understanding  over  men  who  do  not 
speak  it,  but  both  Col.  Jordan  and  myself  were  very  much  interested 
in  this  lottery  feature,  and  we  inquired  particularly  about  it. 

Senator  Hollis.  Did  you  make  any  investigation? 

Mr.  Hayes.  Did  you  take  a  chance?     [Laughter.] 

Mr.  Moss.  I  am  speaking,  of  course,  and  our  interest  was  a  purely 
educational  one.  We  did  not  take  any  chances  in  the  matter.  I 
have  no  desire  whatever  to  put  the  French  bank  in  bad  on  this  propo- 
sition even  if  it  were  in  my  power  to  do  it,  but  the  impression  that  I 
got  from  that  interview — and  if  it  is  wrong  it  was  through  the  pass- 
ing it  through  an  interpreter  back  and  forth — is  this 

Mr.  Van  Cortlandt.  That  is  just  my  explanation. 

Mr.  Moss  (continuing).  That  while  the  French  bank  had  the  right 
and  does  have  the  right  to  receive  a  limited  line  of  deposits,  just  as 
Mr.  Van  Cortlandt  has  said  here,  limited  by  one-half  of  its  capital, 
that  it  received  from  the  French  Government  a  special  privilege, 
namely,  of  selling  a  line  of  bonds  in  the  guise  of  lottery  tickets — that 
is  what  we  would  call  them.  They  call  them,  of  course,  secured  bonds 
against  the  French  Credit  Foncier,  payable  in  75  years  with  interest. 

I  remember  particularly  Col.  Jordan's  remark  to  them  when  they 
explained  it  to  him.  He  said,  "  That  is  not  a  lottery ;  it  is  a  scheme 
to  get  deposits."  I  think  the  colonel  will  agree  precisely  with  my 
statement.  That  is  not  a  lottery;  it  is  just  a  scheme  for  getting 
deposits,  and  I  know  that  I  was  thoroughly  of  the  mind  that  in  or- 
der to  escape  a  large  line  of  demand  obligations  and  at  the  same 
time  to  secure  funds  to  readily  loan  upon  land  that  they  had  a  right 
to  sell  as  many  of  these  lotteries  as  they  could  sell,  which  were  un- 
secured in  any  way  except  the  good  will  of  the  bank,  and  at  the 
same  time  they  had  a  right  under  their  charter  to  issue  a  line  of  20 
to  1  bonds,  secured  by  mortgages.  I  ask  Col.  Jordan  if  that  was  his 
imderstanding  of  the  interview? 

Mr.  Jordan.  I  think  so. 

Mr.  Moss.  Col.  Jordan  will  state  that  we  have  never  talked  the 
matter  over  after  we  came  here  or  compared  our  notes  about  the 
entire  matter.  To  be  sure  of  the  natter,  this  interview  was  taken 
down  by  a  stenographer,  it  was  sent  back  to  the  Bank  of  France,  and 
it  was  there  corrected  and  rewritten  and  sent  back  to  us  in  French 
language,  however.  It  was  here  again  translated.  I  think  Mr.  Van 
Cortland  had  the  matter.  It  was  translated  again.  But  the  lottery 
matter  was  discussed  very  much  fuller  between  us,  because  the  offi- 
cers of  the  French  bank  were  very  anxious  to  take  away  from  us 
the  idea  that  they  were  getting  something  for  nothing,  while  they 
were  selling  this  they  gave  value  received. 


RURAL  CREDITS.  511 

Mr.  Van  Cortlandt.  What  part  of  it  do  you  say  describes  that 
fully? 

Mr.  Moss.  Here  is  the  interview  we  had,  but  it  is  published. 

Mr.  Van  Cortlandt.  But  I  mean  what  part  there. 

Mr.  Moss.  So  that  the  only  difference  between  Mr.  Van  Cortlandt 
and  myself  is  this:  He  believes  that  the  French  bank  can  issue  no 
bond  except  that  which  is  secured  either  by  municipal  bonds  or  by 
real  estate  mortgage.  In  that  I  say  that  he  may  be  entirely  right. 
My  impression  is — which  was  gotten  by  an  interview  when  Col. 
Jordan  was  present,  who  has  an  opinion  precisely  the  same — that 
their  lottery  matter  was  entirely  separate  from  the  sale  of  land  bonds, 
and  the  lottery  bonds  are  sold  upon  the  security  of  the  good  will  of 
the  bank  and  are  not  based  upon  the  collective  mortgages.  If  I  am 
mistaken,  it  has  been  an  honest  mistake,  and  I  very  much  regret  it, 
and  if  I  had  thought  there  was  any  doubt  about  it  I  would  have  with- 
drawn the  statement  very  willingly,  because  I  would  not  like  to 
make  a  statement  about  the  credit  foncier  unless  I  was  sure  I  was 
right  about  it.    It  was  based  entirely  upon  that  interview. 

Mr.  Hayes.  They  would  have  no  right  to  issue  these  bonds  that 
they  dispose  of  by  lottery  except  in  the  two  ways  the  law  provides. 

Mr.  Moss.  I  understand  that.  It  has  a  right  to  loan  it.  They 
loan  it  out  on  mortgages. 

Mr.  Hayes.  They  have  no  right  to  loan  it  any  other  way. 

Mr.  Moss.  That  is  true;  but  the  matter  that  I  am  speaking  of 
began  on  the  question  that  they  have  the  right — here  is  the  difference 
between  the  two  propositions.  Under  the  scheme  laid  down  in  this 
bill  the  bank  would  have  to  take  its  own  capital  and  put  it  in,  and 
then  loan  it  and  then  sell  these  bonds,  and  then  take  away  and  reloan 
again.  In  this  instance,  however,  the  bank  would  have  the  right 
to  go  out  and  attract  the  amount  of  capital,  and  then,  having  at- 
tracted the  amount  of  capital  in  that  way,  loan  it  out.  You  see  the 
difference  in  the  practicability  of  the  propositions? 

Mr.  Hayes.  There  may  be  a  difference  in  the  operation,  but  the 
ultimate  result  is  the  same. 

Senator  Hollis.  If  I  may  be  permitted,  I  heard  Mr.  Moss  testify, 
and  the  only  impression  that  this  particular  testimony  made  upon 
me  was  that  the  French  Government  permitted  to  the  credit  foncier 
certain  advantages  in  the  way  of  inducing  deposits  of  money  that 
they  could  use,  that  we  could  not  grant  to  our  institutions,  and  that 
is  all  Mr.  Moss  meant  to  convey,  was  it  not? 

Mr.  Hayes.  That  is  the  impression  that  I  got. 

Senator  Hollis.  That  leaves  us  all  straight.  And  you  agree  to 
that? 

Mr.  Van  Cortlandt.  No;  I  do  not  agree. 

Senator  Hollis.  Then  what  is  the  trouble? 

Mr.  Van  Cortlandt.  My  point  is  that  they  are  not  trying  to  take 
deposits.     They  do  not  allow  them  to  take  many  deposits 

Senator  Hollis  (interposing).  It  does  result  in  their  getting  funds 
which  they  use  in  their  business? 

Mr.  Hayes.  They  do  not  pass  it  to  the  credit  of  anybody,  but  they 
use  it  to  sell  their  bonds. 

Senator  Hollis.  Why  do  they  do  it  if  it  does  not  result  in  getting 
funds  to  do  business?    They  do  not  do  it  just  for  pleasure. 


512  RURAL   CREDITS. 

Mr.  Van  Cortlandt.  They  can  only  sell  those  bonds  against  mort- 
gages.   That  does  not  help  their  deposits. 

Senator  Hollis.  It  helps  them  to  get  funds  to  loan  out  on  mort- 
gages. 

.Mr.   Van  Cortlandt.  They  get  their  funds  through  the  sale  of 
debentures,  for  which  they  get  a  very  ready  market  in  France. 
Senator  Hollis.  What  do  they  do  it  for  ? 
Mr.  Van  Cortlandt.  You  mean  the  lottery  feature? 
Senator  Hollis.  Yes. 

Mr.  Van  Cortlandt.  In  order  that  they  can  sell  their  bonds,  we 
will  say,  at  3^  per  cent  instead  of  4  per  cent,  saving  one-half  per 
cent  for  GO  years,  which  is  an  enormous  saving.  You  see,  by  putting 
two  or  three  millions  in  premiums — figure  it  out  at  one-half  per  cent 
difference — $100,000,000  of  bonds  at  one-half  per  cent  for  60  years— 
that  will  be  30  per  cent  on  $100,000,000  in  the  course  of  60  years. 
The}r  would  save,  in  the  course  of  60  years,  $30,000,000  on  one  issue 
of  bonds,  and  here  is  their  report  here,  showing  that  they  set  aside 
less  than  $3,000,000  a  year  for  these  premiums. 

Senator  Hollis.  Then  it  is,  in  its  last  analysis,  a  practical  advantage 
given  them  by  the  Government  which  permits  them  to  do  business 
on  more  advantageous  terms? 

Mr.  Van  Cortlandt.  Yes,  sir;  and  another  feature  is  that  it  en- 
ables them  to  loan  cheaper. 

Senator  Hollis.  But  it  is  a  special  benefit  that  we  can  not  grant 
in  this  country  ? 

Mr.  Van  Cortlandt.  We  can  not  on  account  of  the  public  Anglo- 
Saxon  sentiment. 

Senator  Hollis.  There  is  no  misunderstanding.     I  think  we  can 
leave  that  with  honors  even. 
Mr.  Van  Cortlandt.  Yes. 
Senator  Hollis.  What  next  have  you? 

Mr.  Van  Cortlandt.  I  would  like  to  have  the  number  of  directors 
looked  into.  These  are  merely  details  that  can  be  worked  out.  I 
think  that  some  of  these  institutions  may  become  very  large ;  that  a 
board  of  nine  would  be  a  very  small  board ;  and  that  it  would  be  bet- 
ter to  fix  a  minimum  and  not  a  maximum  of  directors.  And  I  would 
like  to  see  them  elected  in  series. 

Then  there  is  another  thing  that  they  have  over  there  which  I 
would  like  to  see  in  this  country,  but  which  I  have  no  doubt  they 
did  not  bring  in  because  it  is  a  new  thing,  and  that  is  what  they  call 
a  supervisory  committee,  which,  I  think,  would  be  very  useful  in  an 
American  company.  This  supervisory  committee  is  elected  at  the 
annual  meeting.  They  are  elected  at  the  same  time  they  elect  the 
di  rectors.  It  is  a  committee  of  three  or  five — a  supervisory  commit- 
tee. This  committee  during  the  year  is  the  direct  representative  of 
the  stockholders,  and  if  they  see  anything  wrong  they  have  full 
right  of  supervision.  If  the}7  see  anything  they  do  not  like  they 
have  got  a  right  then  to  call  it  to  the  attention  of  the  board  and  then 
they  have  the  right  to  call  special  meetings  of  the  stockholders.  The 
stockholders  only  meet,  generally,  once  a  year.  They  are  a  big  body 
and  can  not  go  into  details  to  find  out  the  real  condition  of  the  in- 
stitution. They  can  only  accept  the  statement  made  by  the  directors, 
who  naturally  wish  to  make  a  good  statement,  and  it  seems  to  me 
that  especially  with  our  American  character  of  doing  business  pretty 


RURAL   CREDITS.  513 

quickly  a  committee  of  that  kind,  which  in  European  countries  is  in 
these  institutions  very  generally,  would  be  a  good  thing  in  America. 

Senator  Hollis.  That  would  be  a  sort  of  incorporated  Anthony 
Comstock. 

Mr.  Van  Cortlandt.  I  imagine  the  Anthony  Comstock  part  they 
would  leave  alone. 

That  is  a  new  principle,  and  it  is  said  that  over  here  boards  of 
directors  would  very  likely  resent  having  a  committee  of  that  kind 
and  you  might  not  get  some  men  to  serve  as  directors  because  of 
that  feeling.  It  seems  to  me  that  such  a  committee  would  go  a  good 
ways  toward  preventing  a  lot  of  scandal  about  "  directors  who  do  not 
direct,"  as  the  saying  is.  It  seems  to  me  that  a  great  deal  of  that 
scandal  has  come  from  the  fact  that  they  were  not  held  strictly  to 
account  under  our  system,  and  it  is  an  impossibility  for  a  man  to 
have  a  sense  of  responsibility  when  everything  is  vague.  In  other 
words,  I  think  the  best  of  the  directors  are  the  men  who  invite  the 
closest  supervision;  the  highest  type  of  men  are  the  men  who  want 
to  be  checked  all  the  time,  because  they  feel  it  is  inherent  in  human 
nature  to  be  careless  if  there  is  nobody  to  look  after  them. 

Senator  Hollis.  Do  you  not  think  you  will  have  more  dummies  if 
you  have  a  larger  board  ?  Do  you  not  think  a  small  board  of  directors 
is  usually  more  efficient  than  a  large  one  ? 

Mr.  Van  Cortlandt.  Of  course,  it  depends  on  the  size  of  the  insti- 
tution. If  it  is  going  to  be  a  large  institution,  such  as  an  institution 
doing  business  over  a  large  area,  I  think  it  is  very  natural  that  dif- 
ferent sections  should  like  to  feel  that  they  have  got  some  man  on 
the  board  who  is  familiar  with  their  special  section.  If  it  is  a  large 
institution,  for  instance,  doing  business  through  a  State  you  can  see 
that  20  men  would  be  a  small  board  to  represent  the  various  sections 
of  the  State. 

Mr.  Hayes.  Is  it  not  your  experience  that  about  two  or  three  men 
on  the  board  generally  run  it  and  run  the  bank? 

Mr.  Van  Cortlandt.  Yes;  and  that  is  the  reason  why  this  super- 
visory committee  would  be  a  good  thing. 

Mr.  Bulkley.  In  connection  with  this  question  about  directors 
that  do  not  direct,  do  you  think  there  is  any  danger  of  getting  super- 
visors that  do  not  supervise? 

Mr.  Van  Cortlandt.  No;  I  should  think  that  men  elected  directly 
for  a  certain  purpose  and  not  meeting  often — a  committee  of  that 
kind  would  only  meet  occasionally;  they  would  probably  meet  only 
once  in  every  three  months  unless  there  was  some  special  reason  for 
meeting— and  if  you  throw  enough  responsibility  on  men  like  that, 
I  do  not  think  there  is  any  danger  any  more  than  I  think  there  is 
danger  in  the  President  nominating  members  of  the  Federal  reserve 
board — -there  are  those  who  say,  "  Oh,  you  are  going  to  put  it  into 
politics."  I  think  it  is  going  to  take  it  out  of  politics  if  you  throw 
full  responsibility  on  them.  If  you  do  not  believe  in  that,  then  there 
is  no  good  in  having  a  republican  form  of  government;  we  might  as 
well  give  it  up  and  ask  somebody  to  run  the  thing  for  us. 

Senator  Hollis.  You  have  five  minutes  more  if  there  is  anything 
you  wish  to  add.     Your  suggestions  are  very  interesting. 

Mr.  Van  Cortlandt.  There  was  one  little  item,  the  investment  of 
the   capital  of  the  bank.     You   say   "  commercial   paper "   without 

37031—14 33 


514  RURAL   CREDITS. 

limiting  it  in  any  way.  I  do  not  know  whether  you  could  put  in 
such  commercial  paper  as  would  be  accepted  by  the  Federal  reserve 
board.  It  is  very  important  to  an  institution  of  this  kind,  if  they 
are  going  to  sell  their  bonds  to  the  best  advantage,  that  they  must 
not  do  any  business  that  is  at  all  speculative.  They  must  be  re- 
stricted to  absolutely  first-class  business,  and  of  course  "  commercial 
paper  "  is  a  pretty  vauge  term. 

Mr.  Hayes.  You  would  be  in  favor  of  excluding  that  commercial 
paper  entirely,  would  you  not,  from  these  institutions? 

Mr.  Van  Cortlandt.  Except  for  their  capital  and  deposits.  You 
are  going  to  allow  them  to  have  some  deposits,  therefore  you  must 
let  them  do  something  with  those  deposits,  but  I  should  restrict  them 
to  such  a  small  amount  that  it  is  not  serious  even  if  they  lose  it. 

Mr.  Hayes.  So  you  would  allow  them,  to  that  extent,  to  do  a  com- 
mercial business? 

Mr.  Van  Cortlandt.  Let  them  use  their  deposits  to  buy  first-class 
securities,  like  Government  bonds. 

Mr.  Hayes.  That  is  not  commercial  business. 

Mr.  Van  Cortlandt.  First-class  securities;  yes. 

Mr.  Hayes.  But  that  is  not  commercial  banking. 

Mr.  Van  Cortlandt.  National  banks,  for  instance,  will  have  the 
power,  for  instance,  to  buy  Government  bonds  or  bonds  of  railroads. 

Mr.  Hayes.  They  bring  panics  upon  the  country  and  upon  them- 
selves by  doing  it. 

Mr.  Van  Cortlandt.  I  say  it  is  commercial  banking. 

Mr.  Hayes.  I  do  not  call  that  commercial  banking.  I  think  that 
is  investment  banking,  and  it  is  because  they  are  mixed  that  we  have 
trouble.  If  they  were  not  allowed  to  do  that  we  would  not  have 
had  the  panic  of  1907. 

Mr.  Van  Cortlandt.  I  mean  there  is  no  line  of  demarcation  be- 
tween investment  banks  and  commercial  banks— I  am  trying  to  get 
at  the  fact  that  there  is  no  law  under  which  the  investment  bank 

Mr.  Hayes  (interposing).  There  is  no  statute  law,  but  there  is  a 
natural  law  which  I  think  ought  to  be  observed. 

Mr.  Van  Cortlandt.  Then  I  think  we  are  arguing  a  little  at  cross 
purposes.  I  would  let  them  do  what  you  call  investment  business  and 
not  commercial  business. 

(Whereupon,  at  12  o'clock  noon,  the  subcommittee  took  a  recess 
to  2  o'clock  p.  m.) 

AFTER  RECESS. 

The  subcommittee  reassembled  at  the  expiration  of  the  recess. 

STATEMENT  OF  HERBERT  MYRICK,  PRESIDENT  OF  THE  ORANGE 
JUDD  CO.,  SPRINGFIELD,  MASS. 

Mr.  Myrick.  Mr.  Chairman.  I  will  state  that  my  name  is  Herbert 
Myrick.  I  am  president  of  the  Orange  Judd  Co.  and  editor  of  its 
five  farm  weeklies — Northwestern  Farmstead,  of  Minneapolis; 
Orange  Judd  Farmer,  of  Chicago;  Southern  Farming,  of  Atlanta, 
Ga.;  American  Agriculturalist,  of  Xew  York:  and  the  New  England 
Homestead,  of  Springfield.  Mass. 

Am  also  president  of  the  Phelps  Publishing  Co.,  publishers  of 
Farm  and  Home,  a  semimonthly  published  in  Chicago  and  in  Spring- 


RURAL   CREDITS.  515 

field,  Mass.  All  these  papers  have  nearly  1,200,000  subscribers 
among  the  farmers  of  the  United  States. 

I  have  been  intensely  interested  in  this  subject,  gentlemen,  for 
more  than  30  years,  and  have  had  some  practical  experience  in  it. 
I  assisted  to  organize  some  of  the  first  cooperative  creameries  in  this 
country ;  helped  to  start  the  Springfield  Cooperative  Bank,  or  build- 
ing and  loan  association,  25  years  ago,  which  has  been  very  successful. 

In  1889  I  published  the  book  How  to  Cooperate,  which  has  had 
some  influence  on  this  movement  for  many  years.  Helped  to  put 
through  the  Massachusetts  Legislature  the  act  of  1909  providing 
for  credit  unions,  which  was  the  first  of  its  kind  in  the  United  States. 
Frequently  have  studied  this  subject  abroad,  and  in  1912  published 
the  book  Cooperative  Finance,  covering  the  whole  subject  of  bank- 
ing and  currency  of  the  farm,  and  also  farm  finance,  and  prepared 
what  we  call  the  standard  bill  for  cooperative  farm  finance  under 
State  laws.  It  is  divided  into  two  parts,  part  1  being  the  coopera- 
tive people's  bank  for  personal  credit,  and  part  2  cooperative  land 
bank  for  realty  credit.  I  think  each  member  of  the  committee  has 
a  copy  of  that. 

Part  1  is  based  on  the  Massachusetts  statute.  Texas  adopted  part 
1.  but  emasculated  it  by  limiting  loans  to  $200,  and  also  changed  the 
name  of  these  local  institutions  to  "  credit  unions  "  instead  of  banks, 
which  is  a  fatal  error.  Wisconsin  has  adopted  both  parts  1  and  2 
of  this  bill.  The  Wisconsin  bill,  part  1,  is  verbatim  as  I  drew  it  here. 
Part  2,  the  land  bank,  is  somewhat  changed.  You  have  in  Indiana, 
Mr.  Moss,  a  very  good  land-bank  bill. 

Mr.  Moss.  Yes. 

Mr.  Myrick.  Something  along  this  general  line. 

Mr.  Moss.  I  think  that  Indiana  is  the  only  State  at  the  present 
time  that  has  given  the  right  to  issue  bonds  under  the  peculiar 
scheme  that  they  have. 

Mr.  Myrick.  Yes.  The  Wisconsin  law — the  new  law  in  effect  this 
summer — does  the  same  thing  in  Wisconsin. 

Mr.  Moss.  Yes;  practically  the  same  thing. 

Mr.  Myrick.  Now,  to  get  down  to  real,  practical  business  on  this 
proposition  before  you.  I  assume,  gentlemen,  that  the  necessity 
and  the  need  and  the  general  principles  of  this  matter  have  been  so 
thrashed  out  that  they  are  entirely  familiar  to  you,  and  that  your 
problem  now  is  what  is  the  best  way  of  framing  the  measure  that 
will  accomplish  the  purpose  you  desire. 

The  first  principle  is  that  your  method  must  be  an  American 
method  adapted  to  American  conditions.  We  have  something  to 
learn  from  abroad,  but  I  think  this  committee  is  going  through 
much  the  same  experience  that  the  Committee  on  Banking  and  Cur- 
rency did  with  the  question  of  reforming  commercial  banking  and 
currency — you  spent  a  lot  of  time ;  you  had  a  commission  go  to 
Europe;  and  you  worked  over  foreign  experiences;  but  then,  when 
you  got  right  down  to  perfecting  your  measure,  you  had  to  adapt 
it  to  American  conditions,  and  there  is  hardly  a  line  in  the  Federal 
reserve  act  that  has  to  do  with  European  conditions. 

Then,  another  thing:  The  success  of  any  measure  is  going  to 
depend  on  whether  it  comes  up  from  the  people  or  is  carried  down 
to  them.     If  it  comes  up  from  us.  and  we,  the  people,  take  our  coats 


516  RURAL  CREDITS. 

off  and  make  these  institutions  a  success,  then  we  are  accomplishing 
something;  whereas,  if  we  sit  by  and  wait  for  the  Nation  or  the 
State  to  bring  money  to  us,  our  last  condition  may  be  worse  than 
our  first. 

Another  thing,  Mr.  Chairman:  The  Federal  reserve  act  has  intro- 
duced new  conditions  here,  that  make  it  possible  to  develop  an 
American  system  of  short-time  and  long-time  credit  that  will  be 
workable  and  that  will  be  practicable.  In  it  we  should  utilize  to  the 
utmost  the  advantages  offered  by  the  Federal  reserve  act.  Let  me 
go  on  record  right  here,  gentlemen,  as  saying  that  that  act  will  prove 
to  be  the  most  constructive  financial  legislation,  other  than  this  bill, 
that  this  country  has  ever  had.  But  if  you  draw  your  bill  right  here, 
this  will  be  a  fair  second  in  importance  if  its  benefits  do  not  even 
surpass  that  act  in  the  next  20  years. 

Now,  I  sa}r  that  we  should  begin  with  the  individual  farmer; 
with  a  group  of  them.  The  man,  the  individual  citizen,  is  the 
wonderful  factor  in  this  country.  One  witness  said  here,  I  think  it 
was  Mr.  Scudder,  that  the  difference  between  America  and  Europe 
was  this,  that  in  Europe  the  State  was  everything — the  Government 
was  everything,  and  the  citizen  was  nothing.  In  America  the  indi- 
vidual, the  citizen,  is  the  State,  instead  of  vice  versa. 

Therefore  anything  should  be  done  that  will  develop  and  draw  out 
the  wonderful  powers  latent  but  inherent  in  every  citizen;  it  is  so 
easy  for  a  man  to  do  the  right  thing  when  he  knows  how.  The 
difference  between  success  and  failure  in  life  or  in  farming  or  in 
anything  else  is  just  the  difference  of  turning  your  hand.  If  you 
turn  your  hand  that  way  [indicating]  and  use  that  judgment,  j^ou 
are  successful;  if  you  turn  that  way  [indicating]  you  are  a  failure. 
We  all  know  that.     We  have  all  been  through  the  mill. 

The  individual  man,  strong  as  he  is,  is  still  stronger  when  he 
associates  with  his  neighbors — with  others.  Therefore,  cooperation 
is  the  second  thing. 

Now,  the  simplest  form  of  cooperation  in  the  world  is  banking. 
Finance  is  easier,  simpler,  cheaper,  less  trouble  to  effect  than  any 
other  form  of  cooperation. 

The  difference  between  a  cooperative  bank  and  a  joint-stock  bank 
is  simply  this,  that  in  the  joint-stock  bank  every  share  has  one  vote, 
and  in  the  cooperative  bank  each  person  has  one  vote.  That  is 
practically  all  the  difference  so  far  as  the  ownership  is  concerned. 
Remember  that  the  same  principles  of  management  must  apply  to 
both  institutions. 

The  other  principal  difference  that  the  cooperative  bank  may 
apportion  a  part  of  its  earnings  to  the  patrons  who  make  the  earn- 
ings, instead  of  all  the  earnings  going  to  capital. 

The  next  step  is  to  mobilize  resources  so  as  to  make  them  available 
for  credit  purposes.  A  dozen,  or  20.  or  50  individuals  unite  in  a 
little  bank;  these  individuals  have  mobilized  their  resources  to  that 
extent.  Now,  hook  up  these  banks  together  so  that  they  can  help 
each  other  and  be  an  integral  part  of  the  Federal  reserve  system. 

The  bill  we  have  before  us  here  has  many  excellent  features,  but 
it  starts  back  end  foremost.  Your  short-term  credits  and  your  long- 
term  credits  are  two  separate  parts  of  one  proposition,  and  you 
can  not  and  should  not  attempt  to  separate  them  entirely.  And  yet 
above  all  things  we  must  keep  in  mind  that  current  deposits  can  only 


RURAL   CREDITS.  517 

be  used  for  current  loans  or  for  short-time  loans,  but  you  must  not 
tie  up  current  funds  in  permanent  loans.  Your  committee  is  all 
unanimous  on  that  point,  as  I  understand  it,  but  it  is  the  point  about 
which  there  has  been  a  great  deal  of  ignorance  and  misconception 
in  the  public  mind. 

The  first  thing  to  provide  is  the  little  local  cooperative  bank. 
But  this  institution  is  not  to  be  called  a  "rural  credit  society"  or  a 
"credit  union,"  or  any  other  fantastic,  un-American,  pauperizing, 
unpopular  name.  It  is  a  bank.  The  American  people  know  of  the 
bank.  They  know  what  the  national  banking  system  is.  They  have 
got  confidence  in  it.  I  claim  that  the  average  poor  man,  the  man  of 
modest  circumstances,  is  just  as  much  entitled  to  profit  by  and  have 
the  advantages  of  the  national  banking  system  as  you  or  I,  who  may 
be  of  larger  means.  Therefore,  I  would  have  it  that  "  seven  or  more 
citizens  resident  in  any  place  may  incorporate  a  national  cooperative 
bank  under  the  national  banking  law." 

Now,  there  is  your  name  "  national  cooperative  bank."  There  is  a 
name  that  everj^body  knows  about ;  everybody  knows  what  a  national 
bank  is.  Here  is  your  cooperative  bank.  Here  is  your  short-time 
short-credit  personal  banking  institution  for  the  common  people. 

Second,  let  this  bank  have  its  Federal  charter  when  it  has  put  up 
in  cash  as  little  as  $1,000  for  its  capital.  Despise  not  the  day  of  small 
things.  A  community  of  7,  15,  or  more  men  in  the  poorest  neighbor- 
hood, who  start  a  little  bank  with  as  little  as  $1,000  capital,  will 
soon  grow  to  $5,000,  and  $10,000,  and  so  on.  This  little  bank  is  to 
have  its  charter  direct  from  the  Government,  but  when  its  capital 
stock  paid  in  amounts  to  $5,000  or  more  it  may  then  become  a  part  of 
the  Federal  reserve  system.  And  when  its  capital  amounts  to  $25,000, 
which  is  the  present  limit  for  national  banks,  it  may  have  any  and  all 
other  advantages,  such  as  trust  companies,  etc.,  that  had  been  be- 
stowed upon  the  national  banks. 

The  number  of  shares,  the  proportion  of  the  stock  which  one  person 
may  hold,  should  be  limited  to,  say,  10  or  20  per  cent  of  the  total. 

Senator  Hollis.  Why? 

Mr.  Myrick.  The  par  value  of  the  shares  is  $5.  I  want  to  em- 
phasize that  point  most  strongly.  The  standard  unit  throughout 
the  world,  almost,  for  cooperative  enterprises  is  the  £1  share. 
When  the  Rochdale  Cooperative  Society  started  their  little  store, 
away  back  in  the  early  forties — and,  gentlemen,  they  started  that 
store,  as  I  recollect,  with  about  $25,  and  many  of  them  saved  for  it  at 
2  pence  a  week;  and  you  know  that  institution  has  developed  until, 
in  England  it  amounts  to  many  millions  of  dollars  annually — when 
they  started,  I  say,  they  fixed  their  shares  at  $5  each.  That  has  been 
the  rule  almost  ever  since. 

Now,  the  advantage  of  that  is  this,  suppose  that  I  am  a  farmer 
here,  and  we  are  trying  to  start  a  little  bank  in  my  town ;  suppose  I 
am  a  poor  man:  I  am  struggling.  I  will  take  10  shares,  at  $5  each; 
that  gives  me  a  $50  interest  in  this  bank.  My  wife,  my  children,  my 
neighbors,  will  be  encouraged  to  buy  shares.  We  want  everybody 
interested  in  this  thing.  We  want  them  to  have  a  stake  in  it.  I  tell 
you,  gentlemen,  cooperation  is  the  grestest  institution  there  is,  and  our 
trusts  in  this  country  that  we  have  had  so  much  trouble  with  have 
taken  the  cooperative  idea  and  abused  it.  They  have  run  it  entirely 
for  the  benefit  of  capital,  and  their  success  shows  the  marvelous  power 


518  RURAL    CREDITS. 

that  there  is  in  this  principle.  Now,  all  we  need  to  do  is  to  apply 
the  same  principle  in  our  own  interest. 

Of  course  the  shares  will  have  double  liability,  the  same  as  the 
present  national  bank.  The  American  people  are  accustomed  to 
that ;  they  are  not  afraid  of  it.     These  little  banks 

Senator  Mollis  (interposing).  Mr.  Myrick,  I  asked  you  why  you 
would  limit  the  number  of  shares  that  any  one  person  could  hold. 
That  is  what  I  wanted  to  know. 

Mr.  Myrick.  Oh,  I  would  limit  the  shares,  because  we  do  not 
want  one  person  to  have  a  preponderance  of  ownership.  We  want 
the  whole  community  to  feel  that  they  have  an  equal  show.  If  the 
interest  on  your  shares,  that  portion  of  the  earnings  which  goes  to 
capital  usually  being  limited  to  the  legal  rate  of  interest,  there  is  no 
such  object  for  one  person  to  want  to  get  a  great  number  of  shares 
as  there  would  be  if  this  bank  stock  was  going  to  be  worth  $300  or 
$400  a  share.  And  furthermore,  the  principle  is  not  one  man  in 
control,  but  the  interest  of  all  the  shareholders.  Therefore,  the  more 
you  can  distribute  it  the  better. 

This  little  institution  will  do  a  regular  banking  business;  it  will 
receive  deposits;  it  may  receive  Federal  deposits,  State  deposits,  the 
county  deposits,  postal  deposits — of  any  public  funds,  and  private 
deposits.  In  those  respects  it  is  the  same  as  any  national  bank.  The 
people  are  accustomed  to  this  kind  of  banking.  They  know  all  about 
it.     They  have  confidence  in  it. 

There  is  hardly  a  community  in  the  United  States  so  poor  but 
what  they  have  got  money  enough  to  start  an  institution  of  this  kind. 

We  now  come  on  to  the  period — in  the  spring,  if  you  please,  in 
North  Carolina,  or  some  Southern  State — where  the  farmers  are 
accustomed  to  borrowing  money — mortgaging  their  crop  before  it  is 
grown.  Five  years  after  this  institution  has  been  running  in  that 
town  that  practice  will  be  abolished  forever,  as  it  has  been  already 
throughout  much  of  the  country. 

But  the  bank  has  occasion  to  lend  more  money  than  it  has  got. 
It  is  a  member  of  the  Federal  Reserve  Association,  and  it  rediscounts. 
That  little  institution,  which  may  want  to  rediscount  a  total  of  $5,000 
or  $10,000  of  paper  for  180  days,  that  rediscount  to  those  people  is 
just  as  important,  in  fact,  more  vital  to  them,  than  it  is  that  the  rich 
man's  bank  should  rediscount  his  paper  for  $10,000,  $20,000,  or 
$50,000,  because  if  those  banks  will  not  do  it  for  him  he  can  get  the 
money  somewhere  else,  whereas  if  these  people  can  not  get  it  at  that 
place  they  can  not  get  it  at  all. 

I  would  have  these  little  banks  have  all  the  facilities  and  the  rights 
for  lending  money  that  national  banks  have.  They  can  lend  on 
mortgage  under  some  conditions. 

Senator  Hollis.  You  would  give  the  Federal  reserve  board  very 
broad  discretion,  in  the  way  of  experiment,  as  to  how  to  handle  them 
at  first,  would  you  not  \ 

Mr.  Myrick.  Yes,  sir. 

Senator  Mollis.  And  in  different  communities  permit  different 
regulations  to  meet  the  varying  conditions? 

Mr.  Myrick.  Absolutely.  Gentlemen,  conduct  this  proposition  on 
a  business  basis.  Do  not  fill  your  laAv  full  of  unnecessary  and  super- 
fluous details.  Leave  those  details  to  be  worked  out  by  the  adminis- 
trators. 


RURAL   CREDITS.  519 

Now,  here  is  a  new  principle,  and  this  is  the  only  new  principle 
really  for  the  little  local  banks :  Each  bank  shall  deposit  or  invest  25 
per  cent  of  its  capital  in  the  land  reserve — that  is  what  I  call  it;  you 
probably  would  call  it  capital  stock — of  the  land  bank  for  that  State, 
and  this  little  bank  can  not  pay  any  dividends  on  its  capital  until  it 
has  got  a  reserve  built  up  equal  to  this  25  per  cent,  which  is  put  into 
the  land  bank.  Whenever  we  start  those  little  banks  we  would 
probably  pay  in  the  25  per  cent  surplus,  as  is  usually  done  now  with 
national  banks.  If  we  start  a  national  bank  we  usually  pay  in  $200 
a  share  capital  stock;  if  the  capital  stock  is  $25,000,  we  would  pay 
in  $50,000  and  start  right  off  with  the  surplus  of  $25,000. 

Each  national  cooperative  bank  shall  not  pay  any  dividends  on  its 
shares  until  its  surplus  or  reserve  equals  25  per  cent  of  its  capital, 
which  25  per  cent  shall  be  deposited  in  the  land  bank;  and  thereafter 
half  the  earnings  available  for  distribution  shall  be  applied  to  the 
surplus  until  the  surplus  equals  50  per  cent  of  the  capital,  and  the 
balance  may  be  apportioned  between  capital  stock  and  dividends  or 
otherwise  employed  as  the  by-laws  set  forth.  Do  not  tie  up  the 
bank  too  closely  there.  You  have  got  some  provisions  in  this  bill 
about  the  way  they  can  apportion  their  earnings  that  are  not  prac- 
tical. I  have  gone  over  this  draft  of  the  bill  with  a  view  of  starting 
a  bank. 

Mr.  Bulkley.  You  are  referring  now  to  the  Moss  bill,  are  you  ? 

Mr.  Myrick.  Yes;  I  have  here  Senate  bill  4246.  There  are  some 
of  those  details  that  should  be  amended,  from  the  standpoint  of  a 
workable  institution.  If  this  system  can  be  licked  into  shape,  I 
shall  do  what  I  can  to  start  several  of  these  little  institutions 
throughout  the  country,  not  for  any  matter  of  profit,  because  I  have 
spent  lots  of  time  and  an  immense  amount  of  work  and  several 
thousands  of  dollars  in  promoting  cooperative  methods,  you  might 
say,  from  an  altruistic  standpoint. 

Senator  Hollts.  You  do  that  through  your  newspapers? 

Mr.  Myrick.  Yes,  sir;  and  printing  and  postage  and  all  that 
sort  of  thing.  I  simply  speak  of  that  in  order  to  put  right  in  your 
mind  the  fact  that  I  am  not  here  with  selfish  motives. 

Now,  your  shareholders  in  this  national  cooperative  bank  elect 
the  directors  and  the  directors  elect  their  officers,  and  that  bank  is 
run  the  same  way  as  any  other  bank.  When  it  is  only  a  little  insti- 
tution, with  only  $1,000  or  $5,000  capital,  it  will  not  be  open  every 
day;  it  will  only  be  open  at  certain  convenient  intervals  and  the 
expenses  will  be  almost  nothing,  but  the  system  is  one  that  our  people 
know  and  are  acquainted  with  and  have  confidence  in.  And  in  a 
great  many  places  I  apprehend  that  the  result  will  be  that  the  little 
State  banks — and  there  are  hundreds  of  them  and  thousands  of 
them  in  the  United  States  with  $5,000  each— I  apprehend  that  a 
great  many  of  those  banks  will  be  taken  over  and  converted  into 
national  cooperative  banks  under  this  system,  because  it  can  be 
figured  right  out  that  it  will  be  better  for  the  local  banker  to  come 
in  under  this  plan  than  it  will  be  to  have  his  patrons  start  a  coopera- 
tive bank  of  their  own,  because  in  all  small  communities  the  coopera- 
tive banks  are  going  to  get  the  business ;  they  are  going  to  get  it  all. 

Mr.  Seldomridge.  Would  you  allow  more  than  one  bank  to  start  in 
a  community? 

Mr.  Myrick.  Yes. 


520  RURAL   CREDITS. 

Mr.  Seldomridge.  You  would  have  no  limitation  on  the  number  in 
any  community? 

Mr.  Myrick.  No,  sir;  no  more  than  there  is  now. 

Mr.  Bulkley.  Now,  you  are  referring  to  banks  of  the  character 
that  are  proposed  by  the  Fletcher-Moss  bill  ? 

Mr.  Myrick.  I  am  talking  now  of  short-term  personal  credits;  I 
have  not  yet  said  a  word  about  land  banks.  I  have  not  got  to  land 
banks  yet.  All  I  said  about  land  banks  is  that  the  little  local  credit 
institutions,  short-term  credit  institutions,  which  I  call  a  "  national 
cooperative  bank,"  shall  invest  25  per  cent  of  their  capital  stock 
in  the  capital  stock  of  the  land  bank;  that  is  all  I  have  said  about 
the  land  bank  to-day. 

I  want  to  settle  first  this  matter  of  furnishing  the  local  community 
with  an  institution  in  which  they  shall  put  their  savings. 

There  has  been  a  lot  of  talk  here;  I  have  read  these  discussions  that 
you  have  had  for  the  last  two  or  three  weeks ;  and  you  have  been  losing 
a  lot  of  time  in  listening  to  talk  along  the  line  that  there  was  no 
money  in  the  United  States — that  there  was  no  money  in  the  country 
districts. 

Why,  it  reminds  me,  gentlemen,  of  a  back-country  meeting  up  in 
Franklin  County,  Mass.,  during  the  first  Bryan  campaign — I  do  not 
mean  any  reflection  on  Mr.  Bryan ;  I  think  a  great  deal  of  him.  But 
a  spellbinder  came  back  to  that  town  from  out  West,  He  had  left  the 
town  two  or  three  years  before.  He  was  a  ne'er-do-well,  with  a  gift 
of  gab,  and  he  came  back  to  that  town  to  make  a  speech,  and  the  farm- 
ers all  turned  out  to  hear  him.  And  he  made  a  very  eloquent  speech, 
and  he  wound  it  up  by  saying : 

Now,  gentlemen,  you  owe  all  these  terrible  debts,  but  you  have  not  got  enough 
money  to  pay  them ;  just  vote  for  Bryan,  and  you  can  pay  all  these  debts  with 
50-cent  dollars. 

And  one  old  farmer,  in  blue  jeans,  in  the  back  part  of  the  hall,  in 
his  shirt  sleeves,  who  looked  as  if  he  was  not  worth  a  dollar,  stood  up 
and  said :  "  Mr.  Speaker,  may  I  ask  you  a  question  ?  " 

The  speaker  said  "  Certainly."  He  was  very  glad  to  get  a  "  rise." 
But  the  old  farmer  said: 

You  left  town  some  time  ago,  owing  me  $100.  Pay  me  50  cents  on  the  dollar 
now ;  don't  wait  until  Bryan  is  elected. 

[Laughter.] 

There  is  money  in  the  country;  there  is  a  surprising  amount  of 
money  in  the  country;  and  there  will  be  more.  As  you  enable  the 
people  to  save,  they  do  save.  So  true  is  this  that  although  the  savings 
departments  in  national  banks  are  a  comparatively  new  institution, 
they  have  nearly  a  thonsand  million  dollars  in  them  at  the  present 
time,  and  of  that,  $755,000,000  is  in  the  country  banks — in  the  savings 
department — though  I  was  told  in  this  very  room  by  a  prominent 
member  of  the  committee  that  the  savings  departments  of  national 
banks  were  useful  only  in  communities  where  they  had  no  savings 
bank.  The  rural  national  bank  performs  a  very  useful  service  to  the 
community  when  it  starts  a  savings  department.  But  in  the  city  of 
Springfield.  Mass.,  with  three  savings  banks  with  between  $30,000,000 
and  $40,000,000  of  deposits  in  them,  and  with  two  large  trust  com- 
panies with  $12,000,000  or  $15,000,000,  and  Avith  three  or  four  national 
banks  all  with  large  deposits,  one  of  those  started  a  savings  depart- 


RUEAL   CREDITS.  521 

ment,  and  at  the  end  of  one  year  it  had  10,000  new  depositors,  with 
nearly  $900,000  of  savings  deposits. 

Senator  Hollis.  Mr.  Myrick,  right  there;  you  know,  of  course,  that 
these  savings  banks  are  now  being  run  in  connection  with  national 
banks  and  as  a  part  of  them,  rather  by  sufferance  than  by  any  real 
right,  do  you  not? 

Mr.  Myrick.  But  it  is  in  the  Federal  reserve  act 

Senator  Hollis  (interposing).  Just  a  minute.  That  is  being  done 
that  way,  and  there  are  no  express  rules  governing  what  their  invest- 
ments are  to  be.  It  is  left  largely  to  the  discretion  of  the  bank  ex- 
aminers; and  I  want  to  ask  you  if  that  is  not  one  of  the  best  illustra- 
tions of  the  sort  of  flexibility  that  you  are  arguing  for  ? 

Mr.  Myrick.  It  is;  and  I  have  been  personally  opposed  to  the 
unregulated  use  of  those  savings  deposits  by  national  banks,  because 
there  is  one  case  where  a  national  bank  got  into  trouble,  and  they 
paid  off  the  other  creditors,  but  the  savings  depositors,  whose  money 
was  not  on  call,  could  not  get  their  money.  In  the  Federal  reserve 
act,  you  remember,  there  was  quite  a  contest  over  these  provisions, 
and  it  was  finally  put  into  that  law  that  the  present  system  of  time 
deposits  may  continue,  but  that  25  per  cent  of  time  deposits  should 
be  available  for  loaning  on  real  estate,  not  to  exceed,  however,  one- 
third  of  the  capital  or  vice  versa. 

Senator  Hollis.  It  is  30  per  cent  of  the  capital,  I  think. 

Mr.  Myrick.  How  much? 

Senator  Hollis  (examining  act).  No;  it  is  25  per  cent  of  its  capi- 
tal and  surplus,  or  one-third  of  its  time  deposits. 

Mr.  Myrick.  Yes.  Now,  that  "  or  one-third  of  its  time  deposits  " 
we,  as  representing  the  farmers,  interpret  as  applying  not  only  to 
savings  deposits  but  to  any  other  time  deposits  they  have  got  in  there 
on  which  they  are  paying  interest. 

Senator  Hollis.  Well,  there  is  no  difference  between  a  savings  de- 
posit and  a  time  deposit  in  a  national  bank. 

Mr.  Myrick.  No;  I  think  that  is  the  rule  in  the  comptroller's 
office.  And  I  would  have  this  system  of  national  cooperative  banks 
a  part  of  the  national  banking  system,  administered  by  the  Comp- 
troller of  the  Currency.  I  would  not  put  it  into  the  Agricultural 
Department.  I  would  not  mix  finance  with  fertilizers — not  directly. 
I  would  let  the  farmer  do  the  mixing,  and  not  have  it  done  in 
Washington. 

Senator  Hollis.  Would  you  make  any  distinction  here  between  a 
farmer  and  a  mechanic — between  farmers  and  city  people? 

Mr.  Myrick.  We  are  still  talking  about  short-time  credit  ? 

Senator  Hollis.  Yes. 

Mr.  Myrick.  I  would  let  this  institution — the  national  cooperative 
bank — start  in  the  country  or  in  a  town  of  3.000  population  or  less, 
with  as  little  as  $1,000  capital;  but  it  must  have  at  least  $5,000  capi- 
tal in  a  town  of  over  3,000  population;  and  I  would  not  restrict — I 
would  allow  the  working  man  and  the  common  people  in  the  cities 
and  towns  to  have  their  little  national  cooperative  banks,  just  the 
same  as  the  farmers.  The  banks,  money,  credits,  exchange — the 
whole  science  of  exchange— rest  on  the  principle  of  being  alike  to  all — 
the  same  thing  to  all — the  same  privileges,  the  same  right,  and  same 
conveniences;  and  that  is  why  the  American  dollar  is  the  best  money 


522  RURAL  CREDTTS. 

on  earth,  because  it  is  just  as  good  for  the  farmer  or  the  mechanic  or 
the  capitalist,  or  even  the  Congressman. 

Now.  why  '25  per  cent  of  capital  in  land  reserve?  While  the 
national  cooperative  bank  in  each  locality  is  mainly  a  bank  for  per- 
sonal credit  and  for  current  accommodation  for  savings  and  for 
loans;  and  although  it  is  authorized  to  loan  some  of  its  savings 
deposits  upon  real-estate  mortgages,  the  bulk  of  the  land-mortgage 
business  in  its  vicinity  will  probably  be  absorbed  by  the  land  bank 
incorporated  under  the  national  law  for  its  State.  The  local  coop- 
erative bank  is  to  be  the  local  agent,  the  local  representative,  and  in 
a  local  sense  the  local  manager  for  the  land  bank. 

Therefore  the  local  bank  should  deposit  one-fourth  of  its  capital 
in  the  land  reserve,  for  the  reason  I  have  described,  and  this  will  also 
disassociate  all  other  business  of  the  local  bank  from  the  land-bank 
business.  Your  local  bank  is  to  receive  deposits,  current  and  time, 
loan  them  out  to  the  farmer  and  the  mechanic  and  to  the  little  people 
in  the  vicinity  in  a  regular  banking  way ;  it  is  also  to  rediscount  that 
paper  if  it  wants  more  money. 

When  it  gets  to  have  a  certain  amount  of  capital  it  may  act  as 
trustee  and  as  trust  company.  The  business  of  the  common  people 
in  a  little  village,  in  the  matters  of  wills  and  petty  estates,  and  so  on, 
is  just  as  important  to  them  as  your  will  and  your  estate  is  to  you; 
and  the  trust  company  in  your  town  takes  care  of  that  for  you. 

While  by  this  method  we  do  not  in  any  way  involve  the  local  banks' 
current  deposits  and  time  deposits  furthen  than  the  25  per  cent  in- 
vestment of  the  local  bank's  capital  in  the  land  bank;  beyond  that 
there  is  no  obligation — you  are  not  tied  up;  still  you  have  got  your 
local  institution  as  the  local  agent  and  representative  of  the  land 
bank,  and  the  farmer  who  is  going  to  take  out  his  mortgage  through 
the  land  bank  comes  and  does  his  business  through  this  little  insti- 
tution. You  want  to  consolidate  all  of  this  little  banking  business 
into  this  bank  that  belongs  to  the  people  and  get  the  people  to  coming 
into  the  bank. 

Senator  Hollis.  That  is,  you  would  make  these  credit-cooperative 
banks  become  a  part  of  the  land-bank  system,  just  as  we  have  made 
the  national  banks  become  a  part  of  the  Federal  reserve  system. 

Mr.  Myrick.  Yes ;  that  is  it. 

Senator  Hollis.  And  link  them  in  that  way? 

Mr.  MyRtcK.  Yes;  you  have  it  just  right. 

Senator  Hollis.  And  where  the  capital  is  the  interest  will  be  also 

Mr.  Myrick.  Exactly.  And  furthermore  it  helps  to  protect  the 
farmers.  They  do  all  their  business  with  these  little  banks.  The 
system  would  work  out  in  this  way:  I  am  a  little  farmer,  we  will  say, 
in  Agawam,  Mass.,  and  a  hundred  of  us  start  a  little  bank  there,  and 
we  get  $5,000  or  $10,000  capital.  I  have  got  a  little  deposit  there, 
and  in  due  time  I  have  sold  my  little  farm,  and  I  want  to  buy  a 
bigger  one,  and  I  apply  to  this  little  local  bank,  which  is  a  member 
of  the  Massachusetts  National  Land  Bank. 

Now,  I  do  not  apply  to  the  land  bank.  I  apply  to  my  little  bank 
at  home.  They  come  out  and  appraise  my  farm.  I  apply  for  a  loan, 
we  will  say,  of  $5,000  on  a  place  that  is  worth  $10,000.  It  is  taxed, 
we  will  say,  for  $9,000.  And  these  men  come  out  and  look  the  farm 
over,  and  they  finally  say,  "  We  are  willing  to  recommend  a  loan  for 
$4,000;  that  is  50  per  cent  of  $8,000,  which  we  think  is  a  good,  fair 


RURAL   CREDITS.  523 

valuation  of  our  farm."  I  say,  "All  right,  I  will  be  glad  to  take  the 
loan."  I  give  them  my  note.  My  note  is  made  to  the  land  bank,  and 
my  mortgage  accompanies  it.  The  papers  are  sent  up  to  the  State 
land  bank  with  the  recommendation  and  indorsement  of  the  local 
institution. 

Then  the  State  land  bank  grants  the  loan  and  sends  down  the 
money  to  the  little  local  bank  where  I  do  business.  Now,  you  have 
had  a  lot  of  discussion  as  to  how  you  are  going  to  know  that  the  man 
who  borrows  this  money  on  his  farm  does  not  spend  it  for  an  auto- 
mobile or  something  of  that  kind. 

Wisconsin  has  established  a  precedent  right  on  that  point.  Not 
only  has  Wisconsin  adopted  this  standard  bill  for  these  two  types  of 
institutions — although  that  State  modified  the  land  bank  somewhat 
from  what  I  suggested  here — but  they  also  made  a  further  law 
whereby  the  State  loans  its  school  funds  directly  upon  "  cut-over  " 
lands.  These  loans  are  for  the  benefit  of  settling  up  that  cut-over 
land.  And  the  law  is  specific — I  have  a  copy  of  it  here — providing 
that  when  the  loan  has  been  accepted  the  money  shall  be  sent  to  the 
nearest  bank  to  the  borrower,  and  that  bank  will  pay  the  money  over 
to  the  borrower  just  as  fast  as  he  spends  it  on  his  farm,  or  on  his 
buildings,  and  so  on,  as  the  case  may  be. 

I  do  not  believe  in  encumbering  the  law  with  very  much  phrase- 
ology upon  that  point.  I  think  it  is  one  of  those  things  that  will 
take  care  of  itself.  But  your  local  bank  will  see  that  if  I  borrow 
$4,000  on  my  farm  to  pay  for  it,  they  are  going  to  see  that  I  apply 
the  money  for  that  purpose,  and  they  know  me,  and  I  am  right  there 
in  the  community ;  I  can  not  very  well  go  wrong. 

Mr.  Woods.  Mr.  Myrick,  you  spoke  of  this  local  bank  sending  the 
papers  up  to  the  State  bank  with  their  recommendation  and  indorse- 
ment.   What  did  you  mean  by  "  indorsement  "  ? 

Mr.  Myrick.  Well,  I  mean  this — and  it  is  a  fair  question  whether 
I  am  right  about  it  or  not:  Two  years  ago,  when  I  wrote  my  views 
upon  this  subject,  I  felt  that  if  the  little  Agawam  local  bank  was 
held  responsible  to  the  extent  of,  say,  25  per  cent  of  any  ultimate  loss 
that  might  occur  on  a  mortgage  that  they  recommended,  it  would 
make  them  extremely  cautious.  Your  mortgage  provides  that  you 
have  got  to  keep  your  property  insured,  and  if  there  is  a  fire  you 
have  to  restore  the  property  to  its  normal  condition.  It  is  quite 
feasible  to  broaden  that  language  just  a  trifle,  so  that  the  borrower 
must  maintain  the  normal  fertility  and  condition  of  the  farm.  And 
then  if  a  man  gets  to  drinking,  if  he  gets  behind,  if  he  skins  the 
farm,  or  fails  to  pay  the  interest — that  is  the  most  serious  thing. 
Then  the  bank  warns  him,  saying:  "  You  have  got  to  look  out;  your 
farm  is  running  down,  and  while  you  have  reduced  the  principal 
somewhat  by  your  amortization,  we  have  still  got  a  large  loan  there, 
and  you  must  do  better,  because  if  you  do  not,  then  in  the  fullness  of 
time  and  with  due  notice  we  will  have  to  foreclose,  or  you  will  have 
to  get  your  mortgage  somewhere  else." 

That  never  will  occur,  except  where  it  ought  to  occur.  It  seldom 
will  occur,  because  the  bank  will  notify  me  in  advance,  and  unless 
I  am  entirely  down  and  out  I  will  amend  my  ways. 

Mr.  Bulkley.  How  would  you  write  a  mortgage  so  as  to  provide 
for  that?    What  would  be  the  agreement  between  the  bank  and  the 


524  RURAL   CREDITS. 

mortgagor  with  respect  to  foreclosing  him  in  case  he  robs  the  soil 
or  gets  shiftless? 

Mr.  Myrick.  You  can  only  do  it  in  much  the  same  general  clause 
that  you  have  on  your  insurance  policy  in  your  contract  regarding 
your  buildings. 

Senator  Hollis.  This  is  the  way  it  is  done  in  my  community:  The 
savings  banks  there  make  their  loans  all  payable  on  demand.  The 
loan  will  stay  there  just  as  long  as  the  farmer  pays  his  interest  and 
keeps  his  farm  up.  But  that  puts  it  in  the  hands  of  the  savings 
banks;  it  is  a  pretty  delicate  job  to  do  it  any  other  way.  That  right 
has  got  to  be  somewhere  definitely. 

Mr.  Bulkley.  You  do  not  propose  to  make  loans  payable  on  de- 
mand, do  you,  Mr.  Myrick? 

Mr.  Myrick.  No,  sir. 

Mr.  Bulkley.  Then  how  would  you  cover  that  point? 

Mr.  Myrick.  It  is  a  point  that  is  subject  to  a  good  deal  of  debate, 
and  the  phraseology  in  which  it  shall  be  expressed  would  have  to  be 
very  carefully  prepared. 

Mr.  Seldomridge.  Would  you  not  have  a  man  who  secured  a  loan 
under  those  circumstances  enter  into  some  form  of  contract  by  which 
if  he  should  fail  to  carry  out  its  terms  the  loan  should  become  due  ? 

Senator  Hollis.  Well,  of  course,  if  we  could  draft  a  provision  so 
that  it  could  be  made  definite  and  certain  we  could  insert  it  in  the 
mortgage,  which  is  the  contract. 

Mr.  Bulkley.  Have  you  ever  attempted,  Mr.  Myrick,  to  draw  such 
a  clause? 

Mr.  Myrick.  Well,  I  thought  I  had  one  here.  In  this  bill,  on  page 
14,  lines  6  and  7,  it  says : 

Second.  That  such  loans  are  secured  by  a  first  mortgage  or  first  deed  of 
trust  on  farm  lands. 

I  have  added  to  that  the  words : 

One  condition  of  which  shall  be  that  the  productivity  of  tbe  land  shall  not 
suffer  deterioration  while  such  mortgage  is  in  force. 

Mr.  Bulkley.  That  is  all  right. 

Senator  Hollis.  That  is  substantially  only  the  common-law  waste 
provision,  which  is  put  in  almost  every  mortgage — that  the  property 
shall  suffer  no  waste. 

Mr.  Myrick.  That  is  what  I  mean. 

Senator  Hollis.  That  is  a  matter  of  judgir.ent. 

Mr.  Myrick.  Yes;  I  do  not  think  you  can  specify  it  in  the  law. 

Mr.  Seldomridge.  In  our  country  you  can  go  and  take  possession 
of  a  chattel  under  a  chattel  mortgage  in  the  shape  of  live  stock  if 
you  find  that  the  owner  is  failing  to  maintain  or  feed  the  animals  in 
the  proper  way. 

Mr.  Myrick.  Yes ;  it  is  a  matter  of  common  law. 

Mr.  Bulkley.  What  about  a  man's  personal  habits? 

Senator  Hollis.  So  long  as  his  personal  habits  do  not  result  in 
waste  they  do  no  harm. 

Mr.  Bulkley.  Well,  Mr.  Myrick,  you  made  some  reference  to  the 
personal  habits  of  the  mortgagor  a  moment  ago. 

Mr.  Myrick.  I  do  not  mean  that  the  banks  shall  prescribe  whether 
a  man  shall  take  a  drink  or  not  or  in  any  way  limit  or  infringe  upon 
his  personal  liberty.     But  I  do  mean  that  if  this  man  becomes  so 


RURAL   CREDITS.  525 

run  down  and  shiftless  from  whatever  cause,  if  he  allows  his  prop- 
erty to  suffer  waste,  as  the  common  law  says,  then  the  obligation 
may  become  due  on  reasonable  notice. 

Mr.  Bulkley.  Would  you  let  it  rest  on  waste,  as  that  term  is 
known  to  the  law  ? 

Mr.  Myrick.  Yes;  it  is  just  the  common-law  principle. 

Mr.  Seldomridge.  Did  I  understand  you  to  say  that  you  would 
allow  the  appraisement  of  the  land  to  rest  with  the  directors  of  the 
local  banks — the  little  banks? 

Mr.  Myrick.  Well,  now,  that  is  a  fair  question,  and  I  have  been 
disposed  to  favor  it,  provided  the  local  bank  assumes  some  responsi- 
bility, say  25  per  cent,  of  any  ultimate  loss.  For  instance,  suppose  I 
borrow  $4,000  on  their  recommendation,  and  in  the  course  of  years 
sometimes  happens,  the  river  comes  up  and  washes  my  farm  away, 
or  I  waste  it,  and  there  is  a  loss.  They  close  the  mortgage  out,  and 
there  is  a  loss  of  $1,000  finally.  In  that  case  the  local  bank  would 
have  to  put  up  $250  of  it. 

Mr.  Seldomridge.  Would  you  allow  their  appraisement  to  be  final? 

Mr.  Myrick.  Well,  I  should  leave  that  with  the  land  bank.  If 
they  were  satisfied,  yes;  if  not,  let  them  come  on  and  examine  it. 

Senator  Hollis.  What  would  the  local  cooperative  bank  get  in 
return  for  that  25  per  cent  liability? 

Mr.  Myrick.  Well,  they  get  this :  In  the  first  place  they  have  got, 
we  will  say,  $10,000  capital  stock.  They  have  got  $2,500  stock  in 
the  land  bank,  and  I  will  show  you  directly  how  they  share  in  profits 
on  that.  They  get  the  interest  on  that;  then  they  get  a  profit-sharing 
dividend  on  that.  Then  they  get  one-eighth  of  1  per  cent  on  all  the 
transactions  that  I  have  regarding  this  loan.  I  pay  my  interest  to 
the  local  bank  and  they  send  it  up  to  the  land  bank,  and  the  local 
bank  gets  a  commission  of  one-eighth  of  1  per  cent. 

The  land  bank,  of  course,  issues  its  bonds  on  the  security  of  these 
mortgages — and  bv  the  way,  gentlemen,  these  bonds  are  in  denom- 
inations of  $10,  $20,  $50,  or  $100  or  larger,  all  at  the  option  of  the 
land  bank;  it  is  not  a  matter  of  law.  You  would  be  surprised  at  the 
number  of  people  that  will  buy  a  $10  bond  netting  them  4  per  cent 
free  of  tax. 

Out  in  St.  Paul  or  Minneapolis  this  last  winter  the  city  treasurer 
undertook  to  sell  4  per  cent  bonds.  It  was  when  money  was  tight 
here,  some  months  ago,  and  the  bonds  did  not  go.  Then  the  city 
treasurer  cut  them  up  into  bonds  of  $10,  $20,  and  $50  and  sold  them 
over  the  counter,  and  they  sold  like  hot  cakes  to  the  average  working- 
man,  and  his  wife,  and  his  daughters,  and  the  cab  drivers,  and  so  on. 
Those  are  the  people  that  hold  these  bonds  that  we  have  been  talking 
about  in  France.  Dr.  Coulter,  your  man  that  drove  you  in  your 
taxicab  through  the  streets  of  Paris,  the  man  that  you  would  give  a 
franc  to,  just  as  likely  as  not  would  hold  a  bunch  of  these  little  bonds, 
either  the  Credit  Foncier  or  some  of  those  other  institutions, 

Mr.  Badow.  May  I  interrupt  you  a  moment,  Mr.  Myrick? 

Mr.  Myrick.  Yes. 

Mr.  Badow.  The  smallest  denomination  in  which  the  Credit  Fon- 
cier issues  its  bonds  is  250  francs  ? 

Mr.  Myrick.  How  much? 

Mr.  Badow.  Two  hundred  and  fifty  francs. 


526  RUKAL  CEEDITS. 

Mr.  Myrick.  Well,  that  is  $50,  is  it  not? 
Mr.  Badow.  Yes. 

Mr.  Myrick.  This  city,  either  St.  Paul  or  Minneapolis,  issued  a 
great  many  bonds  as  low  as  $10  in  denomination? 

Now.  your  land  bank — and,  by  the  way,  you  little  local  cooperative 
banks  are  under  the  same  supervision  as  other  national  banks;  and 
while  I  do  thoroughly  believe  in  Federal  aid,  if  we  may  apply  that 
term  to  it  to  the  extent  of  having  the  Comptroller  of  the  Currency 
provided  with  sufficient  money  and  a  sufficient  number  of  men  so 
that  he  can  send  out  men  into  any  State  or  any  county  and  personally 
instruct  the  farmers  in  that  county,  if  they  want  to  start  a  little  bank; 
let  Uncle  Sam's  man  come  down  there  and  tell  them  just  how  to  do 
it.  I  would  have  him  go  further  and  train  the  bookkeeper  or  the 
man  in  actual  charge  of  the  details;  all  that  is  legitimate.  It  is 
just  as  legitimate  for  the  Federal  Treasury  Department  to  do  that 
as  it  is  for  the  Agricultural  Department  to  tell  farmers  how  much 
manure  to  put  in  the  hill. 

That  is  entirely  different,  of  course,  from  the  present  system 
whereby  the  Comptroller  of  the  Currency,  if  we  want  to  start  a 
national  bank  out  here  in  a  town  of  5.000  or  10.000  people,  with 
$25,000  or  $50,000  capital  stock,  we  get  our  papers  from  Washington, 
and  that  is  all  we  do  get.  We  have  to  employ  counsel  and  work  the 
thing  up.  But  at  the  beginning  of  this  new  movement  for  the  crea- 
tion of  these  little  banks  I  would  have  organizers  available  without 
expense  to  the  people. 

Mr.  Thompson.  Suppose  I  lived  in  a  town  where  there  was  no 
cooperative  banks? 

Mr.  Myrick.  You  could  start  one. 

Mr.  Thompson.  And  I  wanted  to  get  a  mortgage  loan  from  the 
land  bank,  how  would  I  go  about  getting  it  ? 

Mr.  Myrick.  You  can  get  it  in  that  case.  You  can  either  apply 
direct,  or  if  there  is  any  other  bank  in  that  town  you  can  apply 
through  them.  Utilize  all  the  banks.  We  have  got  25,000  banks  of 
one  kind  or  another  in  this  country.  Make  them  all  work.  Do  not 
introduce  something  extraneous — a  rural-credit  society — I  get  angry 
and  out  of  patience  when  I  hear  that  name.  The  Massachusetts 
credit  union  law  is  a  dead  letter,  partly  because  of  the  use  of  the 
name  "  credit  union."  The  first  one  that  was  established,  gentlemen, 
under  that  law  was  by  some  of  my  associates  in  the  Myrick  Building. 
I  did  not  know  that  the  boys  were  doing  it — and  I  never  had  a  higher 
honor  than  when  they  named  it  after  me;  the  boys  that  were  working 
for  me  and  had  worked  for  me  for  years  got  it  up.  But  there  are  a 
very  few  in  the  State.  Mr.  Robinson,  who  is  present,  started  one,  the 
first  one  among  the  farmers. 

"  The  rose  by  another  name  would  smell  as  sweet  ";  but  it  would 
not  be  the  rose,  and  you  can  not  make  a  bank  out  of  the  name  "  credit 
union." 

Now.  gentlemen,  we  come  to  the  matter  of  your  land  bank.  I  in- 
sist that  the  two  types  should  be  developed  as  two  separate  parts  of 
one  bill  and  one  statute,  because  they  are  interdependent,  and  also  for 
the  very  practical  reason  that  you  can  get  them  both  through  Con- 
gress at  one  stroke,  and  if  you  got  one  through  alone  you  might  not 
get  the  other  through. 


RURAL   CREDITS.  527 

Senator  Hollis.  May  I  ask  you  a  question  right  there,  Mr.  Myrick. 
I  received,  through  Senator  Owen,  a  plan  for  a  cooperative  bank 
that  was  typewritten.  Has  that  since  been  printed  and  is  this  it 
[indicating  paper  in  Senator  Hollis's  hand],  because  I  was  going  to 
have  this  printed  if  the  members  desire  it. 

Mr.  Myrick.  I  telegraphed  Senator  Owen  asking  him  to  send  me 
a  copy  of  his  bill,  and  he  said  lie  had  not  any.  I  wanted  to  see 
what  is  was.  My  standard  bill  is  the  same  as  the  Massachusetts 
act  of  1909. 

Senator  Hollis.  I  presume  that  was  the  one  you  sent  to  Senator 
Owen,  and  it  was  in  typewritten  form,  and  I  suggested  having  it 
printed. 

Mr.  Myrick.  Oh,  that  was  my  brief  on  this  bill,  was  it  not? 

Senator  Hollis.  Yes ;  I  suppose  it  was. 

Mr.  Mytrick.  Now,  my  criticisms  on  this  bill  are  really  in  the 
nature  of  a  very  warm  recognition  of  its  merits,  as  far  as  it  goes 

Senator  Hollis  (interposing).  Excuse  me,  Mr.  Myrick,  but  I  di- 
verted you  from  discussing  your  land-bank  system,  which  was  to  be 
a  part  of  the  same  statute  as  the  other  system. 

Mr.  Myrick.  Yes,  sir. 

Senator  Hollis.  And  I  would  rather  that  you  would  develop  that 
before  you  begin  to  criticize  this  Fletcher-Moss  bill.  I  wish  you 
would  go  right  on  with  that. 

Mr.  Myrick.  I  will  do  so.  I  hope  that  a  great  many  of  the  best 
provisions  of  this  bill  will  be  embodied  in  the  land  bank,  as  I  advo- 
cate it. 

Senator  Hollis.  Well,  you  have  not  stated  it,  but  you  have  inti- 
mated it  two  or  three  times — would  you  make  each  of  your  land 
banks  a  bank  representing  a  district  which  would  be  an  entire  State? 

Mr.  Myrick.  Yes. 

Senator  Hollis.  You  would  get  your  districts  in  that  way,  would 
you? 

Mr.  Myrick.' Yes,  sir.  And  yet  I  think  it  is  a  fair  question 
whether  we  should  limit — for  instance,  the  State  of  Illinois  may  have 
one  institution  named  the  "  Illinois  National  Land  Bank."  That 
would  not  interfere  with  several  other  institutions  under  other  names 
forming  land  banks  of  a  smaller  nature — or  larger,  if  they  could 
build  up  the  business.  In  other  words,  is  it  wise  to  give  one  institu- 
tion in  a  State  the  monopoly  of  the  national  Federal  charter  for  land 
banks? 

Senator  Hollis.  Why  not,  if  you  have  the  Government  with  a 
strong  representation  on  the  board  of  directors,  and  put  it  under 
the  control  of  the  Federal  reserve  board,  just  as  the  Federal  reserve 
banks  are? 

Mr.  Myrick.  That  is  a  fair  question,  especially  since  the  Federal 
reserve  law  has  come  within  the  past  few  months.  I  said  at  the 
beginning  of  my  remarks  that  that  act  introduced  a  situation  that 
solves  a  great  many  of  these  points.  So,  whether  you  had  one  insti- 
tution in  a  State  that  had  a  monopoly  of  the  charter  for  that  State, 
or  whether  you  left  it  open  for  more  than  one,  there  is  something  to 
be  said  on  that. 

Mr.  Bulkley.  Your  idea  is  that  you  might  have  competitive 
banks,  each  covering  a  whole  State? 


528  RURAL   CREDITS. 

Mr.  Myrick.  Yes,  sir;  certainly.  Kemember,  gentlemen,  that  this 
business  is  vast — you  take  the  State  of  Texas.  It  is  so  big  you  could 
put  all  of  France  inside  and  have  60  miles  on  the  outside  all  around 
to  keep  them  quiet.  And  one  Texas  national  laud  bank  to  cover  that 
whole  State  would  have  to  be  very  well  conducted  in  order  to  satisfy 
the  demands.  If  it  had  a  little  competition,  it  might  be  a  very  good 
thing  for  both  of  them. 

Mr.  Bulkley.  If  you  had  three  or  four  of  them,  would  each  one  of 
them  have  their  constituent  member  banks  in  all  parts  of  the  State? 

Mr.  Myrick.  Well,  there  is  the  other  side.  You  see,  you  are  getting 
right  up  against  some  of  the  details  now  that  have  got  to  be  very 
carefully  thought  out.  I  will  show  you  what  I  do  propose  to  do  with 
this  land  bank.     It  is  on  page  270,  "  Cooperative  finance  " : 

Organization  of  a  land  bank  in  each  State  under  national  law.  There  shall 
be  a  national  land  bank  in  important  States,  incorporated  under  the  national 
banking  law,  which  shall  be  suitably  amended  for  the  purpose.  Such  institu- 
tion shall  be  named  "The  National  Lank  Bank  for  Nebraska."  the  name 
changing  for  the  respective  State.  Each  land  bank  shall  have  a  permanent 
capital  reserve  called  the  "land  reserve." 

Now,  that  is  foreign  to  American  practice.  We  are  in  the  habit,  of 
course,  of  speaking  of  capital  stock;  but  I  used  the  term  "land  re- 
serve "  in  place  of  "  capital  stock  "  to  emphasize  that  Ave  are  mobiliz- 
ing the  land,  and  the  land  is  the  fundamental  reserve  of  the  United 
States.  For,  as  you  will  notice  on  the  front  cover  of  this  book,  we 
say  "  What  is  back  of  our  x\merican  money  1 "'  At  the  bottom  of  the 
picture  is  our  land  reserve,  with  our  crops,  worth  nearly  10  billions 
of  dollars,  and  over  three  and  one-half  million  square  miles,  and 
then  comes  our  gold  reserve,  and  then  comes  our  health  reserve.  Gen- 
tlemen, the  health  of  the  people  is  the  greatest  reserve.  It  is  worth 
more  than  gold.  Then  comes  your  character  reserve,  and  then  comes 
your  cooperative  reserve,  the  power  of  associated  effort. 

Each  national  cooperative  rural  bank  in  said  State  shall  deposit  25  per  cent 
of  its  paid-up  capital  stock  in  the  land-bank  reserve. 

Now.  I  want  each  of  the  other  national  banks  to  invest  in  this  capi- 
tal stock  or  land  reserve  at  least  1  per  cent  of  their  capital  stock,  sur- 
plus, and  undivided  profits.  I  want  them  to  do  that  for  the  same 
reason  that  they  put  1  per  cent  into  the  Federal  reserve  bank.  They 
did  that  two  years  after  this  was  written.  Every  national  bank  in 
that  State  of  $25,000  or  more  capital  has  got  a  great  stake  in  the  pros- 
perity of  the  land.  The  least  it  can  do  is  to  subscribe  1  per  cent  of  its 
capital  stock,  surplus,  and  undivided  profits  to  the  land  bank. 

Senator  Hollis.  They  will  say  "  Those  banks  are  our  competitors." 
I  do  not  say  that  makes  that  true. 

Mr.  Myrick.  But  see  what  the  land  bank  is  going  to  do  for 
the  national  bank  other  than  the  cooperatives.  The  national 
bank  may  lend  on  first  mortgage.  As  a  matter  of  fact,  as  public 
sentiment  grows,  that  word  "may"  in  effect  will  become  "shall"; 
and  the  national  bank  does  not  like  to  bother  with  taking  out 
mortgages.  But  it  is  perfectlv  willing  to  buy  the  land-bank  bonds 
for  $5,000,  $10,000,  $20,000,  or  $50,000,  and  we  make  these  bonds 
a  legal  investment  for  banks — that  is  very  beautifully  covered 
in  the  commission  bill.  These  bonds  are  not  only  legal  investment  for 
all  funds  under  the  United  States  courts,  but  also  are  collateral  se- 
curity for  postal  savings. 

Mr.  Moss.  That  provision  is  in  the  bill. 


RURAL   CREDITS.  529 

Mr.  Myrick.  I  thought  you  had  it  in  there,  Mr.  Moss.  It  is  a 
very  fine  feature.  On  that  point,  however,  I  have  made  a  suggestion 
on  this  paragraph  of  the  bill.  The  splendid  feature  of  this  bill  is 
the  inducement  you  give  to  each  State  to  come  in  and  modify  its 
land  laws,  so  that  they  can  take  advantage  of  these  new  institutions. 

Senator  Hollis.  That  feature  has  been  pretty  severely  criticized, 
on  the  ground  that  at  present  there  are  only  one  or  two  States  that 
can  qualify  under  it,  and  that  it  would  postpone  the  full  benefits  of 
the  bill  too  long,  while  the  other  States  were  changing  their  laws. 

Mr.  Myrick.  You  might  have  to  modify  the  provision  and  not 
have  it  so  strict.  But  the  principle  is  there.  You  may  find  on 
inquiry — and  I  hope  to  have  an  inquiry  with  the  governor  of  Massa- 
chusetts to-morrow,  or  the  next  day.  as  to  the  appointment  of  a  com- 
mission in  that  State  to  see  what,  if  any,  change  is  necessary  in  that 
law.     And  a  movement  is  already  under  way  in  the  State 

Senator  Hollis  (interposing).  What  law  do  you  refer  to  now,  the 
land-registration  law  ? 

Mr.  Myrick.  The  present  land  laws. 

Senator  Hollis.  Well,  tell  the  committee  about  that.  We  have 
been  informed  that  Massachusetts  is  the  only  State  that  has  that  law 
now  in  workable  form.     Tell  us  how  much  it  is  availed  of. 

Mr.  Myrick.  The  Torrens  system  is  in  effect  in  Massachusetts 
theoretically.  It  is  on  the  statute  books,  but  it  is  not  very  much  in 
use,  for  the  reason  that  every  lawyer  and  every  title  company  and 
all  that  crowd  look  on  it  as  an  infraction  of  their  perquisites. 

Senator  Hollis.  Most  lawyers  that  I  know  consider  it  a  nuisance 
to  look  up  a  title.  They  do  not  like  that  work.  But  perhaps  where 
they  specialized  on  that  work,  it  is  profitable. 

Mr.  Myrick.  I  think  that  you  should  not  require  a  State  to  adopt 
the  Torrens  system  before  it  may  have  this  type  of  institution.  I 
think  there  is  a  good  deal  to  be  said  about  not  making  these  restric- 
tions too  strong  on  the  State. 

Mr.  Moss.  If  you  will  permit  me.  Mr.  Myrick,  I  would  like  to  say 
a  word. 

Mr.  Myrick.  Yes. 

Mr.  Moss.  I  would  like  to  say  that  the  whole  question  of  restric- 
tions under  this  bill  is  left  to  rules  and  regulations  that  shall  be 
formulated 

Mr.  Myrick.  Yes. 

Mr.  Moss.  By  the  commissioner  of  farm-land  banks.  They  are 
not  suggested  in  the  bill  itself;  only  the  power  to  make  regulations 
is  given.  The  only  suggestion  in  the  bill  is  that  they  shall  be  uniform 
and  apply  to  every  State  in  the  Union.  But  there  are  no  restrictions 
at  all  suggested  in  the  bill;  but  that  is  left  to  the  regulations  that 
shall  be  formulated  by  the  commissioner  of  farm-land  banks. 

Mr.  Myrick.  Yes.  Well,  whether  the  phraseology  here  is  the  best 
far  the  purpose  or  not  is  a  detail  to  be  studied  out  yet. 

Mr.  Moss.  Oh,  yes;  entirely  so. 

Mr.  Myrick.  But  that  is  one  very  excellent  way  of  avoiding  what 
might  be  a  complicated  question. 

Now,  as  to  the  State  itself — 

Any  State  bank  or  any  corporate  body  or  any  individual  may  deposit  cash 
in  the  land  bank's  capital  reserve — that  is,  the  capital  stock — such  amounts 
as  may  be  accepted  by  the  land-bank  trustees. 

37031—14 34 


530  EURAL  CREDITS. 

Why,  gentlemen,  in  many  of  our  States  you  will  have  more  money 
offered  to  you  for  your  land-bank  capital  than  you  can  use.  That 
will  be  increasingly  so  as  the  years  go  on. 

Mr.  BuiiKLET.  That  is  for  the  State  land  banks,  Mr.  Myrick? 

Mr.  Myrick.  Yes,  sir. 

Mr.  Bulkley.  Are  not  the  dividends  limited  on  that? 

Mr.  Myrick.  Now,  when  we  come  to  talk  about  the  interest  on 
capital  and  the  interest  on  your  bonds,  you  must  remember  that  what 
we  seek  to  accomplish  is,  first,  absolute  safety,  and  therefore,  in  the 
absence  of  risk,  lower  rates  of  interest,  both  to  the  borrower  and  to 
the  investor. 

Secondly,  not  only  safety,  but  availability.  We  are  going  to  make 
these  bonds  about  as  salable  a  thing  as  there  is  in  the  United  States. 
In  10  years  the  bonds  of  the  Illinois  National  Land  Bank,  for  in- 
stance, will  be  the  most  salable  and  have  the  steadiest  market  of 
any  market  of  any  bond  that  is  sold  in  that  State,  if  it  is  managed 
all  right. 

Mr.  Bulkley.  I  thought  you  were  referring  to  the  stock  of  the 
State  land  banks. 

Mr.  Myrick.  Now,  the  stock  and  the  bonds  are  exempt  from  taxa- 
tion. You  have  thrashed  that  all  out  here.  And  I  imagine  that  you 
are  getting  pretty  nearly  all  of  one  mind  on  it — until  you  come  to 
the  income.  And  there  is  an  enormous  market  awaiting  a  bond  of 
small  denomination,  or  large,  which  net  3,  3^,  4,  or  44  per  cent,  ac- 
cording to  the  market  and  the  times,  and  be  absolutely  free  of  taxa- 
tion. The  tax  averages  14  per  cent.  There  are  millions  of  dollars 
to-day,  right  on  to-day's  market,  that  will  go  into  3|  per  cent  abso- 
lutely tax-free  bonds,  free  of  all  taxes,  State.  Federal,  local,  inheri- 
tance, and  death  taxes,  because  there  is  nothing  else  that  is  so  free; 
the  Government  bond  is  subject  to  inheritance  tax,  is  it  not — the 
United  States  bonds? 

Senator  Hollis.  Well,  it  probably  is,  in  States.  There  is  no  inheri- 
tance tax  nationally.  I  do  not  see  why  it  should  not  be  taxable  in 
States,  but  I  do  not  know. 

Mr.  Myrick.  Yes ;  I  do  not  know  whether  that  point  has  been  ad- 
judicated  or  not. 

Senator  Hollis.  But  your  idea  is  that  as  the  Government  may 
make  the  bonds  free  from  ordinary  taxation,  and  the  theory  on 
which  these  bonds  are  to  be  allowed,  anyway,  is  that  it  is  a  govern- 
mental function  under  the  Constitution,  the  Government  may  also 
exempt  these  bonds  from  taxation? 

Mr.  Myrick.  And,  furthermore,  that  these  bonds  are  simply  the 
paper  representative  of  real  estate,  which  already  pays  the  taxes 
and  which  can  not  escape  the  taxes. 

Senator  Hollis.  Well,  that  is  a  question  of  policy  rather  than  of 
principle,  because  in  most  States  they  have  decided  that  that  is  not 
double  taxation,  I  believe. 

Mr.  Bulkley.  Now.  Mr.  Myrick,  what  is  there  that  is  attractive 
about  the  stock  of  these  banks?  It  is  exempt  from  taxation,  but  it 
is  limited  in  dividend,  is  it  not  ?  What  is  the  limit  that  you  propose 
on  the  stock? 

Mr.  Myrick.  I  propose  on  the  stock  for  land  reserve  that  it  shall 
first  receive  an  interest  as  an  expense.  That  rate  of  interest  shall  be 
something  that  must  vary  according  to  the   different   States.     In 


RURAL   CREDITS.  531 

Massachusetts  it  might  be  3  per  cent;  in  Arizona  it  might  be  6  per 
cent.  But  that  first  preliminary  charge  is  an  expense.  Net  earnings 
in  excess  thereof  are  to  be  carried  to  surplus  until  the  surplus  reaches 
an  amount  of,  say,  25  per  cent  of  the  capital.  Then  three-fourths  of 
the  excess  earnings  shall  be  applied  to  surplus,  until  it  amounts  to 
50  per  cent,  and,  meanwhile,  the  other  one-fourth  of  the  earnings 
may  be  paid  out  as  a  cooperative  sharing  dividend  only  upon  such 
certificates  or  shares  of  capital  stock  as  constitutes  one-fourth  of  the 
capital  stock  of  the  member  banks. 

I  make  a  distinction,  and  it  is  a  very  important  one.  Here,  we  will 
say,  is  the  Agawam  National  Bank,  of  Agawam,  Mass.  It  has  got 
$10,000  capital  stock,  and  it  has  $2,500  surplus,  and  it  has  invested 
$2,500  in  the  land  bank.  Now,  that  is  in  Massachusetts.  It  is  entitled 
to  3  per  cent  interest  on  that  $2,500  as  an  expense,  one  of  the  expenses 
of  the  land  bank.  The  land  bank  runs  along,  and  pretty  soon  they 
begin  to  make  money  pretty  fast.  And  we  will  assume  that  they 
have  accumulated  their  surplus,  and  they  have  some  net  earnings  to 
divide. 

First,  these  net  earnings  shall  be  apportioned  as  an  extra  dividend 
on  the  shares  of  all  these  little  banks  that  have  got  25  per  cent  of 
their  capital  in  this  institution;  then  as  it  goes  on  and  makes  further 
profits  and  additional  profits,  makes  an  extra  dividend  to  all  the 
stock,  thus  making  it  an  inducement  to  the  local  banks,  giving  them 
a  little  extra  inducement  over  and  above  the  ordinary  corporation 
or  individual  or  State  that  owns  these  shares. 

Mr.  Bulkley.  What  would  be  the  outside  limit  that  an  individual 
might  hope  to  get  on  his  stock  ? 

Mr.  Myrick.  I  have  suggested  here  that  the  limit  should  be  not  to 
exceed  double  the  fixed  rate  of  interest.  The  extra  dividend  may 
not  exceed  that.  If  you  pay  4  per  cent,  the  extra  dividends  in  any 
year  can  not  exceed  4  per  cent  more. 

Mr.  Bulkley.  You  would  not  have  cumulative  dividends,  would 
you? 

Mr.  Myrick.  No,  sir.  Never  pile  up  on  the  encumbrances;  each 
year  complete  in  itself;  each  transaction  complete. 

Mr.  Bulkley.  Well,  now,  the  stockholders  have  to  carry  what- 
ever risk  there  is  in  the  business;  do  you  think  that  is  attractive  as 
an  original  investment?  Of  course,  I  understand  that  after  the  bank 
has  made  money  for  a  good  many  years,  and  has  built  up  a  large  sur- 
plus, and  if  it  should  be  proven  a  complete  success,  an  8  per  cent  non- 
taxable security  would  be  selling  away  above  par. 

Mr.  Myrick.  It  Avould  be  selling  up  in  the  Middle  and  Eatern 
States,  under  such  conditions  as  those  of  the  last  three  years,  prior 
to  this  last  year — an  abnormally  low  market — it  would  be  selling  for 
at  least  $200. 

Mr.  Bulkley.  Well,  it  would  be  somewhere  around  there.  But 
at  the  outset,  with  the  success  not  demonstrated,  embarking  in  a  plan 
that  nobody  had  ever  tried  before,  with  all  of  the  risks  to  be  carried 
and  no  hope  of  profit  beyond  a  possible  8  per  cent  noncumulative 
dividend,  do  you  think  people  would  pay  par  for  that,  stock? 

Mr.  Myrick.  That  will  vary  in  different  parts  of  the  country. 
And  I  doubt  the  wisdom  of  encumbering  your  law  with  too  many 
restrictions  right  on  that  point.  It  may  be  necessary  in  Oklahoma  to 
make  a  rate  of  5  or  6  per  cent  as  an  initial  charge. 


532  RURAL   CREDITS. 

Mr.  Bulkley.  With  a  possible  dividend,  then,  running  up  to  12 
per  cent? 

Mr.  Myrick.  Yes;  that  may  be  too  much. 

Senator  Hollis.  Would  you  leave  that  rate  to  be  charged  with  the 
Federal  reserve  board,  or  would  you  specify — you  could  not  very 
well  specify  it  in  the  act,  unless  you  were  going  to  have  it  uniform  all 
over  the  country  ? 

Mr.  Myrick.  Well,  it  seems  to  me  that  is  an  admirable  suggestion, 
that  it  be  left  to  the  Federal  reserve  board,  just  like  a  good  many 
of  those  other  things  that  you  can  not  foretell,  the  circumstances 
varying  so  very  widely. 

Mr.  Bulkley.  Your  idea  would  be  to  make  the  interest  large 
enough  so  that  it  would  attract  the  investment  of  capital  ? 

Mr.  Myrick.  Yes,  sir.  But  you  do  not  need  to  make  it  very  high ; 
being  nontaxable  and  being  so  safe  you  would  be  surprised  to  see 
how  attractive  it  would  be. 

Mr.  Bulkley.  Well,  nontaxable  means  that  it  is  about  1-J  per  cent 
better  in  the  hands  of  an  honest  man.  There  is  not  that  much  differ- 
ence in  the  hands  of  a  man  who  would  conceal  his  taxable  property. 

Mr.  Myrick.  Well,  this  would  all  be  a  matter  of  public  record. 

Mr.  Bulkley.  But  even  so 

Mr.  Myrick  (interposing).  Well,  take  H  per  cent;  that  is  one- 
quarter  of  6  per  cent  ? 

Mr.  Bulkley.  Yes;  that  is  considerable,  but  it  is  not  any  more 
than  1^  per  cent.  What  I  mean  is  that  there  is  no  magic  in  saying 
that  a  thing  is  tax  free.  You  know  just  about  how  much  benefit  that 
is  to  the  owner  of  that  stock? 

Mr.  Myrick.  Yes;  it  is  just  about  1^  per  cent.  But  the  market 
for  these  shares  of  the  land  banks  and  its  bonds,  of  course,  will  de- 
pend on  the  money  market.  But  there  will  be,  for  some  years,  rela- 
tively as  much  difference  between,  we  will  say,  the  New  York  and 
Illinois  land  banks — their  bonds  will  sell  normally  at  about  the  same 
price,  the  same  rate  of  interest.  Alabama  and  Arizona  might  have 
to  have  a  considerably  higher  rate  of  interest. 

Mr.  Woods.  Well,  do  you  think  the  interest  would  continue  as 
much  if  you  have  the  State  banks  back  of  them  ? 

Mr.  Myrick.  I  think  that  the  effect  of  the  whole  Federal  reserve 
system  is  going  to  gradually  equalize  rates  of  interest  throughout 
the  United  States — not  to  make  them  absolutely  alike,  but  you  will 
not  see  in  the  next  10  years  the  wide  divergence  in  rates  that  there 
has  been  during  the  past  10  years. 

A  great  many  of  the  features  of  this  bill  are  fundamental  to  apply 
to  the  system  that  I  speak  of.  But  I  feel  very  strongly  that  the 
principle — you  have  got  one  principle  divided  into  two  parts;  well, 
it  should  be  one  measure. 

I  have  a  table  here  showing  that  this  1  per  cent  from  the  national 
banks  in  the  State  of  Maine,  for  instance,  would  give  about  $140,000 
to  put  into  the  land  bank.  I  think  quite  likely  the  Legislature  of  the 
State  of  Maine  would  vote  to  invest  $250,000  or  $500,000  in  the  capi- 
tal stock  of  a  State  land  bank  under  this  Federal  act.  I  think  a 
great  many  estates  and  trustees  in  Maine  would  do  the  same  thing. 
=  Mr.  Bulkley.  Mr.  Myrick,  you  have  read  in  the  record  of  our 
hearings  some  discussion  that  we  have  had  about  limiting  the  pur- 
poses for  which  money  may  be  loaned  through  this  system  that  we 


RURAL   CREDITS.  533 

are  proposing  to  establish,  and  limiting  the  amount  that  may  be 
loaned  to  any  one  individual.     What  have  you  to  say  on  that  subject? 

Mr.  Myrick.  Why,  that  conditions  throughout  the  United  States 
varj'  so  widely  that  it  would  be  very  difficult  to  do  anything  more 
than  specify  a  percentage  as  you  do  in  the  case  of  a  national  bank, 
which  may  loan  not  to  exceed  10  per  cent — is  it  not  10  per  cent? — to 
any  one  person. 

Senator  Hollis.  Yes.  You  have  in  Massachusetts  a  restriction 
upon  the  amount  of  money  that  mav  be  deposited  in  a  savings  bank^ 
1  believe  it  is  $1,000  ? 

Mr.  Myrick.  Yes. 

Senator  Hollis.  And  after  it  has  increased  to  $1,500 

Mr.  Myrick   (interposing).  $1,600. 

Senator  Hollis.  $1,600,  that  it  shall  not  draw  interest.  Do  you 
think  there  is  any  value  in  that?  We  have  no  such  restriction  in 
New  Hampshire. 

Mr.  Myrick.  The  reason  for  that  is  that  the  savings  banks  are  so 
popular  that  people  of  comfortable  means,  without  that  restriction, 
would  load  the  savings  banks  with  more  money  than  they  could  take 
care  of. 

Senator  Hollis.  Why?  The  bigger  the  institution,  if  it  is  hon- 
estly run,  the  more  economically  it  can  be  run;  and  in  our  State  we 
welcome  large  deposits.  We  have  $10,000  or  $15,000  on  one  book  in 
our  State. 

Mr.  Myrick.  New  Hampshire  has  not  got  as  much  money  as  Mass- 
achusetts.   Conditions  are  somewhat  different  there. 

Senator  Hollis.  I  do  not  see  the  harm  in  having  more  deposits, 
because  the  field  for  investment  is  practically  unlimited. 

Mr.  Myrick.  I  think  you  will  find  a  great  many  bankers  that  will 
not  assent  to  that  point  of  view.  There  are  times  and  seasons  and 
years  when  it  is  an  extremely  difficult  matter  to  get  sound  and  safe 
investments  at  anything  like  a  reasonable  rate  of  interest.  There  gets 
to  be  such  a  plethora  of  money ;  and  the  purpose  of  that  restriction, 
in  a  rich  State,  is  to  encourage  the  savings  banks  to  take  in  the  de- 
posits of  the  small  people — educate  the  small  people  to  thrift. 

Mr.  Bulkley.  We  have  in  Cleveland  some  of  the  best  savings  banks 
in  the  country;  and  they  agree  to  that  principle,  that  what  they 
want  is  a  large  number  of  depositors,  rather  than  large  deposits  from 
single  individuals. 

Mr.  Myrick.  Yes,  sir;  gentlemen,  we  have  just  begun  to  realize 
the  power  of  small  savings  by  great  numbers  of  people.  You  take 
a  little  rural  township  of  500  or  1,000  people;  they  have  no  banks; 
they  may  be  10  miles  from  a  bank;  you  start  a  little  national  co- 
operative bank  in  that  community,  and  you  will  be  surprised  to  see 
how  the  money  will  pile  up  there  in  the  course  of  5  or  10  years. 

Now.  this  question  has  been  coming  before  you  all  the  time  of 
Federal  aid — direct  loans  to  the  farmer.  There  comes  a  time  every 
year  when  there  is  a  great  demand  for  money.  The  crop-moving 
season — we  will  say.  Our  little  national  banks  in  all  those  little 
towns  are  entitled  to  a  Federal  deposit  of  from  three  to  six  months 
]*ust  as  much  as  any  bank  in  New  York  City  or  Chicago. 

Senator  Hollis.  '  They  are  if  they  can  furnish  the  class  of  security 
the  law  requires. 

Mr.  Myrick.  Certainly. 


534  RURAL  CREDITS. 

Senator  Hollis.  That  has  been  the  only  limitation  in  the  last  year. 

Mr.  Myrick.  Well,  the  Secretary  of  the  Treasury  can  deposit  $5,000 
in  a  little  bank  in  a  small  community  that  can  deliver  the  goods  just 
as  well  as  the  Treasury  can  deposit  $50,000  in  a  bigger  bank. 

Senator  Hollis.  And  he  would  have  been  glad  to  do  so  within  the 
last  year  if  he  had  had  the  chance  and  the  small  bank  could  furnish 
the  security. 

Mr.  Myrick.  Yes,  sir;  and,  then,  with  your  Federal  reserve  dis- 
count privilege,  you  have  hooked  up — gentlemen,  by.  this  method  you 
have  hooked  up — this  individual  farmer  who  has  a  few  shares  in  this 
little  local  national  bank.  He  is  in  a  position  to  tap  the  entire 
resources  of  the  regional  bank  of  the  Federal  reserve  system.  And 
the  law  specifies  it  so — the  Federal  reserve  act.  That  provision  of  the 
law  regarding  180  days  for  farmer's  paper,  and  paper  representing 
produce,  etc.,  was  very  much  criticized  in  certain  commercial  circles 
by  certain  Wall  Street  interests. 

But  those  very  people — now,  if  you  noticed  the  report  of  the  New 
York  clearing  house,  about  10  days  ago,  a  special  committee's  report 
on  what  shall  constitute  prime  paper  under  this  new  law,  you  would 
have  seen  that  their  suggestion  was  a  splendid  interpretation  of  the 
spirit  of  the  Federal  reserve  act,  and  was  a  better  interpretation  and 
more  favorable  to  the  producing  agricultural  interests  of  the  country 
than  was  a  similar  report  coming  at  about  the  same  time  from  Chi- 
cago. Now,  that  shows  the  way  public  sentiment  in  the  banking  cir- 
cles of  the  country  is  changing. 

Mr.  Bulkley.  When  you  speak  of  "  hooking  up  "  the  farmer  to 
the  rediscount  privileges  of  the  Federal  reserve  system,  you  are  refer- 
ring only  to  short-time  loans,  are  you  not? 

Mr.  Myrick.  Oh,  certainly;  absolutely. 

Mr.  Bulkley.  What  do  you  say  to  the  Federal  aid  to  these  land- 
mortgage  banks? 

Mr.  Myrick.  I  do  not  think  it  is  necessary. 

Mr.  Bulkley.  Do  3^011  think  private  capital  will  invest  to  an  ade- 
quate extent? 

Mr.  Myrick.  I  think  so.  I  think  the  States  may  well  take  some  of 
the  stock  in  them. 

Mr.  Bulkley.  Well,  we  can  invite  the  States  to  take  stock  in  them, 
but  we  can  not  control  whether  they  shall  do  so  or  not? 

Mr.  Myrick.  No,  sir;  but  you  can  make  it  an  object  to  them. 

Mr.  Bulkley.  How  would  you  make  it  an  object  to  them? 

Mr.  Myrick.  Well,  you  might  say — I  do  not  think  it  is  necessary, 
gentlemen — but,  suppose  you  and  I  are  proposing  to  go  into  some- 
thing. You  are  a  little  doubtful,  while  I  have  lots  of  confidence  in 
this  thing.  Now,  I  will  say  to  you,  "I  will  put  in  $1,000  if  you  will 
put  in  $1,000."  Well,  that  carries  conviction,  and  we  put  the  money 
up,  and  there  is  $2,000.  Well,  if  you  want  any  Federal  aid  at  all 
you  must  say  to  the  States,  "  We  will  put  up  as  much  as  the  State 
will,  within  certain  limits;  we  will  invest  in  those  shares  to  that 
amount. 

Mr.  Bulkley.  Invest  in  shares  of  the 

Mr.  Myrick  (interposing).  Capital  stock  of  the  land  bank.  Or 
you  can  say,  "We  will  buy  so  many  of  the  bonds."  Something  has 
been  said — whether  it  has  been  said  here  or  not  I  do  not  know — about 
whether  the  State  shall  guarantee  these  bonds.    I  do  not  think  it  is 


ftURAL  CREDITS.  535 

necessary;  but  let  me  tell  you  what  the  State  of  Massachusetts  has 
done — and  it  is  a  rank  imposition,  and  we  are  going  to  have  a  great 
fight  in  the  legislature  on  it  one  01  these  days : 

The  city  of  Boston  and  10  other  communities  in  that  vicinity  con- 
stitute the  metropolitan  district;  there  is  the  metropolitan  water 
district  and  the  metropolitan  sewer,  and  three  or  four  other  dis- 
tricts. Those  districts  have  uttered  bonds  to  the  amount  of  nearly 
$75,000,000,  secured  by  the  obligations  of  the  cities  within  the  dis- 
trict. But  those  bonds  are  all  guaranteed — principal  and  interest — • 
by  the  State;  Massachusetts  has  loaned  its  credit,  in  other  words, 
for  the  purpose  of  mobilizing  these  bonds  to  the  tune  of  $75,000,000 
to  the  richest  part  of  the  State.  We  are  reading  the  riot  act  down 
there  and  saying  if  they  can  guarantee  $75,000,000  worth  of  bonds 
for  the  richest  cities  in  the  State,  then  let  them  guarantee  $25,000,000 
or  $50,000,000  of  farm  bonds.  And  we  have  put  it  up  to  them  to 
answer  that  argument. 

Mr.  Moss.  Do  you  not  think,  Mr.  Myrick,  that  that  very  spirit  is 
one  of  the  weaknesses  of  our  State  guaranties,  namely,  that  if  they 
guarantee  the  bonds  of  one  part  of  the  community  they  will  be  called 
upon  to  guarantee  the  bonds  of  some  other  part  ? 

Mr.  Myrick.  I  do  not  approve  of  that. 

Mr.  Moss.  I  was  pointing  to  one  of  the  weaknesses  of  the  system 
itself. 

Mr.  Myrick.  Yes ;  that  is  one  of  the  weaknesses,  and  it  is  not  neces- 
sary. That  was  just  mentioned,  Mr.  Moss,  as  a  fine  illustration  of 
what  you  are  saying,  because  the  State  did  not  do  that  for  those 
farmers,  while  they  did  it  for  the  cities,  and  the  fanners  became  dis- 
satisfied. And  if  you  do  it  for  the  farmers,  the  workingmen  in  the 
State  will  say  why  not  do  it  for  them?  And  pretty  soon  you  will 
be  in  a  position  like  Mr.  Gladstone  told  me  about  once.  I  saw  him 
about  the  time  his  first  home-rule  bill  looked  as  if  it  was  going 
to  pass.  I  said,  "Is  it  going  to  be  a  success?  "  and  he  said,  "Mr. 
Myrick,  I  am  a  little  doubtful  of  it.  I  have  heard  that  the  peasants 
in  county  Cork  refused  to  plow  or  plant  anything  this  spring,  because 
they  say  that  Dublin  is  going  to  support  them  all;  home  rule  is  going 
to  support  them  all ;  they  will  not  have  to  work  any  more." 

Mr.  Bulkley.  Mr.  Myrick,  whether  it  is  or  whether  it  is  not  neces- 
sary for  the  Government  to  render  any  financial  aid  in  order  to  make 
the  institutions  go  is,  after  all,  purely  a  matter  of  speculation  and 
opinion,  is  it  not? 

Mr.  Myrick.  Yes,  sir. 

Mr.  Bulkley.  You  do  not  know  of  any  experience  that  would 
demonstrate  it  one  way  or  the  other,  do  you? 

Mr.  Myrick.  No,  sir.  The  experience  abroad  on  this  subject,  in 
foreign  countries,  in  my  judgment,  is  not  worth  considering;  it  has 
no  relation  to  this  problem  here. 

Mr.  Bulkley.  Even  if  it  were  worth  considering,  it  does  not 
demonstrate  that  very  clearly,  does  it? 

Mr.  Myrick.  No,  sir. 

Mr.  Hayes.  Well,  it  has  been  demonstrated  that  great  institutions 
of  this  kind  have  been  created  in  Europe  without  any  Government 
aid  at  all. 

Mr.  Myrick.  Yes,  sir. 

Mr.  Hayes.  Well,  that,  so  far,  is  a  light,  is  it  not  ? 


536  RURAL   CREDITS. 

Mr.  Myrick.  And  great  institutions  in  this  country  have  been 
formed  without  Government  aid. 

Mr.  Hayes.  But  not  of  this  kind. 

Mr.  Myrick.  No,  sir;  but 

Mr.  Badow  (interposing).  I  would  like  to  contradict  that. 

Mr.  Bulkley.  Which  system  do  you  refer  to,  Mr.  Hayes? 

Mr.  Hayes.  For  instance,  the  Landschaften  system  or  the  Credit 
Foncier. 

Mr.  Badow.  They  have  got  a  good  many  distinct 

Mr.  Hayes  (interposing).  That  is  not  much.  It  would  have  gone 
just  as  well  without  it. 

Mr.  Myrick.  You  have  had  some  discussion  here  as  to  the  limita- 
tion in  this  bill  of  the  purposes  for  which  the  money  may  be  borrowed, 
and  it  is  a  fair  question  whether  this  language  may  not  be  strained 
against  the  farmer.     You  remember  the  language  in  the  bill — 

That  such  loans  may  be  made  for  any  of  the  following  purposes: 
(a)   To  complete  the  purchase  of  the  agricultural  lands  mortgaged;    (&)   to 
Improve  and  to  equip  such  lands  for  agricultural  purposes;  and  (c)  to  pay  and 
discharge  debts  secured  by  mortgages  or  deeds  of  trust  on  said  lands. 

Now,  "  to  improve  and  equip  such  lands  for  agricultural  purposes." 
Of  course,  Mr.  Moss,  I  think  that  the  comptroller  or  the  subcommittee 
in  charge  of  these  banks  would  know  that  that  meant  live  stock,  and 
a  number  of  things.     But  other  officials  might  not  so  interpret  it. 

I  notice  that  that  is  covered  in  this  way  in  a  pending  bill  in  the 
Massachusetts  Legislature  regarding  land  banks: 

Such  loans  shall  be  made  to  members  only,  shall  in  no  case  exceed  in  amount 
two-thirds  of  the  value  of  the  property  pledged  as  security,  and  shall  be  applied 
to  the  following  purposes  only : 

(a)  Clearing,  draining,  or  otherwise  reclaiming  and  permanently  improv- 
ing agricultural  lands;  (&)  the  production  of  facilities  for  irrigation;  (c)  the 
planting  and  early  growing  of  orchards ;  ( d )  the  erection  of  silos,  cold-storage 
plants,  greenhouses,  and  permanent  farm  buildings;  (c)  the  erection  of  build- 
ings for  permanent  occupation  and  management;  (/)  the  discharge  of  existing 
farm  mortgages;  (g)  such  improvements  of  a  permanent  nature  as  in  the 
opinion  of  these  directors  tend  to  develop  agricultural  resources  and  to  in- 
crease the  value  of  the  security. 

I  think  probably  you  would  want  to  redraft  that  language  there  to 
make  it  somewhat  broader. 

Mr.  Seldomridge.  I  want  to  ask  you  something  about  the  small 
bank,  the  cooperative  bank. 

Mr.  Bulkley.  Let  me  first  ask  Mr.  Myrick  to  suggest  what  change 
he  would  propose  on  that  question  of  the  purpose  for  which  the 
money  is  to  be  used.     I  think  that  is  very  interesting. 

Mr.  Myrick.  Mr.  Chairman,  if  I  were  given  two  or  three  stenog- 
raphers and  asked  to  submit  a  rough  draft  of  a  bill  covering  all  of 
these  things  I  could  do  it  more  readily  than  I  could  just  one  part. 

Mr.  Moss.  Just  a  word.  Mr.  Myrick,  about  the  language  in  the  bill 
in  regard  to  the  purpose  for  which  the  money  is  to  be  used.  I  need 
not  say  that  I  am  not  in  sympathy  with  you  on  that  matter;  but  is 
it  not  the  fact  that  a  general  statement  is  broader  than  a  particular 
statement? 

Mr.  Myrick.  Yes. 

Mr.  Moss.  And  therefore  when  you  commence  to  break  this  up  into 
particular  statements  you  have  to  follow  it  with  a  general  statement 
at  the  end  of  it,  or  else  you  would  lose  out  as  to  a  great  many  pur- 


EUEAL   CKEDITS.  537 

poses;  and  I  do  not  see  what  you  have  gained  by  making  a  number 
of  particular  statements  when  of  necessity  you  must  follow  it  with 
a  general  statement,  because  a  general  statement  is  always  broader 
than  particular  statements. 

Mr.  Myrick.  It  would  take  only  a  few  words  here  to  make  this  so 
broad  that  even  a  man  that  does  not  know  hawk  from  a  handsaw 
could  see  what  it  meant. 

Mr.  Moss.  Yes;  but  you  will  recognize  that  you  can  easily  make 
it  so  broad  that  it  will  lose  its  restrictive  features  altogether? 

Mr.  Myrick.  Yes. 

Mr.  Seldomridge.  Mr.  Myrick,  I  want  to  ask  you  something  about 
the  small  banks  that  you  said  should  receive  deposits. 

Mr.  Myrick.  Yes,  sir. 

Mr.  Seldomridge.  Those  deposits  would  be  time  deposits,  would 
they,  or  would  they  be  subject  to  demand  ? 

Mr.  Myrick.  Just  like  a  national  bank. 

Mr.  Seldomridge.  What  reserve  would  there  be  against  them  ? 

Mr.  Myrick.  The  same  as  a  national  bank. 

Mr.  Seldomridge.  What  reserve  would  there  be  in  a  small  bank 
with  $1,000  capital? 

Mr.  Myrick.  I  would  have  that,  I  think,  just  about  the  same  as 
the  national  banks.     They  have  got  to  increase  their  capital. 

Mr.  Seldomridge.  Well,  would  you  put  any  limit  upon  the  number 
of  deposits  they  would  receive  ? 

Mr.  Myrick.  No,  sir;  not  as  long  as  they  had  the  reserve.  Give 
the  small  fellow  relatively  the  same  opportunity  that  you  do  the 
big  fellow.  You  have  run  your  national  banks  for  the  big  people. 
Now  let  the  little  people  have  a  whack  at  it. 

Senator  Hollis.  In  effect  that  would  be  to  lower  the  minimum 
capital  of  a  national  bank? 

Mr.  Myrick.  That  is  all. 

Mr.  Woods.  Well,  as  I  understood  you  a  while  ago,  you  would  not 
give  the  small  bank,  the  cooperative  bank,  with  $1,000  capital,  the 
same  privileges  as  the  present  national  bank  has? 

Mr.  Myrick.  No,  sir.  My  thought  has  been  to  make  it  an  induce- 
ment to  them  to  put  up  at  least  $5,000  as  soon  as  possible.  When 
they  get  it  to  $5,000,  they  can  come  in  in  the  Federal  reserve  system, 
for  instance,  and  that  is  a  precious  thing,  and  then  they  will  grow. 

Mr.  Hayes.  Not  under  the  present  law ;  they  could  not  come  under 
the  Federal  reserve  system  with  $5,000  capital? 

Mr.  Myrick.  No  ;  I  say  amend  your  law. 

Senator  Hollis.  Well,  if  we  should  provide  in  this  bill  that  they 
could  do  that,  that  would  amend  the  law  to  that  extent. 

Mr.  Myrick.  That  is  what  I  mean. 

Mr.  Hayes.  Certainly. 

Senator  Hollis.  When  we  get  this  bill  through  we  will  claim  that 
it  has  got  as  much  sanctity  about  it  as  any  bill  that  was  ever  passed. 
[Laughter.] 

Mr.  Myrick.  This  measure,  gentlemen,  I  say  in  all  seriousness — 
and  not  as  a  matter  of  pride  of  opinion ;  sinking  all  my  own  personal 
views  and  speaking  freely— if  through  the  cooperation  of  all  the 
interest  affected  and  the  joint  wisdom  of  your  committee  and  of 
Congress,  you  are  able  to  come  out  with  one  statute  providing  for 
short-time  and  long-time  credits  for  the  producing  masses  of  this 


538  RURAL   CREDITS. 

country,  it  will  vie  fairly  in  importance  with  the  Federal  reserve 
act;  and  in  20  years,  if  not  less  time,  it  may  prove  to  be  of  vastly 
more  importance. 

.Mr.  Bulkley.  Have  you  covered  the  ground  that  you  wanted  to 
cover,  Mr.  Myrick  ? 

Mr.  Myrick.  Well,  any  further  details  are  covered  in  this  book 
here  [indicating],  and  some  criticism  that  I  made  of  this  bill  in  this 
brief,  which  I  do  not  need  to  repeat,  perhaps,  except  this,  that  I 
want  to  emphasize  very  strongly  the  importance  of  limiting  the  initial 
commission  or  charge  that  may  be  exacted  of  the  borrower. 

This  new  law  on  loans  passed  by  the  State  of  Wisconsin  provides 
that  the  borrower  shall  pay  a  commission  of  2  per  cent.  You  know 
the  practice  in  this  country,  and  particularly  in  some  States  of  the 
West,  amounts  to  a  terrible  imposition  on  the  borrower. 

For  instance,  7  per  cent  and  4  means  that  he  shall  pay  interest 
at  T  per  cent  for  seven  years  and  that  he  shall  pay  a  commission  or 
bonus  or  charge  of  4  per  cent  in  advance  each  year  for  seven  years, 
amounting  to  a  bonus  or  commission  or  charge  or  steal  of  28  per 
per  cent,  and  he  puts  on  a  certain  mortgage  to  raise  the  wind. 

Mr.  Hayes.  Is  that  in  Wisconsin,  you  say? 

Mr.  Myrick.  No,  sir;  that  happened  in  the  State  of  Kansas. 

Mr.  Hayes.  Oh,  yes. 

Mr.  Myrick.  The  State  of  Wisconsin  limits  the  total  charge  to  2 
per  cent  under  this  system  of  State  loans  of  their  school  funds. 

This  matter  of  the  Federal  fiduciary  agent,  or  representative  of 
the  Government,  to  check  up  the  mortgages  and  collateral  on  the 
bond  is  a  splendid  thing.  It  takes  the  place  of  a  trust  company  in 
the  ordinary  bond  issue. 

There  are  just  one  or  two  points  more  that  I  want  to  speak  of. 
You  have  heard  more  or  less  about  the  way  these  local  banks  abroad 
do  other  business  than  banking.  We  will  not  do  it  that  way;  our 
local  banks  stick  to  banking.  If  the  farmers  in  that  vicinity  want  to 
start  a  creamery  and  the  creamery  corporation  wyants  to  borrow 
$1,000  from  the  bank,  that  is  all  right,  but  it  stands  on  its  own 
bottom. 

I  think  that  is  all. 

Mr.  Bulkley.  We  thank  you  very  much,  Mr.  Myrick,  for  your 
statement. 

STATEMENT  OF  LEONARD  G.  ROBINSON,  GENERAL  MANAGER 
OF  THE  JEWISH  AGRICULTURAL  INDUSTRIAL  AID  SOCIETY,  OF 
NEW  YORK  CITY. 

Senator  Hollis.  Will  you  give  your  name,  residence,  and  occu- 
pation? 

Mr.  Robinson.  My  name  is  Leonard  G.  Robinson,  I  am  a  lawyer 
by  profession,  a  social  worker  by  accident,  and  a  farm-credits  student 
by  compulsion. 

I  am  general  manager  of  the  Jewish  Agricultural  Industrial  Aid 
Society,  of  New  York.  This  society,  as  some  of  you  gentlemen  may 
know,  has  been  engaged  in  the  farm-mortgage  business  for  the  past 
24  years.  It  also  has  the  distinction  of  having  introduced  into  the 
United  States  a  system  of  cooperative  agricultural  credit  by  estab- 


RURAL   CREDITS.  539 

lishing  a  number  of  credit  unions,  which  are  the  first  and  so  far  the 
only  credit  unions  among  the  farmers  on  American  soil. 

For  the  sake  of  clarity  I  think  I  will  divide  my  remarks  into  three 
parts. 

First,  the  work  in  which  our  society  is  engaged ;  second,  our  expe- 
rience, in  so  far  as  it  is  applicable  to  the  country  at  large ;  and  third, 
suggestions  based  upon  our  experience  with  reference  to  pending 
legislation. 

Our  society  is  one  of  the  subsidiaries  of  the  Baron  Hirsch  Founda- 
tion, which  was  organized  in  1890  with  a  view  to  looking  after  the 
Jewish  immigrants  who  came  to  the  United  States  as  a  result  of  the 
reign  of  lawlessness  that  prevailed  in  eastern  Europe  in  the  eighties. 

Among  the  very  first  activities  of  the  Baron  Hirsch  Foundation 
was  the  loaning  of  money  to  those  who  wanted  to  become  farmers 
for  the  purchase  of  farms,  and  so  on.  It  carried  on  this  work  for 
10  years.  Finally  so  many  other  activities  demanded  attention  that 
it  was  decided  to  intrust  this  work  to  an  organization  especially 
designed  to  look  after  its  agricultural  interests.  This  resulted  in 
the  organization  of  the  Jewish  Agricultural  Industrial  Aid  Society 
in  1900. 

You  will  therefore  see  that  counting  the  work  done  by  our  parent 
organization  we  have  been  engaged  in  the  mortgage-loan  business  for 
close  to  24  years. 

During  the  14  years  that  our  society  has  been  in  charge  of  this 
work  we  have  made  about  3,000  loans  in  32  States  and  in  Canada 
amounting  to  about  $2,000,000. 

Senator  Hollis.  Were  those  both  personal  credits  and  land  credits  ? 

Mr.  Robinson.  No;  solely  land  credits. 

Senator  Hollis.  And  that  is  what  you  are  going  to  talk  about,  is 
it — land  credit? 

Mr.  Robinson.  Yes.  I  think  it  is  best  to  keep  the  two  distinct. 
If  we  do  not  we  will  be  very  likely  to  get  into  all  kinds  of  trouble. 

Mr.  Bulkley.  Do  you  mean  that  you  do  not  believe  in  combining 
the  two  functions  into  the  same  institution? 

Mr.  Robinson.  No;  I  do  not  think  that  can  be  done  unless  it  is 
done  as  we  have  done  it.  But  even  with  us  the  two  kinds  of  credit 
are  kept  separate  and  distinct;  we  have  segregated  them,  as  you 
might  call  it. 

Our  operations,  as  you  can  see,  while  not  very  pretentious  in  the 
point  of  figures,  cover  a  much  larger  territory  than  that  of  all  the 
European  land-credit  banks  taken  together.  Our  loans  are  made 
on  a  purely  business  basis,  and  they  are  repayable  in  moderate  annual 
installments  somewhat  similar  to  the  amortization  idea  that  obtains 
abroad. 

But  here  is  where  you  will  probably  find  our  methods  somewhat 
unusual  and  perhaps  startling.  We  do  not  make  loans  on  first  mort- 
gage; our  loans  are  mainly  on  second  mortgage,  occasionally  on 
third  mortgage,  rarely  fourth  mortgage,  and  what-not  mortgage. 

Our  refusal  to  take  first  mortgages  and  our  seemingly  illogical 
preference  for  second,  third,  and  fourth  mortgages  needs  explana- 
tion. Our  funds,  it  must  be  remembered,  are  limited ;  and  if  we  are 
to  make  first-mortgage  loans  up  to,  say,  75  per  cent  and  sometimes, 
although  rarely,  above  the  farm  value,  you  can  readily  see  that,  with 
an  income  of  something  like  a  quarter  of  a  million  dollars  a  year, 


540  RURAL  CREDITS. 

our  loans  would  average  probably  around  $3,000,  and  we  could  not 
help  more  than  about  100  fanners. 

As  it  is,  by  compelling  our  farmers  to  exhaust  their  more  or  less 
marketable  credit  by  obtaining  first  mortgages  in  a  local  bank  or 
from  a  private  investor,  even  if  they  have  to  pay  a  higher  rate,  we 
hold  down  our  average  loan  to  something  less  than  $000,  and  in  this 
way  we  help  over  400  families  a  year.  That  accounts  for  our  fond- 
ness for  second  and  third  mortgages. 

This  also  puts  us  in  close  touch  with  the  rural  credit  situation  as  it 
obtains  throughout  the  United  States.  We  are  very  often  obliged 
to  raise  these  first  mortgages  for  our  farmers  from  some  local  con- 
cerns. We  are  very  often  compelled  to  refund  these  mortgages — re- 
place them  by  others.  Occasionally  we  find  it  necessary  to  dicker 
with  mortgagees,  bankers,  lawyers,  and  private  investors.  We  must 
employ  strategy,  make  concessions,  and  give  and  take. 

We  say  to  the  mortagee  who  demands  his  money,  "  Will  you  accept 
$500  on  account  and  permit  your  mortgage  to  remain  another  year, 
or  l  wo  years?  "  and  very  often  we  get  that  concession. 

In  this  way  we  are  in  close  touch  with  hundreds  of  mortgagees, 
banks,  and  lawyers  engaged  in  the  mortgage  business.  Thus  we  have 
gained  a  fair  knowledge  of  the  terms  of  25,000  or  30,000  mortgagees 
and  are  in  possession  of  authentic  information  that  could  not  be 
obtained  from  a  mere  survey  that  puts  the  average  mortgagee  or 
banker  on  his  guard. 

Besides  we  have  applications  for  advice  and  assistance  from  farm- 
ers in  practically  every  State  in  the  Union.  We  have  our  own  staff 
of  expert  investigators,  and  investigate  not  only  the  particular  ap- 
plication, but  the  entire  situation  exactly  as  it  exists  in  that  locality. 
So  I  think  we  are  pretty  well  posted  on  the  rural-credit  situation  of 
nearly  every  part  of  the  United  States. 

Now,  what  is  this  situation?  So  far  as  my  own  personal  experience 
is  concerned,  I  find  that  the  situation  differs  very  markedly  in  vari- 
ous parts  of  the  country.  In  a  general  way  you  can  divide  the  coun- 
try into  four  parts,  say,  the  East,  where  conditions  are  fairly  toler- 
able ;  the  Middle  West,  perhaps  a  little  less  so ;  the  Northwest,  where 
it  is  pretty  bad;  and  the  South,  where  it  could  not  be  any  worse. 

Each  division  has  its  own  peculiar  problems.  You  will  find,  for 
instance,  that  not  only  do  conditions  differ  between  States,  but  they 
differ  between  different  localities  within  the  State. 

I  have  known,  for  instance,  places  where  you  could  get  a  first 
mortgage  with  tolerable  ease  in  one  place  and  25  miles  away  you 
could  not  get  one  for  love  or  money.  There  are  really  no  two  places 
in  the  country  that  you  could  put  on  the  same  level. 

To  account  for  this  is  perfectly  simple.  It  is  simply  a  question 
of  supply  and  demand.  We  have  always  been  wondering  as  to  what 
ailed  our  farm  credits.  In  my  student  days  I  studied  economics 
under  a  teacher  whom  all  of  you  doubtless  know.  Prof.  Carver.  I 
iv  .  embered  that  one  of  the  fundamental  laws  of  economics  was  the 
law  of  supply  and  demand. 

Now.  to  apply  this  law  to  farm  credits.  In  one  place — take  Con- 
necticut. Massachusetts,  or  whatever  place  you  may  choose — there 
may  live  a  retired  farmer  probably  worth  several  hundred  thousand 
dollars.  He  was  probably  born  and  raised  there.  What  is  he  going 
to  do  with  his  money?     If  he  invested  in  Government  bonds,  he 


RURAL   CREDITS.  541 

would  probably  get  something  like  3  per  cent  interest  or  less.  Know- 
ing the  situation  in  that  locality  he  loans  his  money  on  farm  mort- 
gages and  nets  5  or  G  per  cent.  And  in  this  way  you  will  find  that 
the  farmers  in  that  particular  section  of  the  country  are  able  to 
obtain  mortgages  with  comparative  ease  and  on  fair  terms. 

Or,  instead  of  a  private  investor,  that  neighborhood  may  have  a 
thriving  little  industrial  community,  where  the  men  save  their 
money.  As  a  result  there  is  a  savings  bank  or  a  trust  company 
practically  doing  the  work  that  the  private  investor  does  in  the  other 
place.  This  is  provided  the  little  town  or  village  has  no  other  de- 
mands upon  it.  In  places  where  business  is  rather  brisk  or  where 
real  estate  is  booming  in  the  town  itself  the  advantage  of  having  a 
private  investor  or  savings  bank  there  is  nullified  by  these  other 
demands.  The  farmer  is  a  little  bit  out  of  the  way,  and  why  should 
a  man  who  has  money  to  invest  go  out  of  his  way  10  miles  in  order 
to  make  a  loan  to  the  farmer  when  he  can  invest  his  money  right  next 
door  to  him  and  among  his  own  friends? 

In  other  words,  that  fanner,  when  he  has  to  compete  for  credit 
with  the  business  man  or  the  promoter  or  real  estate  speculator,  has  a 
very  poor  show.  In  this  way,  having  local  credit  conditions  favorable 
does  very  little  good  to  the  farmer.  I  have  known  of  instances  in 
New  York,  New  Jersey,  and  other  States  where  a  farmer  can  not  get 
a  loan  on  gilt-edge  mortgage  on  any  terms,  although  the  credit  condi- 
tions there  could  be  no  better. 

In  other  commodities,  including  credit,  for  instance,  what  governs 
prices  is  the  world  market.  The  price  of  your  bread  here  in  Wash- 
ington does  not  depend  upon  the  wheat  raised  in  the  District  of 
Columbia.  Chicago  or  Liverpool  fixes  the  price  for  that  wheat  for 
your  bread.  It  is  the  same  way  with  credit — business  or  commercial 
credit.  The  interest  rate  in  Wall  Street  or  Vienna  or  Berlin  or  Paris 
is  practically  the  same.  It  is  regulated  by  the  world's  market — the 
world's  supply  and  demand.  On  the  other  hand,  our  poor  farmer's 
credit  supply  is  regulated  by  purely  local  conditions,  conditions  more 
or  less  accidental. 

It  is  evident,  therefore,  that  the  trouble  with  our  agricultural-credit 
situation  is  the  lack  of  the  necessary  mechanism  by  which  this  law  of 
supply  and  demand  can  be  regulated  the  same  way  as  the  law  of  sup- 
ply and  demand  is  regulated  in  New  York  or  any  other  financial 
center. 

A  great  deal  of  loose  talk  has  been  indulged  in  on  the  subject  of  the 
country  banker.  I  have  dealt  with  hundreds  of  country  banks  and  I 
have  found  them,  on  the  whole,  a  fairly  decent  human  lot.  Of  course 
they  want  their  pound  of  flesh,  as  some  one  has  said.  So  does  the 
grocer  and  the  butcher.  You  would  not  find  a  grocer,  for  instance, 
going  out  of  his  way  and  selling  his  groceries  5  miles  away  at  a  lower 
price  when  he  can  dispose  of  the  same  stuff  right  next  door  to  him  at 
a  better  price.  The  banker  is  not  worse  than  the  lawyer.  I  would  like 
to  see  any  lawyer  take  a  poor  case,  with  no  prospect  of  a  good  fee 
and  a  lot  of  hard  work  thrown  in,  rather  than  a  good  case,  with  a 
good-sized  fee  attached  to  it.  And  it  is  the  same  way  with  everybody 
else. 

Now,  the  bankers  are  doing  precisely  the  same  thing,  and  I  can 
not  see  why  they  should  be  censured  for  not  extending  credit  to 


542  RURAL  CREDITS. 

farmers,  where  they  find  it  more  convenient  or  more  profitable  to 
loan  it  to  others. 

Of  course  most  country  bankers  know  very  little  about  their  own 
business.    But  that  is  another  story. 

I  will  just  give  an  illustration :  Some  years  ago,  when  I  took 
charge  of  our  office — it  was  in  1907 — we  had  about  $150,000  in  loans 
outstanding  in  the  Northwest,  on  Government  homesteads.  The 
only  security  we  had  was  the  notes  of  the  farmers,  chattel  mort- 
gages, and  the  moral  obligation  and  written  agreement  of  the  bor- 
rowers that  they  would  give  us  a  real  estate  mortgage  as  soon  as  they 
obtained  patent  from  the  Government.  Of  course,  this  agreement 
on  the  part  of  the  farmer  to  give  a  mortgage  after  he  gets  a  patent 
is  nonenforceable. 

Our  loans  in  that  country  around  North  Dakota,  South  Dakota, 
Montana,  and  Wyoming  began  to  accumulate  and  it  gave  me  no  little 
concern.  I  sent  a  number  of  letters  to  our  correspondents,  bankers 
and  lawyers,  asking  them  to  suggest  a  way  of  protecting  our  interests 
out  there.    They  said :  "  Impossible ;  it  can  not  be  done." 

Finally,  I  did  get  a  little  encouragement  from  one  of  our  lawyers. 
He  is  now  the  Treasurer  of  the  United  States — former  Gov.  Burke,  of 
North  Dakota.  I  remembered  the  legal  rule  that  if  a  man  gave  a 
mortgage  on  a  piece  of  property  he  did  not  own,  the  mortgage  spon- 
taneously attached  to  the  property  as  soon  as  he  acquired  title  to  it. 
I  asked  Gov.  Burke  about  taking  mortgages  from  our  farmers  be- 
fore they  got  their  patents  and  he  thought  it  could  be  done. 

I  wrote  to  the  General  Land  Office  here,  asking  for  a  ruling  on  that 
point.  I  waited  several  weeks.  I  was  getting  very  much  discouraged 
and  ready  to  run  down  to  Washington  and  see  what  could  be  done, 
but  I  finally  got  the  ruling  I  wanted  to  the  effect  that  we  could  take 
real  estate  mortgages  on  unpatented  homesteads  without  prejudicially 
affecting  the  interests  or  forfeiting  the  rights  of  the  settler. 

We  set  to  work  at  once  instructing  our  correspondents,  our  bankers, 
and  lawyers  to  convert  all  of  our  unsecured  loans  into  mortgages. 
They  all  replied  substantially  as  follows :  "  You  are  crazy ;  you  can 
not  do  it;  it  is  against  the  law."  We  were  actually  obliged  to  send 
them  copies  of  the  ruling  from  the  General  Land  Office  before  they 
would  be  convinced. 

Now,  some  of  those  bankers  had  been  in  the  business  in  that 
country  for  20  years  or  more.  Some  of  those  lawyers  were  judges 
of  some  of  the  highest  courts  of  their  respective  States,  and  they  did 
not  know  this  simple  fact,  which  had  such  important  bearing  on 
their  own  business,  until  we  told  them  of  it.  Since  we  started  the 
ball  rolling  they  are  all  taking  mortgages  on  unpatented  homesteads. 
If  you  want  real  authentic  information  about  farm  credits,  the 
country  banker  is  the  last  man  to  go  to  for  it.  As  for  the  poor  farmer, 
of  course,  he  does  not  know  where  it  hurts  him  the  most.  Perhaps  if 
you  asked  him  what  he  wanted  most  he  would  probably  ask  you  for  a 
little  more  seed,  or  something  of  that  sort. 

As  far  as  his  credit  troubles  are  concerned,  he  looks  upon  them  as 
a  visitation  from  Heaven,  to  be  taken  with  due  Christian  resignation 
and  humility,  just  as  he  does  droughts  and  frosts  and  bugs. 

Of  course,  the  poor  farmer  is  not  an  economist.  But  most  of  the 
economists  are  not  farmers,  so  honors  are  about  even. 


RURAL   CREDITS.  543 

We  therefore  see  that  rural-credit  conditions  are  not  alike  through- 
out the  country.  Generally  speaking,  however,  the  farmer  can  not 
get  the  long-term  credit  that  he  needs.  When  he  gets  a  mortgage  it 
Ts  not  the  kind  he  wants ;  it  is  the  hand-to-mouth  kind  that  he  must 
renew  every  once  in  a  while.  He  also  pays,  as  a  rule,  an  exorbitant 
price  for  what  he  does  get. 

There  is  a  rather  falacious  notion  entertained  by  those  advocating 
a  new  system  of  farm  credits.  They  claim  that  it  will  help  eliminate 
the  tenancy  evil  and  that  it  will  also  assist  in  the  "  back-to-the-land  " 
movement. 

Now,  if  we  stop  to  think  just  for  one  moment  we  will  see  how  ab- 
surd it  is.  The  question  is,  do  we  want  to  finance  the  solvent  farmer 
or  the  insolvent  farmer?  The  same  solution  for  both  is  impossible. 
Take  the  tenant  on  a  farm  worth  about  $5,000,  we  will  say.  Suppos- 
ing he  can  get  a  mortgage  from  a  land  bank  equal  to  50  per  cent  of  its 
value,  where  is  he  to  get  the  other  $2,500?  It  is  the  same  trouble 
with  the  "  back-to-the-land  "  idea.  A  man  without  money  wants  to 
buy,  say,  a  $3,000  farm.  He  can  get  a  $1,500  mortgage  from  the 
land  bank,  but  he  must  have  $1,500  more  to  complete  the  purchase 
of  the  farm,  and  in  addition  at  least  $1,000  to  equip  it.  How  will  a 
new  land  bank  help  him  ? 

So  you  see  that  we  can  not  put  the  solvent  and  the  insolvent  in  the 
same  category. 

Mr.  Bulkley.  It  has  been  suggested,  Mr.  Robinson,  that  among 
tenants  now  many  of  them  have  very  little  hope  of  ever  being  able 
to  own  their  own  land,  whereas  if  we  establish  some  such  system  as 
this  they  would  be  encouraged  to  save  enough  money  to  pay  a  part 
of  the  purchase  price  and  borrow  the  balance. 

Mr.  Robinson.  Well,  as  far  as  that  is  concerned,  I  will  tell  you 
something  of  my  own  experience:  A  man  who  has  money — say  any 
man  who  has  $1,500  or  $2,000 — can,  if  he  wants  to,  buy  a  farm,  and  if 
he  knows  how  to  buy  the  farm  he  can  get  it  on  his  own  terms.  What 
I  mean  is  that  he  can  make  the  vendor,  if  the  vendor  is  anxious  to 
sell — and  many  of  them  are — he  can  make  him  take  a  purchase 
money  mortgage  almost  on  his  own  terms.  We  have  had  a  great 
deal  of  experience  in  this  line.  In  many  cases  we  obtained  purchase- 
money  mortgages  running  for  20  years  and  more.  I  call  to  mind  one 
particular  instance  in  Connecticut  where  we  induced  a  man  who  was 
anxious  to  sell  to  take  a  first  mortgage  of  $3,000,  I  think  it  was,  re- 
payable in  annual  installments  of  $50,  thus  making  it  a  00-year  mort- 
gage.   Can  you  beat  that  ? 

Mr.  Bulkley.  That  is  a  rather  exceptional  case,  is  it  not  ? 

Mr.  Robinson.  Yes;  it  is  a  rather  exceptional  case,  but  I  can  not 
really  see  how  men  without  money  can  acquire  a  farm  under  a  land- 
credit  system  such  as  is  proposed  in  the  various  bills  pending  in  Con- 
gress. 

Mr.  Bulkley.  Of  course,  that  is  obviously  true.  The  question  is, 
whether  such  a  system  would  not  be  an  encouragement  to  them  to 
save  up  money  enongh — or  at  least  a  large  number  of  them — of  course 
there  are  a  number  of  men  that  would  not  be  encouraged  even  by 
that. 

Mr.  Robinson.  Well,  I  can  not  see  how  such  a  system,  based  on  a 
50  per  cent  equity,  will  expedite  either  the  "  back-to-the-land  "  move- 
ment or  make  a  farm  owner  of  the  tenant. 


544  RURAL   CREDITS. 

Mr.  Bulkley.  What  per  cent  do  you  think  you  would  have  to  loan 
in  order  to  be  of  some  real  help  ? 

Mr.  Robinson.  Some  countries  in  Europe,  Russia  for  instance, 
loan  as  much  as  nine-tenths  of  the  value  of  the  land.  In  other  coun- 
tries, such  as  Sweden,  they  sometimes  loan  a  tenant  the  full  value  of 
the  farm.  But  of  course  you  can  not  do  that  on  a  business  basis. 
For  this  purpose  some  other  agency  must  be  devised,  and  that  agency 
must  be  either  philanthropic,  just  as  ours  is,  or  governmental,  just  as 
obtains  in  many  countries  of  Europe — or,  in  a  measure,  cooperative, 
which  is  perhaps  the  more  difficult.  Probably  the  best  system  would 
be  a  combination  of  the  three ;  a  combination  of  the  altruistic 

.Mr.  Bulkley  (interposing).  And  the  governmental  and  the  co- 
operative? Thai  is  the  only  way  you  can  help  the  farmer — the  land- 
less man  ?    Have  you  thought  out  any  such  system  in  detail  ? 

Mr.  Robinson.  I  have  given  this  subject  a  great  deal  of  thought, 
although  I  haven't  put  it  down  in  writing.  I  have  some  very  posi- 
tive ideas  on  the  subject,  which  are  at  the  service  of  this  committee. 

Much  has  also  been  said  about  adopting  the  Landschaften  system. 
To  my  mind,  that  system  is  absolutely  impracticable  for  the  United 
States. 

In  the  first  place,  the  Landschaften  prevail  only  in  countries  where 
the  feudal  idea  is  very  strong.  It  is  based  upon  the  feudal  system, 
where  a  number  of  noble  landowners — whose  traditions  are  alike, 
whose  history  is  alike — combine  for  the  purpose  of  financing  one 
another.  You  could  never  get  so  strong  individualists  as  the  Ameri- 
can farmers  are  to  be  responsible  for  one  another's  debts  without 
limit  as  to  liability.  Of  course,  we  have  it  in  our  municipal  affairs, 
where  every  man  binds  himself  to  the  full  value  of  his  property  to 
pa}'  the  municipal  debts,  and  so  on.  We  have  it  also  in  water-users' 
associations  out  West.  But  that  is  only  for  a  common  purpose,  and 
not  for  an  individual  end. 

Senator  Hqllis.  For  a  public  purpose  % 

Mr.  Robinson.  For  a  public  purpose;  yes;  but  not  for  an  indi- 
vidual purpose.  And  the  very  fact  that  even  in  Germany,  where 
the  system  has  been  in  operation  over  100  years,  the  corporate  land 
banks  are  doing  five  times  the  amount  of  business  that  the  Land- 
schaften banks  do  is  sufficient  of  itself,  I  think,  to  disprove  the  general 
adaptability  of  the  Landschaften. 

Senator  Hollis.  Which  banks  do  you  refer  to  that  were  doing  five 
times  the  business  of  the  Landschaften  banks? 

Mr.  Robinson.  The  corporate  banks. 

Senator  Hollis.  You  mean  the  joint-stock  banks? 

Mr.  Robinson.  Yes;  the  joint-stock  banks.  And  the  Landschaft 
found  very  little  favor  outside  of  Germany.  They  have  it  in  Sweden 
and  Hungary,  but  not  to  any  very  great  extent.  So  I  think  we  can 
dismiss  them  as  not  worthy  of  serious  consideration. 

Mr.  Platt.  Mr.  Robinson,  in  Sweden  and  those  countries  that 
you  speak  of,  where  they  lend  the  tenants  as  high  as  90  per  cent  of 
the  value  of  the  land,  that  is  in  the  case  of  tenants  who  have  lived 
on  the  same  land  for  a  great  many  years,  perhaps,  with  their  ances- 
tors for  generations? 

Mr.  Robinson.  Yes,  sir.  They  have  been  on  the  same  soil  from 
time  immemorial. 


EUEAL   CREDITS.  545 

Mr.  Platt.  You  would  hardly  advocate  that  for  our  tenants,  who 
flit  from  farm  to  farm  whenever  they  feel  like  it,  would  you? 

Mr.  Robinson.  Of  course,  we  are  confronted  with  a  great  many 
more  difficulties  than  they  are  over  there.  We  can  not  bodily  estab- 
lish any  European  system  here.  We  can  import  the  system,  if  you 
choose  to  do  that.  We  can  import  such  things  as  the  "  supervisory 
committee,''  and  we  can  import  the  fiduciary  agent,  and  so  on,  but 
we  can  not  import  their  spirit.  We  must  reckon  with  the  American 
spirit,  American  genius,  in  any  system  devised  for  any  part  of  the 
United  States.    Does  that  answer  your  question? 

Mr.  Platt.  Yes. 

Mr.  Robinson.  A  great  deal  has  also  been  said  about  our  troubles 
in  1893,  as  an  argument  against  any  land-credit  legislation.  Now, 
any  student  of  the  subject  knows  that  the  conditions  at  that  time 
were  just  right  for  the  collapse  that  took  place,  and  that  Europe  was 
by  no  means  exempt. 

The  chief  reason  for  the  failure  of  our  land  banks  at  that  time  was 
downright  crookedness.  The  commissioner  of  foreign  corporations 
of  Massachusetts,  in  his  report  in  1894,  made  the  statement  that  the 
cause  of  all  the  trouble  was  that  these  land  banks  had  utilized  their 
credit  as  land-credit  institutions  for  private  purposes  and  for  specu- 
lation, and  that  those  that  confined  themselves  to  farm  loans  have 
survived  the  shock. 

We  have  to-day  several  institutions  that  pulled  through  and  live 
to  tell  the  tale.  One  of  them  is  paying  53  per  cent  a  year  in  divi- 
dends— the  Vermont  Loan  &  Trust  Co.,  of  Grand  Forks,  N.  Dak. 
The  British-American  Co.  also  makes  farm  loans  in  the  Northwest, 
and  I  think  they  earned  last  year  22  per  cent  on  their  capital.  The 
Scottish-American  Co.  has  been  paying  12  per  cent.  The  Pearson- 
Taft  Co. — Heaven  knows  what  they  pay ;  they  will  not  tell. 

Mr.  Badow.  It  is  7£  per  cent. 

Mr.  Robinson.  Do  they  pay  that? 

Mr.  Badow.  Yes. 

Mr.  Robinson.  I  have  been  trying  to  get  some  information  from 
them,  and  they  would  not  let  me  have  it.     I  guess  they  suspected  me. 

Mr.  Badow.  It  is  7^  per  cent. 

Mr.  Robinson.  Another  company  in  New  York,  the  United  States 
Mortgage  &  Trust  Co.,  which  is  doing  a  good  banking  business,  is 
lending  money  on  mortgages  in  40  cities  in  the  United  States,  and  it 
is  a  very  thriving  institution. 

Mr.  Platt.  None  of  these  are  debenture  companies,  however? 

Mr.  Robinson.  Yes. 

Mr.  Platt.  They  issue  debentures? 

Mr.  Robinson.  Practically  all  of  them. 

Mr.  Badow.  The  Vermont  Co.  does  not. 

Mr.  Robinson.  Yes;  the  Vermont  Co.  had  $250,000  in  debentures 
outstanding  in  1912, 1  believe. 

Mr.  Badow.  The  commissioner  of  banking  of  the  State  of  Vermont 
in  1912,  on  the  15th  of  December,  reported  to  me  that  there  was  no 
company  organized  under  any  Vermont  charter  that  was  issuing  any 
debentures. 

Mr.  Robinson.  I  have  a  list  showing  that  they  did  issue  those 
debentures. 

37031—14 35 


546  RURAL   CREDITS. 

Senator  Hollis.  Well,  this  Vermont  Co.,  perhaps  has  a  charter  in 
West  Virginia  ? 

Mr.  Robinson.  No;  it  is  organized  under  the  laws  of  Vermont. 

Mr.  Badow.  How  about  the  Deming  Co.,  of  Oswego,  Kans.  ?  They 
have  been  in  business  since  1882. 

Mr.  Robinson.  Well,  those  who  did  a  straightforwad  business 
have  lived  to  tell  the  tale. 

Mr.  Badow.  May  I  interrupt  to  make  a  statement?  I  would  not 
put  it  that  way,  that  the  cause  of  the  panic  of  1913  was  downright 
crookedness,  because  that  was  proven  in  only  one  or  two  cases.  There 
were  certain  conditions  that  all  worked  together  and  caused  the  panic 
of  1893,  among  which  was  this:  That  they  had  three  bad  crops  in 
succession;  and  that  condition  would  cause  a  panic  at  any  time.  If 
we  should  have  three  bad  crops  in  succession,  there  are  certain  parts 
of  this  country  where  the  farmers  are  going  to  leave.  I  have  seen 
them  move  from  one  State  into  another  after  they  had  had  one  crop 
failure,  and  I  think  that  condition  would  arise  again.  And  then 
loans  had  been  made  at  60  per  cent,  and  they  were  made  on  an  in- 
flated value,  and  when  the  land  came  back  to  its  actual  productive 
value — and  that  is  the  only  value  that  ought  to  be  considered,  even 
when  it  comes  down  to  appraising  afterwards — the  mortgage 
amounted  to  a  bill  of  sale,  and  then  something  on  top  of  that,  it 
was  no  more  a  mortgage.     That  was  how  thetrouble  started  in  1893. 

Mr.  Platt.  Did  they  not  issue  debentures  on  their  poor  mortgages, 
and  sell  the  good  mortgages  directly? 

Mr.  Badow.  I  do  not  think  they  made  any  good  mortgages,  as  a 
matter  of  fact  at  that  time.     Of  course,  the  crop  failures 

Mr.  Platt  (interposing).  Well,  only  a  few  operated  in  one  State, 
and  they  could  not  have  had  crop  failures  all  over  the  country. 

Mr.  Badow.  But  the  real  trouble  started  in  Kansas,  and,  of  course, 
Kansas  has  suffered  for  it  ever  since,  although  there  is  no  reason 
for  holding  that  State  up  as  a  bad  example  now ;  but  that  happened 
to  be  the  State  that  was  hit  the  hardest. 

Mr.  Robinson.  The  failure  of  crops  was  only  one  of  the  reasons 
for  that  panic.  There  were  a  great  many  cumulative  reasons.  The 
general  conditions  of  the  country  were  ripe  for  a  panic.  Not  only 
did  our  inflated-mortgage  companies  suffer,  but  many  banks  and 
three-fourths  of  our  railroad  companies  went  into  the  hands  of  re- 
ceivers.   The  panic  was  general  all  over  the  country. 

Coming  back  to  this  Vermont  Loan  &  Trust  Co.,  it  has  a  paid-in 
capital  of  $GG\000.  Loans  outstanding,  $2,000,000:  debentures, 
$187,000.    That  was  their  report  of  1911. 

As  to  the  interest  rates  in  those  years,  I  have  a  little  list  which 
might  interest  you.  They  were  compiled  by  Mr.  Ralph  Ingalls,  of 
New  York. 

There  were  6,770  mortgages,  amounting  to  over  $1,500,000,  on 
which  interest  was  20  per  cent. 

There  were  211  mortgages  on  which  the  interest  was  30  per  cent; 
there  were  579  mortgages  on  which  the  interest  was  40  per  cent; 
273  mortgages  on  which  the  interest  was  60  per  cent;  23  mortgages 
on  which  the  interest  was  80  per  cent;  22  mortgages  on  which  the 
interest  was  120  per  cent;  and  2  mortgages,  amounting  to  $700,  bore 
the  interest  rate  of  180  per  cent.     Of  course,  if  you  make  a  mort- 


RURAL    CREDITS.  547 

gage  loan  with  the  interest  rate  of  180  per  cent,  it  does  not  take  very 
long  before  the  mortgage  will  be  valueless. 

Mr.  Hayes.  The  man,  yon  mean,  do  you  not  ?     [Laughter.] 

Mr.  Robinson.  Yes;  everything  and  everybody  connected  with  it. 

Now,  about  the  pending  legislation.  I  notice  that  you  gentlemen 
have  not  asked  me  mam7  questions ;  it  would  help  me  if  you  did. 

Mr.  Bulkley.  I  would  like  to  ask  you  about  your  own  organiza- 
tion— about  the  source  of  your  funds  and  the  amount  you  have 
loaned  out. 

Mr.  Robinson.  Our  funds,  as  I  have  stated,  I  believe,  are  derived 
from  the  Baron  Hirsch  Foundation.  It  was  created  in  1890.  It  is  a 
New  York  corporation.  We  get  part  of  our  money  from  that  cor- 
poration and  the  other  part  we  get  from  the  Jewish  Colonialization 
Association  of  Paris,  France,  the  residuary  legatee  of  the  late  Baron 
de  Hirsch. 

Mr.  Bulkley.  Are  these  endowment  funds? 

Mr.  Robinson.  Yes;  they  are  endowment  funds. 

Mr.  Hayes.  How  much? 

Mr.  Robinson.  The  Baron  de  Hirsch  Foundation  is  worth  some- 
thing like  $2,400,000. 

Mr.  Hayes.  I  mean,  how  much  comes  to  you? 

Mr.  Robinson.  We  get  about  $150,000  a  year  from  the  two  sources, 
and  we  loan  out  something  like  a  quarter  of  a  million  dollars  a  year. 
To  show  you  that,  even  with  the  granting  of  second  and  third  mort- 
gage loans,  we  manage  to  exist,  I  will  tell  you  that  we  collected  last 
year— 1913— a  total  of  $125,000  from  our  farmers,  of  which  $95,000 
was  on  the  principal  and  $30,000  was  for  interest  at  the  rate  of  4  per 
cent  per  annum. 

Mr.  Bulkley.  You  do  not  invest  the  principal  sum  of  the  endow- 
ment in  mortgages,  do  you? 

Mr.  Robinson.  We  have  no  control  over  that. 

Mr.  Bulkley.  You  simply  get  the  income? 

Mr.  Robinson.  We  simply  get  a  portion  of  the  income. 

Mr.  Bulkley.  You  simply  get  a  portion  of  the  income;  that  is 
frue  in  both  cases,  the  Hirsch  fund  and  this  fund  from  Paris,  is  it  ? 

Mr.  Robinson.  Yes ;  and  that  Paris  fund  is  probably  worth  some- 
thing like  $20,000,000  or  $30,000,000. 

Mr.  Hayes.  What  do  von  do  with  this  $150,000;  do  you  loan  it 
out? 

Mr.  Robinson.  We  keep  on  loaning  it  out.  Last  year  we  loaned 
out  $244,000. 

Mr.  Hayes.  And  every  year  you  get  the  $150,000  from  the  funds  in 
addition  ?  v. 

Mr.  Robinson.  We  keep  turning  it  over.  Our  regular  income  is 
only  $150,000.  We  loan  out  a  quarter  of  a  million  dollars  a  year  in 
addition  to  our  disbursements  for  the  various  educational  work  that 
we  do  among  the  farmers. 

Mr.  Badoav.  Do  you  sell  those  mortgages? 

Mr.  Robinson.  Nobody  would  buy  them. 

Mr.  Badow.  You  keep  them  yourselves,  do  you? 

Mr.  Robinson.  Would  you  buy  those  mortgages? 

Mr.  Badoav.  You  could  issue  bonds  against  them. 

Mr.  Robinson.  Would  vou  buv  such  bonds? 


548  RURAL   CREDITS. 

Mr.  Badoav.  I  personally  would  not.  but  I  could  get  somebody  else 
to  bu}'  them. 

Mr.  Bulkley.  Does  your  mortgage  business  result  in  a  loss? 

Mr.  Robinson.  Our  losses  to  date,  for  the  14  years  we  have  been 
in  existence,  amount  to  2.45  per  cent — less  than  one  year's  interest. 

Mr.  Bulkley.  Well,  on  that  kind  of  a  record  could  you  not  sell 
debentures? 

Mr.  Robinson.  Well,  that  is  not  our  object.  We  can  only  do  as 
much  work  as  our  funds  will  permit.  Of  course  debentures  would 
mean  obligations  which  we.  as  administrators  of  trust  funds,  could 
not  very  well  incur. 

Mr.  Bulkley.  Well,  it  would  mean  additional  funds  to  carry  on 
your  work,  would  it  not? 

Mr.  Robinson.  Yes;  I  understand  that;  but  we  do  not  think  we 
ought  to  do  that. 

Mr.  Seldom  ridge.  How  does  the  number  of  loans  granted  compare 
with  the  number  applied  for? 

Mr.  Robinson.  We  had  last  year  applications  of  various  kinds  in 
the  neighborhood  of  1,500,  and  we  granted  over  400  loans. 

Mr.  Seldomridge.  And,  of  course,  the  loans  are  granted  to  people 
of  Jewish  descent  exclusively? 

Mr.  Robinson.  Exclusively;  yes. 

Mr.  Seldomridge.  Do  you  have  any  requirements  as  to  the  amount 
of  land  an  applicant  must  own  or  have  title  to? 

Mr.  Robinson.  No;  that  is  not  material  at  all.  Each  case  is  con- 
sidered upon  its  own  merits.  Every  application  is  investigated  by 
one  of  our  expert  investigators. 

Mr.  Seldomridge.  And  you  loan  to  farmers  exclusively? 

Mi*.  Robinson.  We  loan  to  farmers  exclusively. 

Mr.  Seldomridge.  And  do  you  make  any  selection  as  to  the  section 
of  country? 

Mr.  Robinson.  As  I  have  said,  we  have  made  loans  in  32  States  in 
the  Union;  we  are  absolutely  impartial  as  to  territory. 

Mr.  Seldomridge.  Are  these  loans  largely  made  to  immigrants— $ 
that  is,  people  who  have  recently  come  to  America — or  to  people  who 
have  been  citizens  or  residents  for  some  time  ? 

Mr.  Robinson.  We  make  no  distinction  as  to  that.  The  majority 
of  them  are  people  who  have  been  here  some  time  and  have  accumu- 
lated some  money. 

Mr.  Seldomridge.  And  you  loan  to  them  at  4  per  cent? 

Mr.  Robinson.  We  loan  to  them  at  4  per  cent. 

Mr.  Seldomridge.  And  without  any  reference  to  the  interest  they 
are  paying  on  their  first  mortgages.  Suppose,  for  instance,  a  man  had 
to  pay  10,  12,  or  15  per  cent  interest  on  his  first  mortgage? 

Mr.  Robinson.  Regardless  of  the  interest  on  his  first  mortgage. 

Mr.  Seldomridge.  Do  you  take  something  from  them  each  year  for 
amortization? 

Mr.  Robinson.  Yes;  we  require  a  nominal  sum,  depending  very 
largely  upon  the  man's  other  obligations.  If  these  other  obliga- 
tions—if his  annual  overhead  charges — are  comparatively  small,  we 
require  a  payment  to  us;  if  they  are  large,  we  do  not  require  so  much. 

Mr.  Seldomridge.  What  is  the  largest  amount  that  you  loan  to  one 
man ;  do  you  have  any  limit  ? 


RURAL   CREDITS.  549 

Mr.  Robinson.  We  have  loaned  as  much  as  $3,000  to  one  man;  but 
our  average  loans  are  not  quite  $600. 

Mr.  Hayes.  Now,  according  to  your  statement,  Mr.  Robinson,  and 
if  your  losses  are  not  more  than  you  say,  your  company  or  association 
would  be  a  good  business  proposition,  would  it  not? 

Mr.  Robinson.  Except  that  we  spend  some  of  our  money  for  edu- 
cational  

Mr.  Hayes  (interposing).  Yes;  but  I  mean,  eliminating  that,  your 
loan  business  would  be  a  good  business  proposition,  would  it  not? 

Mr.  Robinson.  Well,  if  you  are  satisfied  with  a  moderate  return  it 
would.  Of  course,  you  could  not  get  a  return  of  more  than  4  per 
cent. 

Mr.  Hayes.  Because  that  is  all  the  interest  you  charge? 

Mr.  Robinson.  That  is  all  we  charge;  yes. 

Mr.  Bulkley.  If  you  would  eliminate  your  educational  work  and 
do  a  strictly  mortgage  business,  does  your  experience  show  that  you 
would  make  4  per  cent  on  the  investment  ? 

Mr.  Robinson.  Of  course,  there  are  the  running  expenses  to  be 
considered. 

Mr.  Hayes.  One-half  of  1  per  cent  would  cover  those. 

Mr.  Robinson.  It  probably  would.  If  we  eliminated  the  educa- 
tional work  and  the  philanthropic  work,  we  could  make  money  even 
at  4  per  cent,  but  that  depends  on  what  you  call  making  money. 

Mr.  Hayes.  Why,  therefore,  do  you  say  that  a  thing  of  this  kind 
could  not  be  a  success  unless  the  Government  got  behind  it,  and  it 
had  the  other  cooperative  features  that  you  mention  ? 

Mr.  Robinson.  Because  no  business  man  would  care  to  go  into  it. 

Mr.  Hayes.  I  am  not  so  sure  about  that. 

Mr.  Robinson.  If  you  can  get  business  men 

Mr.  Hayes  (interposing) .  To  tell  you  the  honest  truth,  I  am  think- 
ing about  going  into  it  myself  if  the  plan  is  adopted. 

Mr.  Seldomridge.  But  not  on  the  second  and  third  mortgage 
proposition. 

Mr.  Hayes.  No  ;  not  on  second  and  third  mortgages. 

Mr.  Robinson.  Well,  that  is  what  I  am  driving  at.  As  far  as  first 
mortgages  are  concerned,  that  is  an  entirely  different  proposition. 
I  was  confining  my  remarks  to  second  and  third  mortgages. 

Mr.  Hayes.  But  I  am  recalling  to  your  mind  your  statement  that 
this  scheme  could  not  be  a  success,  because  it  must  have  two  other 
elements  in  it;  and  I  am  asking  you  to  state  if,  in  case  your  elimi- 
nated your  educational  work  and  your  philanthropic  work,  your 
association  would  be  a  good  business  proposition,  and  you  say  it  would 
not.  Now,  I  do  not  see  how  you  reconcile  that  with  the  statement 
as  to  how  much  interest  you  make  on  the  investment. 

Mr.  Robinson.  I  think  we  misunderstand  each  other.  I  thought 
we  were  talking  about  putting  the  insolvent  man  upon  the  farm; 
am  I  not  right  in  that  ? 

Mr.  Bulkley.  That  is  what  I  thought  you  were  discussing. 

Mr.  Hayes.  You  are  speaking  of  the  man  who  has  no  money  ? 

Mr.  Robinson.  Yes;  the  man  who  has  no  money;  that  is  what  I 
am  driving  at ;  the  man  who  has  enough  to  pay  down  50  per  cent  of 
the  purchase  price  on  his  farm  must  be  dealt  with  in  a  purely  business 
way.     If  I  did  not  make  myself  clear  on  that 


550  RUBAL   CREDITS. 

Mr.  Bulkley  (interposing).  The  greater  part  of  your  borrowers 
are  men  whom  you  would  term  insolvent,  are  they  not? 

Mr.  Robinson.  The  great  majority  of  them  are;  yes. 

Mr.  Bulkley.  In  passing  upon  an  application  for  a  loan,  you 
consider  rather  the  needs  and  the  character  of  the  applicant  than 
the  character  of  the  security,  do  you  not? 

Mr.  Robinson.  Yes;  and  the  prospect  of  his  making  a  success  of 
the  venture. 

Mr.  Bulkley.  That  is  to  say,  he  must  have  the  health,  for  example  ? 

Mr.  Robinson.  He  must  have  the  health ;  he  must  have  the  make-up. 
Of  course,  we  are  human  and  we  are  not  infallible ;  but  at  the  same 
time  we  have  been  in  the  business  long  enough  to  be  able  to  size 
a  man  up  fairty  well  and  determine  whether  he  is  going  to  "  make 
good." 

Mr.  Platt.  You  do  not  require  previous  farm  experience,  do  you  ? 

Mr.  Robinson.  If  we  did  we  could  not  do  very  much,  because  our 
people  generally  are  not  farmers. 

Mr.  Platt.  Yes ;  that  is  correct. 

Mr.  Bulkley.  Among  your  borrowers,  do  they  appreciate  your 
work  in  putting  them  on  their  feet,  and  feel  that  it  is  more  than  an 
ordinary  obligation  to  be  repaid? 

Mr.  Robinson.  I  would  say  yes;  they  appreciate  what  we  do  in 
helping  them.  At  the  same  time,  they  are  human,  and  I  suppose 
they  are  more  ready,  perhaps,  to  meet  the  obligations  they  contract 
on  a  business  basis  than  their  obligations  to  us,  for  the  reason  that 
they  feel  a  certain  proprietary  interest  in  our  money.  It  is  a  fund 
established  especially  for  their  benefit;  and  for  that  reason  they 
may  often  pay  almost  everybody  else  before  they  pay  us. 

Mr.  Seldomridge.  Another  thing:  Are  you  obliged  in  some  cases 
to  foreclose  and  take  possession  of  the  property? 

Mr.  Robinson.  We  have  foreclosed  only  where  the  farm  was 
abandoned.  We  have  started  foreclosure  proceedings  in  other  in- 
stances, but  never  carried  them  through;  they  have  always  settled 
up ■ 

Mr.  Seldomridge  (interposing).  In  order  to  protect  your  mortgage 
do  you  foreclose,  or  just  simply  charge  it  up  to  loss  if  the  holder 
does  not  meet  his  obligation? 

Mr.  Robinson.  We  do  everything  possible  to  protect  our  interests, 
and  each  case,  of  course,  is  judged  purely  upon  its  own  merits.  If 
we  find  that  it  will  serve  our  interests  best  to  let  the  thing  alone  and 
give  the  man  another  chance  and  see  if  he  can  rehabilitate  his  for- 
tunes, we  do  so  every  time. 

Mr.  Seldomridge.  Suppose  a  man  has  met  his  obligation  to  you, 
and  the  man  who  holds  the  first  mortgage  comes  in  and  demands  his 
pound  of  flesh,  what  do  you  do  then? 

Mr.  Robinson.  Well,  in  that  case,  as  I  have  tried  to  bring  out,  we 
make  an  effort  to  raise  another  mortgage  for  him;  and  in  this  way  we 
have  come  face  to  face  with  the  real  land-credit  situation  in  the 
United  States,  by  trying  to  raise  mortgage  loans  from  other  sources 
for  our  clients;  and,  as  I  have  stated,  we  have  been  more  or  less  in 
touch  with  something  like  25,000  or  30,000  mortgages  in  this  way. 

Mr.  Bulkley.  Do  you  attribute  your  low  percentage  of  losses  in 
any  measure  to  the  gratitude  on  the  part  of  the  borrowers,  their 
friendly  feelings,  sense  of  brotherhood,  or  anything  of  that  kind? 


RURAL   CREDITS.  551 

Mr.  Robinson.  No  ;  I  do  not  think  so.  If  a  man  makes  good  and 
it  is  to  his  interest  to  remain  on  the  farm,  there  will  not  be  a  loss. 
The  only  possible  losses  we  have  are  when  the  man  pulls ■ 

Mr.  Hayes  (interposing).  Gets  discouraged. 

Mr.  Robinson.  Yes ;  gets  discouraged  and  pulls  up  stakes  and  goes 
away. 

Mr.  Seldomridge.  You  have  never  considered  the  matter  of  organ- 
izing associations  for  the  purpose  of  short-term  credit,  have  you, 
aside  from  the  land  loans? 

Mr.  Robinson.  Yes;  I  think  I  mentioned  the  fact  rather  briefly. 
Yes;  we  have  considered  that.  We  were  the  first  to  introduce  the  co- 
operative-credit idea  among  farmers  in  the  United  States.  We  have 
organized  18  credit  unions — a  name  which  Mr.  My  rick  objects  to, 
but  which  I  like  very  much.  Eight  of  them  are  in  New  York,  5  in 
New  Jersey,  4  in  Connecticut,  and  1  in  Massachusetts.  The  last  was 
organized  only  recently  and  is  the  first  farmers'  credit  union  under  the 
Massachusetts  law.  The  first  one  was  organized  in  1911.  These 
organizations  had  been  in  operation  on  September  30,  1913,  for  a 
period  of  about  13  months.  They  have  a  membership  of  about  600, 
and  a  total  capitalization  of  about  $10,000.  They  made  something 
like  1,500  loans  among  themselves,  amounting  to  perhaps  $80,000. 
Their  total  expenses — and  I  would  like  to  direct  particular  attention 
to  this — amounted  in  13  months  to  $796.23. 

Mr.  Hayes.  Of  all  of  them? 

Mr.  Robinson.  Yes;  all  of  them;  they  do  not  pay  their  officials. 
The  only  one  who  gets  paid  is  the  secretary,  and  his  pay  is  only 
nominal.  During  the  13  months  they  have  accumulated  a  reserve 
fund  of  $1,317.93,  making  something  like  13^  per  cent  on  their  capi- 
talization. 

Mr.  Hayes.  Let  me  ask  you  a  question  along  the  line  of  what  I  was 
asking  you  a  few  moments  ago,  before  we  get  too  far  away  from  it: 
The  very  fact  that  you  have  taken  farmers  who  you  say  are  insolvent, 
who  have  no  money,  and  in  lending  them  money  have  had  losses  of 
less  than  2  per  cent 

Mr.  Robinson  (interposing).  Less  than  3  per  cent. 

Mr.  Hayes  (continuing).  Less  than  3  per  cent;  do  you  not  think 
that  that  emphasizes  the  proposition  that  I  put  to  you  a  while  ago, 
that  it  is  a  good  business  proposition? 

Mr.  Robinson.  To  make  first-mortgage  loans;  is  that  your  idea? 

Mr.  Hayes.  No  ;  even  the  way  you  have  done  it.  it  is  a  business 
proposition.  I  would  not  advocate  it  as  a  rule  to  follow ;  but  I  mean 
to  say  that,  in  spite  of  the  handicap  you  have  worked  under,  you  have 
made  it  a  business  proposition. 

Mr.  Platt.  He  has  not  counted  expenses  in ;  he  is  simply  counting 
the  losses  in  that  2.45  per  cent. 

Mr.  Hayes.  He  says  the  expenses  will  probably  be  covered  by 
one-half  of  1  per  cent. 

Mr.  Robinson.  If  we  eliminate  our  philanthropic  and  educational 
features,  of  course  the  expenses  would  be  very  little,  perhaps  not 
more  than  1  per  cent.  But,  of  course,  I  wTould  not  recommend  these 
loans  to  a  business  man  as  a  business  proposition. 

Mr.  Hayes.  No  ;  but  it  is  very  interesting  to  me  that,  even  on  the 
basis  on  which  you  have  been  doing  business,  you  have  made  it  (of 
course  at  a  low  rate  of  interest)  a  business  proposition.     There  is  no 


552  RURAL   CREDITS. 

loss,  but,  say,  3^  per  cent  a  year,  even  loaning  at  4  per  cent;  am  I 
correct  ? 

Mr.  Robinson.  It  could  be  done. 

Mr.  Hayes.  Yet  there  has  been  no  governmental  aid,  and  no  coop- 
eration at  all? 

Mr.  Robinson.  But  it  is  altruistic. 

Mr.  Hayes.  Yes;  but  I  was  eliminating  that,  and  making  it  stand 
by  itself,  and  it  would  be  all  right. 

Mr.  Platt.  These  credit  unions  are  not  among  farmers,  are  they; 
they  are  mostly  in  towns? 

Mr.  Robinson.  Exclusively  so. 

Mr.  Hayes.  Exclusively  what  ? 

Mr.  Robinson.  Exclusively  among  farmers;  we  are  not  interested 
in  town  people. 

Mr.  Platt.  These  lists  that  you  have  read  from  are  of  farm  unions? 

Mr.  Robinson.  Yes;  farm  unions — 18  of  them.  And  I  Would  like 
to  call  your  attention  to  one  thing,  the  losses  of  these  credit  unions 
during  the  13  months  they  have  been  in  operation.  They  report  no 
losses  at  all,  except  a  loss  of  $20,  and  that  loss  was  caused  by  the 
failure  of  a  national  bank,  the  First  National  Bank  of  Norwich, 
Conn.,  their  depositoiy.     [Laughter.] 

So  much  for  the  credit  unions. 

Now,  if  you  gentlemen  would  like  to  have  my  opinion  on  the 
pending  legislation — -and  I  have  some  very  positive  opinions  on  the 
subject — I  shall  be  very  glad  to  give  it. 

Mr.  Bllkley.  We  shall  be  very  glad  to  hear  j^ou. 

Mr.  Robinson.  As  I  understand  it,  there  are  three  bills  pending, 
two  of  them  providing  for  Government  loans,  and  one  of  them,  the 
American  commission's  bill,  providing  for  a  system  of  small  banks. 
"  independent  competitive  banks,"  as  the  commission's  report  calls 
them,  with  a  minimum  capitalization  of  $10,000,  and  any  group  of 
10  men  possessing  $10,000  can  start  a  land  bank. 

I  have  given  the  matter  of  land  credit  a  great  deal  of  thought;  I 
think  that  this  bill  possesses  three  very  vulnerable  points. 

Mr.  Bulkley.  You  are  speaking  now  of  the  Fletcher-Moss  bill, 
the  commission  bill,  are  you  ? 

Mr.  Robinson.  Yes;  the  Fletcher-Moss  bill,  the  commission  bill. 
I  have  jotted  down  a  few  points  which  I  will  try  to  bring  out. 

The  first  objection  is  that  legislation  on  these  lines  will  be  inef- 
fectual. I  do  not  believe  the  law  will  accomplish  what  it  is  designed 
to  accomplish.  One  very  important  point,  it  seems,  has  been  over- 
looked, and  that  is  the  bringing  of  the  investor  and  the  farmer 
together.  Until  you  can  do  that  and  establish  a  system  that  will 
command  the  confidence  of  the  little  man  with  $10  in  the  savings 
bank  or  with  $5  in  his  stocking  or  with  $25  or  $50  in  his  building 
and  loan  association,  I  do  not  see  how  you  will  ever  be  able  to  bring 
the  desired  relief  to  the  farmer. 

Mr.  Hates.  Why  should  this  lull  not  do  it? 

Mr.  Robinson.  In  the  first  place,  can  you  sell  the  debentures  of  a 
little  bank  with  a  capitalization  of  $10,000?  Will  they  sell  outside 
of  the  immediate  vicinity  of  the  issuing  bank?  Will  you,  who  live 
in  Washington,  or  I,  who  live  in  New  York,  invest  in  the  National 
Land  Bank  of  Skaneateles.  X.  Y. — about  Avhich  we  know  absolutely 
nothing? 


RURAL   CREDITS.  553 

Mr.  Hayes.  Of  course  not. 

Mr.  Robinson.  Now,  that  is  the  crucial  point.  Unless  you  devise 
a  system  that  will  command  the  confidence  of  the  investing  public 
y ou  can  legislate  from  now  until  the  last  trumpet  call  and  our 
farmers  will  only  find  that  they  can  not  get  enough  credit  to  pay 
for  their  halos. 

Mr.  Hayes.  Well,  our  banks  in  our  county  have  $12,000,000  in  their 
savings  banks,  and  they  can  not  accept  more  than  $3,000  from  any 
one  man. 

Mr.  Robinson.  Yes. 

Mr.  Hayes.  Now,  they  are  getting  4  per  cent  on  that.  If  they 
knew  that  a  bank  had  started  at  San  Jose,  Cal.,  and  knew  the  people 
at  the  head  of  it,  and  knew  that  the  Government  was  examining  it, 
and  that  a  Government  official  certified  to  their  securities  and  was 
keeping  track  of  them,  what  is  to  prevent  those  people  from  invest- 
ing in  that  sort  of  securities — say  at  44  per  cent  interest  ? 

Mr.  Robinson.  The  governmental  examination  of  these  banks — 
what  will  it  consist  of? 

Mr.  Hayes.  Well,  there  is  a  Government  officer  who  has  charge 
of  all  the  securities. 

Mr.  Bltlkley.  However  that  may  be,  Mr.  Robinson,  that  could  be 
arranged  in  the  bill.  Assuming  that  there  was  a  good  Government 
supervision,  how  would  it  work? 

Mr.  Hayes.  Yes;  suppose  that  we  have  got  it  so  that  there  is 
perfect  safety? 

Mr.  Robinson.  I  mean  this — that  the  Government  supervision 
proposed  in  the  bill  now  is  not  very  much;  the  fiduciary  agent  is 
only  to  see  that  there  are  a  certain  number  of  mortgages  for  the 
debentures  that  are  outstanding. 

Mr.  Buekley.  You  are  right  about  the  Government  supervision 
as  the  bill  is  drawn;  it  does  not  amount  to  much.  But  suppose  we 
extend  that  and  have  Government  appraisers? 

Mr.  Robinson.  Government  appraisers  might  help  it  very  much. 

Mr.  Bulkley.  Do  you  think,  then,  the  bonds  would  have  a  market? 

Mr.  Robinson.  I  do  not  think  they  would. 

Mr.  Seldomridge.  Suppose  there  was  some  central  association  in 
the  State,  through  which  these  bonds  would  be  issued? 

Mr.  Robinson.  I  am  coming  to  that. 

Mr.  Hayes.  Before  you  go  an3T  farther  I  would  like  to  say  that 
the  fiduciary  agent,  according  to  this  bill,  has  something  more  to  do 
than  to  see  that  the  mortgages  underly  the  debentures.  They  are 
in  his  keeping;  he  keeps  the  record  of  them. 

Mr.  Robinson.  Well,  the  books  and  records  would  not  run  away; 
nobody  wants  them. 

Mr.  Hayes.  But  the  securities  are  in  his  hands. 

Mr.  Robinson.  Nobody  wants  the  securities. 

Mr.  Hayes.  Well,  they  can  not  be  hypothecated  over  again ;  there 
can  not  be  any  crooked  work  done. 

Mr.  Robinson.  As  far  as  that  is  concerned,  you  have  very  little 
downright  crookedness  of  that  kind.  It  is  the  dishonest  appraisal 
rather  than  the  destruction  or  the  doing  away  with  the  securities 
that  would  cause  the  trouble. 

Mr.  Hayes.  Of  course  there  is  the  danger  there. 


554  RURAL   CREDITS. 

Mr.  Bi  i.ki.kv.  According  to  the  bill  the  fiduciary  agent  has  not 
any  responsibility  as  to  the  value  of  the  mortgage  underlying  the 
bonds. 

Mr.  Robinson.  Furthermore,  it  will  take  several  years  before  such 
a  system  could  be  extended  to  all  parts  of  the  country. 

Mr.  Hayes.  Would  it  not  take  several  years  for  any  system  to  get 
under  way? 

Mr.  Robinson.  Not  quite  as  long  as  this.    I  will  come  to  that. 

Then  the  returns  from  a  small  bank  are  not  sufficiently  attractive, 
and  many  parts  of  the  country  will  probably  never  have  a  land  bank. 
Suppose  here  is  a  $10,000  bank.  They  can  issue  debentures  up  to 
$150,000.  They  are  permitted  to  charge  a  premium  of  1  per  cent, 
which  is  $1,500  a  year.  They  can  accept  deposits  of  25  per  cent  of 
their  capitalization. 

Mr.  Hates.  Fifty  per  cent. 

Mr.  Robinson.  All  right;  there  is  $5,000  more  on  which  they  will 
have  to  pay  interest. 

Mr.  Hayes.  Four  per  cent  in  my  country. 

Mr.  Robinson.  Yes.  Now,  probably  the  total  income  that  these 
banks  can  have  is  probably,  on  a  $10,000  bank,  $2,500  a  year.  Can 
you  tell  me  how  such  banks  can  multiply  very  rapidly?  Where  is 
the  profit? 

Mr.  Hayes.  Personally  I  do  not  think  the  $10,000  bank  will  do 
much  business.  I  think  the  business  will  be  done  by  large  banks 
ultimately. 

Mr.  Robinson.  There  is  another  point.  I  think  I  have  stated  that 
the  banks  were  too  small  to  inspire  confidence.  In  addition,  their 
very  number  will  create  confusion  and  distrust.  The  Federal  fidu- 
ciary agent  is,  of  course,  simply  a  figurehead.  All  he  does  is  to 
put  his  name  to  the  debenture  and  see  that  there  are  certain  papers 
in  the  strong  box;  that  is  about  the  extent  of  his  supervision. 

Mr.  Badow.  That  amounts  really  to  a  Government  guaranty.  The 
fiduciary  agent  is  actually  the  representative  of  the  commissioner 
of  farm-land  banks. 

Mr.  Robtnson.  Does  that  guarantee  them? 

Mr.  Badow.  It  does  not ;  but  when  it  comes  down  to  a  legal  ques- 
tion, although  I  am  not  a  lawyer 

Mr.  Hayes  (interposing).  There  is  no  guarantee. 

Mr.  Bulkley.  No;  he  is  not  required  to  guarantee  them. 

Mr.  Badow.  I  understand  he  countersigns  the  bonds. 

Mr.  Bulkley.  He  countersigns  the  bonds,  but  that  means  only 
that  there  is  a  mortgage  behind  them;  it  does  not  mean  that  the 
mortgage  is  good ;  it  simply  means  there  is  security  there ;  it  does  not 
mean  that  the  security  is  good. 

Mr.  Robinson.  T  admit  that  some  of  these  little  banks  will  be 
able  to  sell  their  debentures;  but  with  the  competition  for  funds 
among  these  small  banks  the  debentures  will  require  a  high  rate  of 
interest  to  make  them  attractive,  and  that  means  a  high  rate  to  be 
paid  by  the  farmer  for  his  loan  and  leaves  him  where  he  is  to-day. 
The  banks  will  also  endeavor  to  make  their  loans  for  as  short  a  term 
as  possible  in  order  to  get  as  much  profit  as  possible  from  renewals. 

Now,  what  I  have  said  covers  only  one  of  my  objections  that  the 
bill  will  be  ineffectual. 


RURAL   CREDITS.  555 

The  second  objection  is  that  there  are  real  elements  of  danger  in 
a  bill  of  this  sort.  The  capital  is  so  low  that  it  is  practically  an  in- 
vitation to  irresponsible  persons  to  go  into  the  business.  There  will 
be  a  deluge  of  small  banks  of  indigestible  debentures,  and  that  is 
sure  to  cause  trouble.  The  necessary  limitation  of  a  bank's  opera- 
tions as  to  territory  will  increase  risk  in  case  of  floods,  crop  failures, 
or  other  purely  local  happenings,  and  small  losses  will  prove  dis- 
astrous. It  won't  take  much  for  one  of  these  small  banks  to  be 
wiped  out.  Let  us  say  there  is  a  little  bank  on  the  Mississippi  and 
one  of  its  little  floods  occurs.  The  farmers  are  wiped  out  and  can 
not  meet  their  obligations  and  the  loss  of  one  year's  interest  on  its 
debentures  will  practically  wipe  the  bank's  entire  capital. 

Mr.  Badow.  Pardon  me,  but  as  it  is  now,  I  do  not  think  that  the 
farmer  who  lives  so  near  the  Mississippi  River  that  he  is  liable  to 
be  flooded  can  get  any  loan  on  his  land  at  all.  Something  ought  to 
be  done  for  that  man.  I  know  our  company  would  not  loan  on  a 
piece  of  land  that  had  any  overflow,  at  the  time  I  was  connected  with 
it.  There  is  no  chance  for  that  man  to  get  a  loan  at  all,  because  his 
cattle  will  be  drowned,  as  well  as  his  land  being  overflowed,  and  so  he 
could  not  get  money  on  a  chattel  loan  either.  Something  ought  to 
be  done  for  him. 

Mr.  Robinson.  I  will  come  to  that,  if  you  will  permit  me.  I  just 
want  to  cover  the  objections  to  the  bill. 

There  is  also  danger  of  land  speculation  and  fraud.  What  is 
there  to  prevent  a  number  of  land  sharks,  who  own  about  10,000 
acres  of  swamp  land  somewhere,  from  forming  a  land  bank  and 
saying  to  a  prospective  purchaser  of  40  acres,  "Here  is  a  national 
land  bank  ready  to  loan  you  $2,000  upon  that  piece  of  land;  it 
surely  must  be  worth  $4,000.  That  bank  is  supervised  by  the  Gov- 
ernment"? In  that  way  they  can  inflate  land  values  without  limit. 
What  is  there  to  prevent  such  inflation  or  to  prevent  the  system  from 
being  used  simply  as  a  stalking  horse  for  land  sharks  to  sell  their 
worthless  land  at  inflated  prices?  I  think  this  is  really  a  grave 
source  of  danger. 

Much  emphasis  is  laid  upon  this  Federal  fiduciary  agent.  His 
one  function,  as  I  understand  it,  is  to  see  that  the  debentures  do 
not  exceed  the  mortgages.  He  knows  nothing  of  the  intrinsic  value 
of  the  underlying  mortgages,  and  yet  his  name  on  the  debenture 
will  endow  it,  in  the  public  mind,  with  a  sense  of  safety  which  the 
security  does  not  possess.  Furthermore,  default  by  one  bank  will 
undermine  confidence  in  general,  and  the  slightest  shock  is  sure  to 
create  panic  and  distrust. 

My  third  objection  is  that  such  a  system  is  cumbersome  and  abso- 
lutely unnecessary.  Why  not  make  use  of  as  much  of  the  existing 
machinery  as  possible?  There  is  no  need  of  creating  new  banks. 
Multiplicity  and  duplication  of  banks  is  highly  undesirable.  The  ex- 
isting banks,  of  which  we  have  25,000 — State  and  national,  trust 
companies,  savings  banks,  and  so  on — can  do  all  that  any  of 
these  little  land  banks  can  do,  and  much  better.  Those  located  in 
rural  districts  know  land  values  in  their  vicinity;  they  have  busi- 
ness dealings  with  the  farmer  in  one  way  or  another;  they  under- 
stand the  farmer  and  know  his  needs;  and  most  of  them  are  ex- 
perienced in  the  handling  of  mortgage  loans.  Why  can  not  they  do 
the  lending:? 


556  RURAL   CREDITS. 

All  the  new  mechanism  needed  is  to  enable  these  lending  banks  or 
institutions  to  unload  or  "rediscount"  their  mortgages,  just  as  they 
will  soon  be  able  to  rediscount  their  commercial  and  short-term  farm 
paper. 

Mr.  Hayes.  Well,  you  evidently  do  not  put  much  emphasis  on  the 
proposition  that  these  banks  which  it  is  proposed  to  organize  will 
run  on  long  time  with  an  amortization  feature  which  the  present 
banks  do  not  give. 

Mr.  Robinson.  But  what  is  there  to  prevent — why  should  not 
any  local  bank  in  a  rural  community  be  willing,  if  it  could  make  a 
profit  by  making  20  or  30  year  amortization  loans  to  a  farmer,  to 
make  such  loans  when  it  knows  that  it  can  immediately  turn  this 
mortgage  over  to  some  one  else  and  get  cash  for  it,  or  its  equivalent? 

Mr.  Woods.  The  bank  wTould  be  willing  to  do  that  for  not  to  exceed 
one-quarter  of  1  per  cent.    Nearly  all  the  banks  would. 

Mr.  Robinson.  I  am  quite  sure  they  would.  A  number  of  banks 
actually  do  our  Avork  for  us  for  next  to  nothing.  Now,  if  they  can  de- 
rive a  profit  without  in  any  way  interfering  with  their  other  opera- 
tions, there  is  no  reason  why  they  should  not  do  so.  On  the  con- 
trary, it  will  help  their  other  operations,  because  they  will  have  the 
good  will  of  the  farmers,  thus  making  depositors  and  good  customers 
of  them.  Incidentally,  it  will  help  the  growth  of  the  community, 
which,  of  course,  will  redound  to  their  own  benefit.  Why,  then, 
should  not  a  bank  do  it  ? 

The  existing  banks  will  be  very  glad  to  loan  to  the  farmers  on 
long-term  amortization,  under  certain  rules  laid  down  by  the  central 
institution  and  under  proper  supervision.  They  can  make  the  farmer 
a  20  or  30  year  loan — I  think  25  years  is  quite  sufficient  for  this 
country — and  take  that  mortgage  to  the  central  institution  and  get 
cash  or  its  equivalent  for  it  in  debentures,  whichever  they  prefer. 
They  can  also  act  as  agents  for  the  sale  of  debentures. 

Mr.  Hayes.  I  take  it,  then,  that  you  would  advocate  the  organiza- 
tion of  one  central  institution  and  utilize  the  small  ones  as  agents? 

Mr.  Robinson.  Yes;  either  one  or  a  limited  number  of  central 
institutions. 

Mr.  Hayes.  I  mean  one  in  each  of  the  States. 

Mr.  Robinson.  Well,  if  we  have  12  Federal  reserve  banks,  we  can 
have  12  land  banks,  if  you  choose;  that  is  a  matter  of  detail. 

Mr.  Hayes.  Yes;  I  understand  your  thought. 

Mr.  Robinson.  One  central  issuing  bank,  or  at  most  a  limited  num- 
ber, is  all  that  is  needed.  Such  bank  or  banks  should  have  a  large 
capitalization  and  close  Government  supervision,  in  order  to  inspire 
confidence.  I  think  a  majority,  or  at  least  a  certain  number,  of  the 
board  of  directors  of  this  central  institution,  should  be  appointed  by 
the  President,  by  and  with  the  consent  of  the  Senate.  It  will  thus 
be  able  to  market  its  debentures  at  a  low  figure  and  draw  upon  the 
whole  civilized  world  for  its  funds.  It  may  even  not  have  to  sell 
its  debentures  in  the  market,  but  can  readily  exchange  them  for  mort- 
gages held  by  insurance  companies,  philanthropic  foundations,  and 
other  large  institutions,  as  well  as  for  those  taken  by  its  correspond- 
ent banks,  thus  preventing  a  deluge  of  undigestible  debentures  on 
the  market,  with  the  resulting  financial  strain. 

Such  bank  can  begin  operations  and  extend  them  to  every  part 
of  the  county  with  little  loss  of  time.    It  does  not  have  to  create  a 


RURAL   CREDITS.  557 

large,  cumbersome  machinery  out  of  nothing.  The  machinery  is 
already  here  and  waiting  to  be  utilized. 

The  relief  brought  to  our  farming  interests  will  be  immediate 
and  general.  The  competitive  and  independent  system  which  the 
bill  aims  to  bring  about  will  be  neither  competitive  nor  independent. 
The  only  possible  competition  will  be  for  funds,  and  their  independ- 
ence will  be  most  conspicuously  shown  against  the  farmer. 

The  claim  that  it  is  based  on  American  models  loses  force  in  the 
face  of  the  new  banking  and  currency  law.  It  is  strange  that  the 
system  of  independent,  competitive  banks,  discarded  as  inadequate 
for  our  commercial  and  industrial  needs  and  thrown  into  the  scrap 
heap,  should  be  recommended  for  adoption  for  our  agriculture. 

Mr.  Bulkley.  We  are  very  much  obliged  to  you,  Mr.  Robinson, 
for  your  statement,  which  we  have  found  very  interesting. 

Mr.  Hayes.  Yes;  very  much  so. 

(Thereupon,  at  5.40  o'clock  p.  m.,  the  subcommittee  adjourned 
until  to-morrow,  Friday,  March  6,  1914,  at  10.30  o'clock  a.  m.) 


FRIDAY.    MARCH    6,     1914. 

House  of   Representatives, 

Washington,  D.  C. 
The  subcommittee  assembled  in  joint  session  at  10.30  a.  m.,  Hon. 
Robert  J.  Bulkley  presiding. 

Present  also  Senator  Hollis,  Representatives  Stone,  Seldomridge, 
Moss.  Piatt.  Woods,  and  Ragsdale. 

STATEMENT  OF  HON.  HARVIE  JORDAN,  MEMBER  OF  THE  UNITED 
STATES  COMMISSION  ON  RURAL  CREDITS. 

Mr.  Bulkley.  State  your  name  and  occupation. 

Mr.  Jordan.  My  name  is  Harvie  Jordan.  My  principal  business 
is  that  of  a  cotton  farmer. 

Mr.  Woods.  Are  you  a  member  of  the  Southern  Commercial 
Congress  ? 

Mr.  Jordan.  Yes,  sir;  I  am  a  director  of  it. 

Mr.  Chairman  and  gentlemen  of  the  committee,  I  want  to  thank 
you  for  this  opportunity  of  presenting  my  views  on  the  subject 
of  rural  credits.  My  discussion  of  the  matter  will  necessarily  be 
brief,  because  of  my  full  and  complete  indorsement  of  the  report  and 
suggested  bill  for  the  creation  of  national  farm-land  banks,  pre- 
sented to  your  committee  by  the  United  States  Commission  on  Rural 
Credits,  of  which  I  have  the  honor  to  be  a  member. 

In  discussing  any  phase  of  rural  credits  I  shall  do  so  entirely  from 
the  standpoint  of  a  farmer  and  with  no  purpose  save  that  of  en- 
deavoring to  aid  in  the  general  uplift  and  betterment  of  American 
agriculture.  I  have  been  engaged  in  farming  in  the  State  of  Georgia 
all  my  life.  I  believe  that  a  well-defined  system  of  farm  finance 
in  the  United  States  should  first  begin  with  land  as  the  basis  of 
security. 

This  should  supersede  any  plan  which  may  hereafter  be  pro- 
posed for  short  time  personal  cooperative  credit  banks/  among 
farmers,  and  must  necessarily  precede  any  system  for  the  organi- 
zation of  cooperative  marketing  societies  among  farmers.  The 
land-mortgage  bank  first  laid  the  foundation  for  the  emancipation 
of  European  farmers  from  the  usurer,  and  it  must  be  the  basis 
upon  which  American  farmers  can  secure  their  freedom  and  re- 
habilitate American  agriculture.  Any  impartial  student  of  farm 
economics  in  this  country  must  reach  that  conclusion.  My  indorse- 
ment of  the  suggested  national  farm-land  bank  bill  submitted  by 
the  United  States  commission  is  based  upon  the  following  reasons: 

First.  Such  bank  will  be  under  the  control  and  supervision  of 
the  National  Government,  which  assures  confidence  to  the  borrowers 

558 


RURAL   CREDITS.  559 

and  protection  to  the  investors.  It  gives  uniformity  in  operation 
and  provides  a  system  of  banking,  which  will  be  profitable  to  the 
stockholders,  and  at  the  same  time  enable  borrowers  to  secure  loans 
at  the  lowest  rates  of  interest  and  upon  the  most  satisfactory  and 
liberal  terms  of  repayment  of  the  obligation.  It  liquifies  our  landed 
asset  which  is  the  best  security  in  the  Nation  and  enables  land  to 
serve  three  distinct  and  valuable  purposes,  namely,  a  contented 
homestead  for  the  owner,  the  true  source  of  capitalizing  the  business 
of  agriculture,  and  for  the  production  of  crops  upon  the  most  eco- 
nomic basis.  These  are  the  three  fundamental  principles  which 
underlie  a  peaceful,  happy,  and  progressive  rural  life. 

Second.  The  establishment  of  such  banks  as  proposed  under  the 
terms  of  the  suggested  bill  will  tend  to  rapidly  enforce  uniformity 
in  our  State  laws  regarding  land  titles  and  homestead  exemptions. 

Third.  It  will  reduce  the  present  high  interest  rates  paid  by  Amer- 
ican farmers  who  own  land,  because  the  system  provides  gilt-edge 
security  in  the  form  of  bonds,  issued  against  land  mortgages,  while 
relieving  the  capital  of  the  banks,  the  mortgages,  and  the  bonds  from 
taxation. 

Fourth.  Such  banks  will  be  popular  because  the  volume  of  busi- 
ness to  be  transacted  will  be  practically  unlimited  and  good  profits 
well  assured. 

Fifth.  Because  the  bill  provides  for  the  establishment  of  small 
$10,000  cooperative  farm-land  banks  by  farmers,  thus  encouraging 
the  cooperative  features  in  finance  among  farmers  and  thereby  the 
gradual  elimination  of  the  expensive  middleman,  who  is  a  burden 
both  upon  the  producer  and  the  consumer. 

At  the  present  time  farmers  in  the  South  are  paying  from  8  to 
20  per  cent  discount  on  short-time  personal  loans  and  from  40  to  60 
per  cent  on  supplies  bought  on  credit.  I  contend  that  no  business 
can  prosper  under  these  conditions,  and  increasing  tenantry  and  a 
growing  distaste  for  farm  life  is  the  natural  result. 

These  farm-land  banks,  as  suggested  here,  are  restricted  both  in 
the  amount  of  business  which  they  can  do  and  the  amount  of  loans 
which  can  be  made  to  a  borrower,  and  their  transactions  will  be  care- 
fully supervised  by  a  Federal  examiner  and  their  business  is  under 
the  joint  supervision  of  a  Federal  officer. 

As  far  as  possible  the  bill  provides  reasonable  restrictions  for  the 
use  of  money  borrowed,  in  order  to  prevent  the  misuse  of  a  system 
which  is  intended  solely  to  aid  farmers  in  the  development  of  their 
farming  operations. 

Men  who  are  annually  producing  10  billions  of  dollars  of  wealth 
and  who  would  be  compelled  under  this  bill  to  put  up  as  security 
$2  of  good  securities  for  each  dollar  borrowed  can  be  depended  upon 
to  make  proper  use  of  the  funds  they  secure  from  a  farm-land  bank, 
as  practically  every  farmer  who  owns  land  has  already  had  more 
or  less  experience  in  borrowing  money  from  banks  to  operate  their 
business. 

The  method  of  amortization  as  applied  to  long-term  loans  on 
farm  lands  has  my  unqualified  approval,  and  the  right  and  necessity 
of  gradually  liquidating  these  long-term  loans  will  be  of  decided 
advantage  to  a  borrower. 

The  observations  of  the  members  of  the  United  States  commission 
in  European  countries  confirm  the  fact  that  land-mortgage  banks 


560  RURAL  CREDITS. 

were  absolutely  safe  institutions,  that  the  bonds  issued  were  popular 
with  investors,  and  that  the  system  had  established  agriculture  upon 
a  sound  and  profitable  basis. 

I  favor  the  restrictions  as  set  out  in  the  suggested  bill  with  refer- 
ence to  deposits  and  the  use  of  the  farm-land  bank  capital  for  en- 
gaging in  commercial  banking.  I  favor  the  deposit  of  postal  savings 
and  other  trust  savings  funds,  State  and  national,  in  such  banks 
under  the  conditions  as  prescribed  in  the  bill. 

Now,  gentlemen,  those  are  my  views  in  regard  to  the  bill.  Of 
course  I  would  be  glad  to  answer  any  questions  that  you  may  ask  me 
concerning  it. 

Senator  Hollis.  Howt  do  you  feel,  Mr.  Jordan,  about  any  direct 
loans  by  the  Government  to  farmers? 

Mr.  Jordan.  I  do  not  favor  the  lending  of  money  direct  to  Land- 
owners by  either  our  State  or  Federal  Government.  American 
farmers  who  own  the  lands  possess  the  highest  type  of  gilt-edged 
security  in  this  country,  and  the  only  thing  needed  to  convert  these 
lands  into  a  liquid  asset  most  attractive  to  investors  is  to  provide  the 
right  kind  of  governmental  machinery  for  handling  the  security. 
The  direct  financing  of  American  landowners  by  the  Federal  Gov- 
ernment would  open  the  doors  to  a  system  of  paternalism  which  is 
obnoxious  to  American  manhood,  and  our  free  institutions.  Direct 
Government  aid  should  never  be  encouraged  or  resorted  to  except 
in  those  cases  where  the  individuals  seeking  such  aid  are  unable  by 
environment  or  condition  to  help  themselves. 

Senator  Hollis.  Can  you  think  of  any  suggestions  that  might 
help  the  committee  along  the  line  of  indirect  help  through  banks  ? 

Mr.  Jordan.  Through  the  banks? 

Senator  Hollis.  Yes. 

Mr.  Jordan.  Is  your  question  with  regard  to  the  land-mortgage 
banks  ? 

Senator  Hollis.  Yes:  anything  to  help  the  system  to  get  on  its 
feet,  until  it  is  well  established. 

Mr.  Jordan.  I  think  the  fact  that  you  would  put  into  operation  a 
system  of  national  farm-land  banks  under  the  supervision  of  the 
Government  will  give  to  the  system  all  the  aid  necessary  to  make 
these  banks  popular. 

Mr.  Bulkley.  Do  you  believe  it  will  be  desirable  to  coordinate 
these  banks  into  State  units,  as  has  been  suggested  by  some  of  our 
witnesses? 

Mr.  Jordan.  I  do  not  believe  that  restriction  of  that  kind  should 
be  placed  upon  the  system.  It  would  be  natural  to  suppose  that  a 
multiplicity  of  those  banks  would  not  be  organized  in  any  one  State, 
because  the  subscribers  to  the  capital  stock  of  the  banks  would  be 
limited  to  the  amount  of  business  to  be  done  and  if  too  many  banks 
were  created,  as  a  matter  of  course,  the  business  of  each  bank  would 
be  extremely  limited. 

Mr.  Seldomridge.  Suppose  we  should  provide  for  the  establish- 
ment of  one  large  mortgage  bank  in  one  particular  State  with  the 
power  given  to  that  institution  to  establish  branches  in  different 
sections  of  the  State ;  would  not  an  institution  of  that  kind  command 
more  confidence  than  a  number  of  institutions  without  any  coordina- 
tion? 


RURAL   CREDITS.  561 

Mr.  Jordan.  I  think  perhaps  in  the  beginning  it  would,  but  I  think 
even  the  right  to  establish  branch  banks  should  be  limited  to  a  cer- 
tain number  of  counties. 

Mr.  Bulkely.  Do  you  not  think  a  larger  unit  could  sell  bonds 
more  economicaly  than  so  many  small  units? 

Mr.  Jordan.  I  do,  unquestionably. 

Mr.  Bulkley.  That  is  to  say.  there  would  be  less  expense  and  also 
a  better  market  for  the  bonds,  would  there  not  ? 

Mr.  Jordan.  Yes;  undoubtedly. 

Mr.  Bulkley.  Then  what  is  your  suggestion?  Would  you  suggest 
that  it  would  be  desirable  to  make  it  permissive  for  these  banks  to 
enter  into  State  institutions,  but  not  compulsory? 

Mr.  Jordan.  Our  bill  provides  that  not  only  shall  these  land  banks 
be  organized  as  separate  and  distinct  institutions,  but  that  other 
State  institutions  may  come  into  the  sysem. 

Mr.  Bulkley.  Yes;  but  it  does  not  coordinate  with  them  in  any 
way  because  it  does  net  provide  for  a  larger  unit  to  issue  bonds. 
Xow,  you  say  you  think  a  larger  unit  may  issue  bonds  more  econom- 
ically, and  I  was  trying  to  get  your  idea  as  to  whether  it  would 
be  desirable  to  make  that  compulsory  for  the  banks  to  enter  into  the 
larger  unit  or  merely  permissive? 

Mr.  Jordan.  I  think  that  if  we  had  one  central  bank  in  each  State 
which  would  have  the  right  to  issue  these  bonds  and  market  them  it 
could  be  more  economically  done  and  would  perhaps  attract  more 
investors  than  a  large  number  of  these  banks  limited  in  capital 
seeking  the  same  market. 

Mr.  Bulkley.  Do  you  think  that  these  land-mortgage  bonds  will 
compete,  for  instance,  with  New  York  City  bonds,  which  are  also 
tax  exempt  and  sell  on  a  basis  of  less  than  4i  per  cent  ? 

Mr.  Jordan.  My  belief  is  that  they  would  sell  more  readily. 

Mr.  Bulkley.  Do  you  think  they  would  bring  a  lower  rate  of 
interest  than  the  New  York  City  bonds  ? 

Mr.  Jordan.  I  believe  that  they  would,  because  the  security  offered 
is  better  and  their  method  of  repayment  is  more  attractive.  The 
general  sentiment  among  the  people  of  this  country  is  that  land 
is  the  safest  investment  in  which  money  can  be  put. 

Mr.  Bulkley.  Can  you  justify  that  by  experience?  Did  you  find 
the  bonds  abroad  selling  on  a  basis  of  competition  with  municipal 
bonds  ? 

Mr.  Jordan.  In  Europe  they  do.  They  sell  in  competition  with 
the  best  commerciol  bonds. 

Mr.  Bulkley.  Do  you  not  think  there  is  some  distinction  between  the 
conditions  there  and  here?  Do  you  not  think  that  something  de- 
pends upon  these  securities  being  well  seasoned  ? 

Mr.  Jordan.  Well,  perhaps  so,  but  the  fact  is  nevertheless  true  that 
investors  in  the  land  bonds  in  Europe  regard  them  as  safe  as  Gov- 
ernment bonds. 

Mr.  Bulkley.  Yes ;  but  land  bonds  in  Europe  are  not  in  any  sense 
a  new  thing  as  these  land  bonds  we  are  proposing  here  Avould  be. 
Do  you  think  you  can  start  right  off  at  full  speed  ? 

Mr.  Jordan.  I  believe  you  would.  You  see,  Mr.  Chairman,  land 
in  the  United  States  now  has  a  stable  value.     A  quarter  of  a  century 

37031—14 36 


562  RURAL   CREDITS. 

ago,  with  the  millions  and  millions  of  public  lands  thrown  open  to 
ihe  public,  that  was  not  so,  but  that  gave  land  more  or  less  circula- 
tive  value.  But  those  large  Government  possessions  have  been  home- 
steaded  and  we  have  reached  a  point  in  our  agricultural  development 
in  this  country  where  there  are  no  more  of  these  large  domains  to 
be  thrown  open  to  public  settlement,  and  consequently  the  lands  in 
the  United  States  now  are  becoming  as  stable  as  any  other  well-estab- 
lished security. 

Mr.  Bulkley.  Do  you  think  they  are  as  stable  as  lands  in  France 
or  Germany? 

Mr.  Jordan.  They  are  as  stable;  yes,  sir. 

Mr.  Weaver.  Do  you  mean  all  over  the  country?  Are  you 
familiar  with  the  conditions  in  a  new  country,  for  instance  a  country 
like  Indian  Territory  and  New  Mexico  and  the  southwestern 
country  ? 

Mr.  Jordan.  I  am  not  familiar  with  those  sections. 

Mr.  Weaver.  I  think  your  position  would  probably  be  changed 
if  you  knew  the  conditions  in  that  section  of  the  country  as  well  I  do. 

Mr.  Jordan.  I  am  not  as  familiar  as  you  are. 

Senator  Hollis.  The  plan  is.  to  issue  dollar  for  dollar  of  bonds 
against  the  mortgages ;  that  means  that  the  only  chinking  in  between 
the  bonds  and  the  liability  to  the  mortgagor  is  the  capital  and  sur- 
plus, if  any,  and  reserve,  possibly,  of  these  banks.  Do  you  think 
that  if  the  business  is  done  with  reasonable  care  and  intelligence 
there  will  not  be  any  loss  to  the  banks  through  mortgages  that  are 
not  good  ?     Do  you  think  it  is  possible  to  contemplate  that  ? 

Mr.  Jordan.  It  will  largely  depend  upon  the  appraisement  of 
the  land  offered  for  the  security. 

Senator  Hollis.  Do  you  think  the  appraisement  is  likely  to  be 
done  under  the  terms  of  this  bill  so  that  there  will  not  be  more  or 
less  bad  mortgages  get  through? 

Mr.  Jordan.  I  do,  for  this  reason;  because  the  bank  which  issues 
the  bond  has,  in  addition  to  the  mortgage  security,  all  of  its  capital 
and  surplus. 

Senator  Hollis.  Yes;  I  assume  that.  But  that,  of  course,  would 
only  be  enough  to  take  care  of  one-fifteenth  of  the  outstanding 
bonds  under  this  bill,  unless  they  accumulated  a  surplus;  and  my 
question  is,  judging  from  your  experience,  and  what  you  learned 
in  Europe,  should  you  expect  that  all  these  mortgages  should  turn 
out  to  be  worth  100  cents  on  the  dollar? 

Mr.  Jordan.  I  would.  Now.  if  you  only  lend  50  per  cent  of  the 
appraised  market  value  of  a.nj  improved  lands,  it  appears  to  me 
that  it  is  very  much  safer  than  the  present  rule  of  our  commercial 
banks  in  lending  60  per  cent  of  the  face  value  of  commercial  paper. 

Senator  Hollis.  I  do  not  quite  get  what  you  mean  by  that,  Col. 
Jordan.     They  loan  the  full  value. 

Mr.  Jordan.  No,  sir;  as  a  rule,  they  do  not;  they  only  lend  60  per 
cent  of  the  face  value  of  the  notes  that  are  sent  up  for  rediscount. 

Senator  Hollis.  Oh,  I  see  what  you  mean.  You  mean  redis- 
count? 

Mr.  Jordan.  Yes. 

Senator  Hollis.  That  is  not  what  is  contemplated  under  the 
Federal  reserve  act.  They  are  supposed  to  come  along  at  their 
face  value. 


RUKAL   CREDITS.  563 

Mr.  Jordan.  Then,  clearly  security  placed  upon  land  at  50  per 
cent  of  its  value  is  safer  than  loans  made  upon  a  note  with  double 
security  behind  it  at  100  cents  on  the  dollar. 
Senator  Hollis.  I  think  that  is  apparent. 

Mr.  Bulkley.  Are  you  not  losing  sight  of  the  distinction  that  the 
mortgage  note  is  supposed  to  be  worth  its  face  value,  but  it  is  sup- 
posed to  have  double  security  behind  it,  while  a  commercial  note  is 
supposed  to  be  worth  its  face  value,  but  might  have  one  hundred  times 
its  face  value? 

Senator  Hollis.  I  think  the  people  generally  think  that  a  note  that 
is  secured  by  a  land  mortgage  at  50  per  cent  of  the  fair  appraised 
value  would  be  a  safer  proposition  than  a  commercial  loan.  Fre- 
quently a  man  has  good  commercial  rating  when  he  is  hollow  and 
goes  to  pieces  with  a  shock.  The  land  is  still  there.  The  only 
danger  would  be  that  it  has  been  appraised  too  high. 

Mr.  Bulkley.  The  land  is  more  apparent  than  in  the  case  of  com- 
mercial paper. 

Mr.  Jordan.  This  is  true;  the  bankers  in  the  South  will  tell  you 
that  they  never  lose  any  money  on  loans  made  to  farmers,  and  their 
books  wili  show  it.  as  a  general  rule. 

Senator  Hollis.  You  mean  mortgage  loans  of  both  kinds  ? 

Mr.  Jordan.  Mortgage  loans.  That  is  personal  property  and  also 
land. 

Senator  Hollis.  I  asked  you  because  I  know  you  had  studied  it  in 
a  practical  way  and  had  been  to  Europe.  I  wondered  if  it  was  the 
belief  of  the  commission  that  all  of  these  loans  would  be  good  if  the 
appraisal  was  sound. 

Mr.  Jordan.  I  think  a  great  deal  depends  upon  the  appraisal. 

Senator  Hollis.  Yes;  it  must. 

Mr.  Platt.  You  said  that  farm  land  was  just  as  staple  and  valu- 
able in  this  country  as  in  Germany. 

Mr.  Jordan.  No;  I  did  not  say  that. 

Mr.  Platt.  What  did  you  say? 

Mr.  Jordan.  I  said  they  were  becoming  stable. 

Mr.  Platt.  I  believe  the  gentleman  representing  the  grange  who 
appeared  here  the  other  day  told  us  that  the  farm  he  owned  increased 
in  value  125  per  cent,  although  it  was  not  as  productive  now  as  it 
was  when  he  first  bought.it.  How  do  you  explain  such  conditions 
as  that? 

Mr.  Jordan.  Well,  that  is  true,  in  a  general  way,  all  over  the 
country;  the  values  of  farm  lands  are  increasing  every  year. 

Mr.  Platt.  Without  regard  to  the  productivity  of  the  land? 
Would  you  not  say  that  the  value  would  have  been  at  least  possibly 
largely  speculative? 

Mr.  Jordan.  No,  sir;  not  any  more  so  than  the  increase  of  value 
in  real  estate  in  the  cities  and  towns. 

Mr.  Platt.  When  you  say  that  you  give  the  whole  thing  away, 
because  the  value  of  the  real  estate  in  the  cities  and  towns  is  very 
often  very  largely  speculative. 

Mr.  Jordan.  Not  the  normal  increase. 

Mr.  Platt.  If  lands  will  increase  in  value,  as  they  have  in  a  great 
many  parts  of  the  country,  more  than  100  per  cent,  without  any 
regard  to  the  increased  productivity,  is  it  going  to  be  always  safe  to 
loan  50  per  cent  on  that  land? 


564  RURAL  CREDITS. 

Mr.  Jordan.  T  think  if  i<  continues  to  increase  it  will  be  very  safe. 

Mr.  Plait.  In  other  words,  the  higher  you  can  get  the  land  up  the 
safer  it  will  be  to  loan  50  per  cenl  on  it  \ 

Mr.  Jordan.  The  value  of  lands  in  this  country  is  far  behind  the 
value  in  other  great  agricultural  countrie 

Mr.  Van  Cortlandt.  Will  you  permit  me  to  make  a  statement? 

Mr.  Bulklky.  Yes. 

Mr.  Van  Cortlandt.  It  seems  to  me  that  the  question  is  whether 
this  is  the  time  to  form  these  banks;  whether  through  the  increase  of 
population  and  wealth  of  this  country  land  values  are  sufficiently 
stable.  Undoubtedly  30  or  40  years  ago  I  do  not  think  you  could 
have  founded  these  banks,  because  land  was  very  unstable,  owing  to 
small  population  and  small  wealth.  Now  we  are  approximating 
conditions  in  Europe,  which  means  the  greatest  stability  of  land. 
You  can  not  use  land  for  banking  and  credit  if  the  fluctuations  in 
value  are  too  violent,  because  if  you  were  to  loan  a  reasonable  amount 
on  it  it  might  decrease  in  \  alue  and  you  would  lose,  and  the  loan 
would  not  be  good.  But  it  seems  to  me  now  that,  at  least  in  a  great 
many  States,  we  have  reached  the  point  where  land  would  not  fluc- 
tuate too  violently,  so  that  a  loan  based  on  a  reasonable  appraise- 
ment of  the  value  of  the  land  would  be  quite  safe. 

Mr.  Seldomridge.  Do  you  not  think  general  appraisement  of  the 
land,  such  as  would  be  provided  for  in  the  operation  of  this  system, 
would  have  a  tendency  to  stability  of  value  of  farm  lands  ? 

Mr.  Van  Cortlandt.  I  think  this  system  of  banks  would  tend  to 
stability  of  land  values,  and  in  that  way  would  help  that  very  thing. 
That  is  necessary  for  the  banks.  The  two  things  would  work  in  with 
each  other.  If  3rou  can  make  it  easier  to  borrow,  easier  to  mortgage 
land,  that  will  tend  to  stabilize  it,  and  it  will  bring  in  large  amounts 
of  money  that  does  not  come  in  now. 

Mr.  Seldomridge.  Are  you  sufficiently  familiar  with  the  value  of 
farm  lands  that  you  would  yourself  state  as  a  general  proposition 
that  you  think  farm  land  is  too  high  in  this  country  or  too  1owt  '. 

Mr.  Van  Cortlandt.  That  would  depend  upon  the  yield  that  you 
can  get  out  of  it,  so  that  question  would  depend  very  largely  on  the 
locality. 

Mr.  Seldomridge.  There  has  been  a  general  advance  on  all  products 
of  the  farm  to  an  amazing  degree. 

Mr.  Van  Cortlandt.  This  brings  up  the  point  that  I  have  seen 
in  the  testimonj',  that  this  may  be  bad  because  it  would  tend  to 
bring  about  speculation  in  land,  and  tend  to  raise  the  price  of  land; 
but  I  do  not  attach  any  great  importance  to  that,  if  through  this 
system  you  can  raise  twice  as  much  on  the  land  so  that  on  a  price  of 
$500  an  acre  you  can  get  G  per  cent  or  8  or  10  per  cent  interest  on 
$200  an  acre.  It  seems  to  me  that  a  country  is  great  according  to  its 
resources.  Countries  have  to  compete  with  other  countries.  If  we 
can  increase  values  in  this  country,  giving  us  greater  wealth  and 
greater  credit,  as  long  as  it  is  a  sound  value — and  it  is  sound  if  the 
price  which  you  pay  will  yield  you  a  reasonable  income — that  then  you 
can  not  say  that  there  is  any  objection  to  land  selling  at  $500  an  acre, 
or  even  more.  For  instance,  I  was  in  Oldenberg,  in  the  northern  part 
of  Germany,  and  I  figured  out  there  from  what  they  got  from  their 


BUBAL   CBEDITS.  565 

land,  that  that  land  would  undoubtedly  be  worth  about  $800  an  acre. 
It  seems  to  me  that  if  I  had  told  those  people  up  there  that  it  was  a 
bad  thing  for  their  land  to  be  worth  $800  an  acre,  that  it  would  be 
much  better  to  be  worth  $200  an  acre,  they  would  have  thought  we 
Americans  were  a  queer  people. 

Mr.  Platt.  Then  you  base  your  appraisement  of  land  upon  the 
yield.  I  was  wondering  whether  it  was  based  on  the  productivity  of 
the  land. 

Mr.  Van  Cortlandt.  That  is  the  sound  way  to  base  an  appraise- 
ment of  land,  under  reasonable  conditions. 

Mr.  Platt.  Without  regard  to  its  selling  value  at  all  ? 

Mr.  Van  Coktlandt.  The  farming  land;  yes — of  course,  the  selling 
value — of  course,  farm  land  within  10  miles  of  a  city  has  a  speculative 
value,  and  is  influenced  by  conditions  that  are  special,  but  naturally 
the  proper  way  to  appraise  farming  lands  is  what  it  will  return  under 
ordinary  good  cultivation  in  an  ordinary  year. 

Mr.  Bulkley.  Col.  Jordan,  have  you  prepared  some  more  remarks  ? 

Mr.  Jordan.  I  would  like  to  say,  the  gentleman  said  that  real  estate 
values  in  cities  are  entirely  speculative.  I  want  to  say  that  it  is  not 
at  all  difficult  to  procure  loans  at  50  per  cent  of  the  market  value 
of  real  estate  from  our  large  insurance  companies  and  savings  banks 
and  institutions  of  that  kind,  whereas,  it  is  not  carried  on  so  exten- 
sively in  regard  to  our  farm  lands.  So  it  appears  that  the  lenders 
of  money  are  not  worried  about  the  speculative  values  of  city  real 
estate. 

Mr.  Platt.  Here  in  the  city  of  Washington  only  a  few  months 
ago  the  Comptroller  of  the  Currency  went  to  work  and  marked  down 
the  values  of  certain  real  estate,  and  pretty  nearly  ruined  a  trust 
company  which  had  to  be  gobbled  up  by  another  in  order  to  keep 
itself  on  earth. 

Mr.  Jordan.  I  suppose  that  was  due  to  appraisement. 

Mr.  Platt.  The  appraisement  was  all  right,  when  it  was  made,  ap- 
parently. I  have  got  some  town  lots  now  that  I  would  like  to  trade 
off  for  a  few  mules.  % 

Mr.  Bulkley.  Mr.  Platt,  are  we  not  getting  into  a  matter  upon 
which  there  might  be  some  difference  of  opinion  which  is  rather 
afield  from  our  subject  matter? 

Mr.  Platt.  Possibly  so. 

Mr.  Jordan.  Mr.  Chairman,  the  question  of  short-time  personal 
credit  banks  is  a  matter  which  our  commission  now  has  under  in- 
vestigation, and  we  hope  to  be  able  to  draft  some  suggestions  along 
that  line. 

Mr.  Bulkley.  Can  you  tell  us  whether  you  are  in  favor  of  having 
the  same  institution  handle  both  long  and  short  term  credits  ? 

Mr.  Jordan.  I  can  not  find  any  institution.  Mr.  Chairman,  where 
that  business  has  ever  been  done.  That  would  be  entirely  specula- 
tive. 

Mr.  Woods.  Col.  Jordan,  is  not  that  done  by  State  banks? 

Mr.  Jordan.  No,  sir;  I  think  not — that  is.  not  under  my  obser- 
vation and  experience. 

Mr.  Woods.  All  through  the  Mississippi  Valley  it  is  done  entirely 
by  State  banks,  and  I  think  largely  all  through  the  West. 


566  RURAL   CREDITS. 

Mr.  Jordan.  I  do  not  know  of  any  bank  doing  a  short-time  com- 
mercial business  and  taking  short-time  deposits  which  could  afford 
to  go  into  the  business  of  making  long-term  loans. 

Mr.  Woods.  They  do  that  entirely  with  a  certain  extent  of  their 
money  in  the  Mississippi  Valley  and  all  through  the  West. 

.Mi.  Jordan.  Perhaps  so.  I  think  that  right,  to  a  certain  extent, 
is  being  given  by  the  new  currency  law  to  national  banks.  I  am  not 
prepared  to  state  positively  just  what  would  be  best  in  regard  to 
that  matter.  Undoubtedly  there  is  absolute  necessity  for  some  sys- 
tem by  which  all  cooperative  farm  banks  can  be  organized  for  the 
handling  of  short-term  personal  credit.  If  something  of  that  kind 
is  not  done  undoubtedly  this  countiy  will  continue  to  increase  in 
tenantry,  which  is  a  bad  thing  for  agriculture.  My  idea  is,  that  if 
you  develop  a  system  of  small  cooperative  national  banks  with  a 
couple  of  thousand  dollars  each,  to  be  organized  in  communities  of 
farmers  for  the  purpose  of  handling  short-term  personal  paper,  that 
these  small  institutions  may  be  in  some  way  connected  with  the  State 
farm-land  bank  and  the  national  farm-land  bank,  located  in  that 
State,  so  far  as  it  relates  to  the  handling  of  loans  in  that  particular 
community.  But  it  appears  to  me  it  would  be  much  better  to  con- 
nect those  small  banks,  in  the  handling  of  their  short-term  paper, 
with  the  regional  bank,  because  the  regional  bank  is  engaged  in  that 
particular  line  of  business  and  not  the  farm-land  bank,  except  to  a 
limited  extent.  There  is  a  very  great  demand  in  this  country  for 
those  small  cooperative  farmers'  banks.  It  is  almost  impossible  for 
a  tenant  to  ever  become  other  than  a  tenant  under  our  present  system 
of  finance.  In  the  South,  particularly,  and  more  particularly  in 
the  old  States,  the  tenant  is  supplied  by  the  supply  merchant  at  an 
enormous  rate  of  interest,  and  it  presents  no  hope  that  he  can  ever 
accumulate  enough  money  out  of  his  yearly  earnings  to  purchase  a 
farm  and  pay  for  it.  As  a  general  rule,  if  he  breaks  even  at  the 
end  of  the  year  it  is  the  best  that  he  can  do.  For  that  reason  we  find 
that  the  prize  boys  and  girls  on  the  farm  are  drifting  to  the  towns 
and  cities,  and  it  is  due  almost  entirely  to  the  absence  of  some  system 
of  finance  which  will  enable  the  farmer  to  operate  his  farm  upon  a 
profitable  basis.  I  believe  in  that  regard  that  there  is  room  for 
Federal  aid  in  the  establishment  of  homesteads  for  people  who  are 
now  operating  as  tenants. 

Mi-.  Bulexey.  What  would  be  your  suggestion  for  carrying  that 
out  ? 

Mr.  Jordan.  As  I  stated  a  few  moments  ago.  it  is  a  matter  which 
we  are  now  considering,  and  we  have  not  arrived  at  any  definite  or 
positive  conclusion,  and  for  that  reason  I  would  prefer  not  to  enter 
into  any  detailed  discussion  of  it  at  this  time.  But  undoubtedly  I 
think  that  a  system  of  that  kind  should  be  put  into  operation.  In 
fact,  it  is  a  necessity.  I  regard  it  of  greater  necessity  than  the 
organization  of  farm-land  banks,  but  I  believe  that  the  farm-land 
bank  must  come  first. 

Mr.  Bulkley.  You  do  not  mean  that  you  propose  to  have  them 
both  taken  care  of  in  the  same  legislation  ? 

Mr.  Jordan.  Not  if  it  could  be  operated  upon  a  practical  basis. 

Mr.  Bulklev.  You  are  not  prepared  to  say  whether  or  not  it 
could  be? 


KUEAL   CREDITS.  567 

Mr.  Jordan.  No;  because  I  know  of  no  system  which  has  been 
operated  successfully  along  that  line,  except  to  a  very  limited  extent. 

Mr.  Hayes.  Perhaps  the  gentleman  does  not  understand.  He 
refers,  I  take  it,  to  two  systems,  but  provided  for  in  the  same  bill. 

Mr.  Bulkley.  Yes.  I  do  not  mean  necessarily  that  the  two  func- 
tions should  be  performed  by  the  same  institution,  but  that  the  two 
systems  might  be  taken  care  of  under  the  same  act. 

Mr.  Jordan.  Under  the  same  general  law. 

Mr.  Bulkley.  Yes. 

Mr.  Jordan.  Well,  I  think  that  might  be  done  under  the  same 
general  law. 

Senator  Hollis.  The  trouble  is,  Col.  Jordan,  that  you  do  not  know 
whether,  from  the  information  that  you  have,  they  can  operate 
under  the  same  system  here  until  they  know  more  about  it?  Is  that 
really  it? 

Mr.  Jordan.  I  could  not  act  intelligently  on  that  matter  until  I 
knew  what  would  be  the  purview  of  the  small  cooperative  bank.  If 
it  is  to  be  done  upon  the  unlimited  liability  idea,  I  believe  it  is 
absolutely  impossible  in  the  South.  I  do  not  know  how  it  might  be 
in  the  Middle  West. 

Mr.  Weaver.  Can  you  give  us  any  idea  when  your  commission  will 
have  its  suggestions  and  report  ready  in  regard  to  the  credit,  which 
it  is  studjdng  now  ? 

Mr.  Jordan.  No,  sir;  I  can  not.  Of  course,  we  want  to  prepare  it 
at  the  earliest  possible  date. 

Mr.  Kagsdale.  What  is  your  idea  there  about  recommending  that 
the  loans  be  limited  to  a  particular  State? 

Mr.  Jordan.  I  think  that  is  wise. 

Mr.  Ragsdale.  Why? 

Mr.  Jordan.  Because  of  the  different  laws  in  the  different  States. 

Mr.  Ragsdale.  But  the  people  who  are  loaning  the  most  money  in 
this  country,  it  seems  to  me,  from  what  I  know,  on  lands  are  not  con- 
fining it  to  any  one  State,  and  the  land  loans  that  are  made  to-day 
are  made  bv  people  who  loan  them  in  different  States.  Is  that  not 
true? 

Mr.  Jordan.  That  may  be  true  where  the  institution  is  loaning  the 
money  itself. 

Mr.  Ragsdale.  But  is  not  this  system  loaning  its  money  itself  ? 

Mr.  Jordan.  Here  you  are  authorizing  the  institution  to  issue 
bonds  predicated  upon  mortgages  secured  to  be  floated  in  a  general 
market,  and  a  bond  issued  by  that  institution  should  be  of  a  general 
character. 

Mr.  Ragsdale.  But,  now,  do  you  not  think,  for  instance,  the  con- 
suming public,  you  might  say,  of  these  bonds  will  be  located  to  a  large 
extent  in  the  large  cities?  Do  you  not  believe  that  they  would  be 
more  apt  to  purchase  those  bonds  if  they  were  purchased  through 
their  local  bankers  or  people  that  they  know,  rather  than  through  a 
bank  in  the  South  on  southern  properties? 

Mr.  Jordan.  Perhaps  these  farm-land  banks  will  have  agencies 
for  the  purpose  of  distributing  those  bonds  in  various  investment 
centers. 

Mr.  Ragsdale.  But  do  you  think  that  it  would  be  wise  to  say  that 
a  municipality  should  sell  its  bonds  only  through  banks  in  its  State — 


568  RURAL  CREDITS. 

that  they  only  should  handle  them?    Has  it  not  been  shown  that  in 
the  greater  number  of  instances  the  municipal  bonds  have  been  pur 
chased  by  banks  in  other  States?    Do  you  not  think  that  the  farmer 
in  the  sale  of  his  bonds  is  entitled  to  the  same  competition  and  the 
same  market  that  the  municipalities  are? 

Mr.  Jordan.  I  do  not  think  that  this  bill  provides  that  shall  not 
be  done.  On  the  contrary,  I  think  that  this  bill  provides  that  those 
banks  can  have  distributing  agencies. 

Mr.  Ragsdale.  On  page  3  of  this  report  (H.  Doc.  No.  <i7f>).  it  says: 

In  consequence  the  commission  has  concluded  that  while  competitive  banking 
should  be  encouraged,  yet  the  loans  of  each  bank  should  be  limited  to  one  State. 

Mr.  Jordan.  That  is  the  loan.  That  only  refers  to  the  mortgage 
and  has  nothing  whatever  to  do  with  the  bond. 

Mr.  Ragsdale.  "When  you  come  right  down  to  it,  what  is  the  essen- 
tial difference  between  a  bond  and  a  mortgage? 

Mr.  Jordan.  It  was  stated  in  section  4A 


That  any  national  farm-land  bank  may,  with  the  consent  of  the  commis- 
sioner of  farm-land  banks,  maintain,  either  within  the  State  within  which  it  is 
operating  or  elsewhere,  sales  agents  or  agencies  for  the  sale  of  its  national  land- 
bank  bonds  or  for  trading  in  the  same. 

Mr.  Ragsdale.  I  realize  that,  that  after  having  acquired  it  it  may 
avail  itself  of  the  right  of  competition  to  sell  it,  but  why  should  not 
the  farmer  be  entitled  to  the  same  competition  when  he  sells  his 
bonds  ? 

Mr.  Jordan.  All  of  those  bonds  offered  for  sale  are  bonds  which 
have  been  issued  on  security  put  up  by  the  farmer. 

Mr.  Ragsdale.  That  is  true.  Why  should  not  outside  bankers  come 
in  and  buy  that  originally  instead  of  going  through  a  local  bank  to 
do  it,  if  they  want  to  do  it? 

Mr.  Jordan.  I  say  that  they  could  do  it.  Anybody  could  buy  those 
bonds. 

Mr.  Ragsdale.  But  you  recommend  that  there  should  be  no  loans 
made  by  a  bank  other  than  in  its  own  State. 

Mr.  Jordan.  That  is  confining  its  business  in  regard  to  loans  with- 
in its  own  State.  That  was  done  because  of  the  difference  in  State 
laws. 

Mr.  Ragsdale.  But  is  it  not  a  very  easy  matter,  and  do  you  not 
know  that  the  big  lending  institutions  in  America  have  a  legal  de- 
partment that  familiarizes  itself  with  the  laws  of  all  the  States?  If 
they  are  going  to  consume  these  bonds  and  then  sell  them  through 
the  North,  they  would  have  to  know  the  lending  laws  of  each  State, 
and.  if  they  did  that,  why  should  not  they  come  and  compete  with 
the  local  bankers  in  the  purchase  of  those  bonds? 

Mr.  Jordan.  I  do  not  think  that  it  would  be  wise  to  have  these 
farm-land  banks  operating  all  over  the  United  States. 

Mr.  Ragsdale.  Is  it  not  a  fact  that  where  the  greatest  amount  of 
these  farm-land  loans  will  be  made  will  be  in  communities  where 
there  is  no  money? 

Mr.  Jordan.  That  covers  a  pretty  good  section  of  the  Nation. 

Mr.  Ragsdale.  Yes,  sir.  Well,  why  is  it  that  we  should  shut  the 
money  centers  out  of  coming  in  there  and  competing  in  the  purchase 
of  those  bonds? 


RURAL  CREDITS.  569 

Mr.  Jordan.  They  are  not  shut  out. 

Mr.  Platt.  Anybody  can  buy  the  bonds. 

Mr.  Ragsdale.  They  can  buy  the  bonds,  but  the  lending  banks  can 
not  lend  down  there. 

Mr.  Moss.  The  interest  on  the  mortgage  is  fixed  by  the  interest  on 
the  bonds — that  is,  the  bank  can  not  lend  on  the  mortgage  at  a  rate 
1  per  cent,  at  least,  higher  than  what  it  sells  its  own  bonds.  There- 
fore, having  fixed  a  free  competitive  market  for  the  bonds  anywhere 
in  the  United  States,  fixing  at  the  same  time  the  free  competitive 
rate  upon  the  mortgages,  in  the  proposed  case,  the  interest  upon  the 
bonds  limits  the  interest  upon  the  mortgages. 

Mr.  Ragsdale.  Granted  that  is  true,  where  is  the  wisdom  of  saying 
that  a  bank  in  New  York,  having  thoroughly  satisfied  itself  as  to  the 
value  of  the  property  and  the  conditions  surrounding  the  loan — what 
is  the  wisdom  of  saying  that  that  money  center  shall  not  loan  money 
down  in  my  district? 

Mr.  Seldomridge.  There  is  no  reason  at  all,  but  it  can  issue  no 
bonds  at  all  against  it. 

Mr.  Ragsdale.  But  the  recommendation  on  page  3  is  that  each 
bank  shall  be  confined  to  its  own  State  in  making  loans. 

Mr.  Seldomridge.  That  is  the  bond-issuing  bank.  In  other  words, 
the  bank  of  Georgia  shall  not  be  allowed  to  issue  bonds  or  mortgages 
in  South  Carolina.  That  each  State  bank  should  be  back  of  its  bonds 
of  its  own  particular  State. 

Mr.  Ragsdale  (reading)  : 

The  land-bank  bonds  issued  by  such  bank  on  mortgages  or  deeds  of  trust  on 
lands  in  a  single  State,  where  the  general  provisions  regarding  conveyancing, 
registration,  foreclosure,  taxation,  exemption,  etc.,  are  the  same,  would  form 
an  ideal  kind  of  investment  at  home  and  abroad. 

It  would  make  very  little  difference,  if  I  were  running  an  insti- 
tution in  New  York,  whether  the  investigation  I  should  have  to 
make  should  be  subject  to  the  laws  of  Arizona  or  New  Mexico  or 
Texas,  or  the  laws  in  Massachusetts.  It  is  something  that  would 
be  governed  by  legal  interpretation,  and  a  legal  mind  could  pass 
upon  the  laws  of  one  State  as  well  as  another. 

Mr.  Moss.  There  is  absolutely  nothing  in  this  bill  to  prohibit  a 
bank  in  New  York  or  in  Chicago  or  in  any  other  money  center  from 
loaning  money  in  any  State  in  the  Union,  just  as  they  are  doing 
to-day.  The  only  proposition  is  it  will  simply  make  another  agency, 
and  this  particular  agency  is  confined  in  its  loans  to  its  own  State. 
Outside  persons  can  go  up  against  the  land  bank  if  it  cares  to  do 
any  loaning. 

Mr.  Ragsdale.  Land  banks  in  South  Carolina,  as  I  understand 
it,  would  be  the  only  banks  that  could  issue  bonds  in  South  Caro- 
lina under  this  recommendation. 

Mr.  Jordan.  That  is  true. 

Mr.  Ragsdale.  And  the  same  thing  would  apply  to  Georgia  and 
to  other  States? 

Mr.  Jordan.  Yes. 

Mr.  Ragsdale.  Where  is  the  wisdom  of  that?  If  the  security 
upon  which  it  is  issued  is  finally  the  land,  and  if  the  land  bank  in 
South  Carolina  had  gone  a,s  far  as  it  should  go  in  making  its  loans 
or  it  well  could  go,  if  for  any  other  reason  its  powers  for  making 


570  RURAL    CREDITS. 

loans  should  become  impaired  under  this  bill,  no  relief  could  be 
given  by  land  banks  in  any  other  State,  even  if  they  wished  to  do  so. 

Mr.  Moss.  It  can  invest  its  money  in  other  land  banks. 

Mr.  Ragsdale.  That  is  true:  but  would  that  not  fall  as  an  addi- 
tional hardship  upon  some  other  person?  The  man  that  gets  that 
money  finally  is  going  to  pay  for  it. 

Mr.  Moss.  I  can  only  answer  that  of  course  we  merely  made  that 
suggestion  to  the  committee  and  put  it  in  here,  and  of  course  that 
is  subject  to  discussion  as  to  whether  it  is  wise  or  unwise. 

Mr.  Ragsdale.  That  is  what  we  are  debating. 

Mr.  Moss.  All  conveyances  of  land  titles  and  all  property  in  land 
is  held  under  State  law.  Now,  those  laws  applicable  to  liens  upon 
land  in  anjr  way  differ  in  the  different  States. 

Mr.  Uagsdale.  That  is  true  of  municipalities  also. 

Mr.  Moss.  That  being  true,  it  seemed  to  the  commission  that  the 
State  was  a  natural  unit  under  which  all  of  the  land  in  that  State 
would  be  controlled  under  a  common  law,  therefore  that  the  bonds 
that  are  issued  by  any  banks — not  the  mortgages,  but  the  bonds — 
should  be  based  upon  securities  held  under  the  same  law.  Now, 
that  is  just  a  suggestion  on  the  part  of  the  commission,  and  having 
as  a  State  fixed  that  the  interest  upon  the  mortgage  is  controlled  by 
the  bond,  and  giving  the  bond  the  widest  possible  competition,  you 
have  brought  in  competition  on  the  mortgage.  That  is  as  far  as 
the  commission  goes,  and  it  just  submits  that  for  what  it  is  worth. 

Mr.  Ragsdale.  I  understand  that  this  commission  has  made  its 
recommendation  after  investigation,  and  I  am  trying  to  find  out  just 
why  it  made  this  recommendation.  In  other  words,  I  differ  with 
this  recommendation. 

Mr.  Moss.  It  made  it  precisely  as  I  said,  namely,  that  it  is  the  law 
of  the  State  that  gives  title  and  permits  the  conveyancing  and  per- 
mits the  pledging  of  real  estate  as  security,  and  it  is  very  well  known 
that  in  48  States  there  are  48  systems  in  the  matter,  and  it  seemed  to 
the  commission  that  as  large  as  our  States  are  in  themselves,  in  area 
being  equal  to  European  countries,  it  would  be  no  hardship  to  make 
a  State  the  natural  unit,  and  it  was  most  advantageous  to  do  so.  I 
think  I  may  state  that  is  the  conclusion  upon  which  the  report  was 
made.     There  is  no  other  reason. 

Mr.  Bulkley.  Is  that  your  view.  Col.  Jordan? 

Mr.  Jordan.  Yes,  sir. 

Mr.  Coulter.  I  think  there  is  one  other  very  good  reason,  which  is 
just  a  reason  of  natural  economic  law  entirely  aside  from  any  tech- 
nical legal  restriction  and  limitation.  Your  institution  loans  money 
to  farmers  in  48  States.  \Ye  will  say  you  start  an  institution  and 
lend  money  in  48  different  States,  and  you  have  48  types  of  mort- 
gages and  deeds  of  trust  and  vendors'  liens,  and  then  you  issue  a 
bunch  of  bonds  upon  this  miscellaneous  potpourri  of  instruments, 
and  then  let  us  say  that  you  start  selling  these  bonds.  The  investor 
is  going  to  say  "What  is  back  of  these  bonds?  "  And  you  say  "Oh. 
there  i>  a  piece  of  land  up  on  a  rocky  mountain  side  in  Colorado, 
there  is  a  piece  of  good  farm  land  down  here  in  Illinois,  there  is  some 
everglade  land  down  in  Florida,  and  there  is  a  nice  piece  of  cotton 
land  down  in  South  Carolina."  and  you  go  on  through  the  series. 
He  says.  "Now.  what  if  this  institution  gets  up  against  it  in  hard 


RURAL  CREDITS.  571 

times  and  I  want  to  get  rid  of  my  bonds?  "  You  say,  "Well,  there 
are  all  these  farm  lands  back  of' it."  He  says,  "Do  I  go  out  then 
and  try  to  foreclose  under  48  different  State  laws,  and  go  through  all 
that  process?  '' 

Your  bonds  will  sell,  I  venture  to  say,  much  better  if  they  are 
based  upon  instruments  of  any  one  individual  State.  If  the  inves- 
tor buys  bends  in  Minnesota  he  knows  the  Minnesota  laws.  If  he 
buys  bonds  under  the  laws  of  South  Carolina  he  knows  the  South 
Carolina  laws.  He  knows  that  all  mortgages  back  of  that  particular- 
set  of  bonds  are  of  one  type.     I  believe  that  that  is  true. 

Mr.  Bulkley.  I  suggest  that  Dr.  Coulter  has  had  a  hearing  before 
the  committee  and  we  would  like  to  hear  him  again,  and  while  we 
would  like  to  have  these  discussions  free  and  we  would  like  to  have 
those  sitting  on  the  side  to  contribute  from  time  to  time,  yet  I  should 
regret  getting  into  a  long  argument  with  Dr.  Coulter  at  this  time. 

Mr.  Coulter.  I  do  not  think  it  is  necessary,  but  I  think  this  is  a 
point  of  importance. 

Mr.  Eagsdale.  After  this  much  has  gone  into  the  record  I  should 
like  to  have  my  views  go  into  the  record. 

Mr.  Bulkley.  Do  you  not  think  that  others  have  a  right  to  present 
their  views? 

Mr.  Eagsdale.  Col.  Jordan  has  a  right  to  express  his  views,  but  if 
evidence  is  produced  here  to  support  his  theory  I  think  the  whole 
views  ought  to  be  brought  out. 

Mr.  Eeporter,  you  need  not  take  this  down. 

(Informal  discussion  followed.) 

Mr.  Bulkley.  Have  you  anything  further,  Col.  Jordan? 

Mr.  Jordan.  I  have  expressed  myself  about  as  fully  as  I  care  to  in 
regard  to  the  bill  which  we  suggested,  and  as  I  stated  further,  I 
appreciate  the  absolute  necessity  of  some  system  of  Federal  aid  in 
the  organization  of  small  short-time  personal-credit  banks;  still  I 
would  not  like  to  discuss  that  phase  of  the  business  fully  at  this  time, 
because  our  commission  is  undertaking  to  prepare  some  suggestions 
for  your  committee  along  that  line.  So  I  prefer  to  confine  myself 
almost  entirely  to  the  discussion  of  these  farm-land  mortgage  banks. 

Unless  there  are  some  additional  questions  that  the  committee 
would  like  to  ask  me,  I  have  nothing  more  to  say,  sir. 

Mr.  Woods.  Are  you  a  member  of  the  Southern  Commercial  Con- 
gress ? 

Mr.  Jordan.  Yes,  sir ;  I  am  a  director  of  it. 

Mr.  Woods.  That  is  the  American  commission  that  you  are  speak- 
ing of  as  having  this  matter  of  short-time  credit  under  consideration? 

Mr.  Jordan.  No,  sir;  the  United  States  commission.  I  am  also  a 
member  of  the  American  commission. 

STATEMENT  OF  GERARD  M.  J.  BADOW,  CHICAGO,  ILL. 

Mr.  Bulkley.  Will  you  give  your  name  and  occupation  to  the 
stenographer  ? 

Mr.  Badow.  Gerard  M.  J.  Badow,  Chicago,  111:,  formerly  vice 
president  of  the  American  Investment  Co.,  of  Oklahoma  City,  with 
offices  at  Chicago,  111.;  now  a  special  contributor  to  the  Chicago 
Evening  Post,  Eand  McNally  Bankers'  Monthly,  and  the  Investment 


572  RURAL   CREDITS. 

New.-,  which  Frank  M.  Huston,  financial  editor  of  the  Chicago 
Evening  Post,  and  Auguste  C.  Babize  began  publishing  January  5, 
1914.  I  am  perhaps  best  known  as  a  statistician  and  writer  on  land- 
credit  subjects,  articles  of  mine  having,  for  instance,  been  asked  for 
by  a  French  bank,  and  having  caused  the  archive  and  bureau  of 
international  land-credit  statistics  of  Germany  to  authorize  me  to 
act  as  its  correspondent  for  the  United  States.  In  addition  to  that, 
I  act  -  ounsellor  of  publicity  to  mortgage-loan  institutions.  If 
•you  permit.  I  will  go  a  little  further.  I  came  to  the  United  States 
in  1901  from  Germany.  After  having  taught  school  a  little  while 
here  I  made  a  connection  with  a  certain  financial  paper  which  sent 
me  our  West  to  interview  and  see  farm-loan  men  and  get  their  views 
as  to  farm-loan  conditions,  etc.,  and  incidentally  get  their  money  for 
advertising.  I  did  both,  with  a  certain  degree  of  success,  and  when- 
ever I  had  my  man's  money  I  usually  sat  down  for  an  hour  or  two 
to  discuss  rural  conditions  in  that  locality.  When  I  got  back  to  my 
hotel  I  got  my  little  card  index  out  and  put  down  everything  I  had 
heard.  In  that  way  I  acquired  a  knowledge  of  local  conditions  in 
some  20  States,  intrinsically  local  conditions,  so  that,  for  instance, 
in  Oklahoma  I  had  at  one  time  facts  and  figures  in  regard  to  75  per 
cent  of  the  counties  of  the  State. 

Some  four  years  ago,  after  just  having  received  my  check  for  an 
advertising  contract,  I  was  offered,  by  an  Oklahoma  law  concern,  a 
position  to  sell  their  farm  loans  in  the  East,  and  after  some  time  I 
finally  concluded  to  do  that.  This  was  the  American  Investment  Co., 
mentioned  before,  one  of  the  best  concerns  in  the  Southwest.  They 
made  me  vice  president  of  the  concern,  and  I  spent  some  time  on  the 
farms  there  and  looked  over  the  territory,  got  familiar  with  their 
methods  of  making  loans,  and  finally  went  out  to  Chicago,  opened 
an  office,  and  began  to  sell  farm  loans.  During  the  summer  time  I 
went  to  the  New  England  States,  called  on  every  savings  bank  in 
the  States  of  Vermont  and  New  Hampshire,  and  some  in  New  York, 
Massachusetts,  Connecticut,  and  Rhode  Island. 

In  spite  of  my  success  and  the  eagerness  with  which  our  mortgages 
were  bought,  I  could  not  help  but  notice  the  handicaps  under  which  a 
careful  investor  places  his  money  in  that  class  of  security.  The 
time  it  takes  for  him  to  acquire  that  knowledge  of  the  standing  and 
methods  of  the  very  best  loan  concerns,  to  enable  him  to  place  his 
confidence  wisely.  The  difficulty  of  distributing  his  farm-loan  in- 
vestment funds,  geographically,  so  as  to  scatter  them  over  several 
States  without  having  to  deal  with  a  half  dozen  or  more  concerns 
and  employ  perhaps  as  many  lawyers  and  title  experts. 

I  also  noticed  the  difficulty  of  supplying  investors  with  loans. of 
certain  denominations,  certain  rates  of  interest  demanded,  which  were 
always  higher  than  we  could  offer  on  the  class  of  securities  we 
handled.  In  addition  to  that  I  lost  several  sales  because  I  could  not 
supply  enough  loans  of  our  standard  to  take  care  of  large  invest- 
ments, or  investments  that  were  to  cover  several  States. 

In  a  general  way  I  maintain,  and  I  am  absolutely  positive  that 
the  whole  trouble  with  land  credit  conditions  to-day — and  that  means 
the  dearth  of  money,  the  rate  of  interest,  and  so  on — is  nothing  but 
the  consequence  of  an  insufficiency  of  market  for  the  security  which 
the  farmer  offers  and  the  reason  for  this  insufficiency  of  market  is  not 


RURAL   CREDITS.  ■  573 

only  the  form  in  which  farm  loans  are  usually  offered,  nut  only  the 
variety  of  laws  governing  the  business,  but  also  the  variety  of  other 
securities,  with  which  the  American  market  is  clogged,  quite  in  con- 
trast to  the  European  market,  which  is  comparatively  free  from 
municipal  and  railroad  and  also  some  classes  of  public-utility  se- 
curities. 

Now,  after  I  had  been  connected  with  that  loan  concern  for  some 
time,  these  facts  became  sort  of  oppressing  to  me,  so  much  .so  that  I 
eventually  resigned  my  position  and  went  to  work  with  the  idea. of 
organizing  a  model  land-credit  bank  in  Chicago. 

This  bank,  the  Central  Farm  Mortgage  Bond  &  Trust  Co.,  was 
to  have  a  paid-in  capital  of  $1,000,000  and  a  surplus  of  $250,000. 
It  was  to  follow  existing  lines  of  operations  in  the  loan  business, 
was  to  make  use  of  existing  banks  and  loan  concerns  as  correspond- 
ents, and  intended  operating  in  as  many  States  as  its  capital  per- 
mitted, selling  loans  acquired  in  their  original  form  or  depositing 
them  in  trust  to  form  the  basis  of  central  land-credit  bonds,  issued 
to  net  5  per  cent. 

No  loan  concern  or  bank  having  less  than  10  years'  experience 
or  less  than  $50,000  actual  resources  was  to  be  dealt  with  for  the 
time  being.  All  loans  were  to  be  made  on  a  uniform  application 
blank  such  as  I  had  prepared  by  combining  the  best  features  of  some 
150  application  blanks,  collected  from  the  most  successful  loan  con- 
cerns, life  insurance  companies,  and  banks  This  application  blank, 
by  the  way,  after  its  completion,  was  passed  upon  by  the  foremost 
authorities  in  the  business  and  pronounced  the  most  complete  and 
practical  blank  ever  devised. 

Our  correspondents  were  required  to  subscribe  to  an  agreement 
by  which  any  security  found  upon  reinspection  by  our  bank  to  be 
different  in  fact  from  statements  made  to  us  was  to  be  cashed  back 
at  face,  accrued  interest,  plus  a  penalty.  Reoccurrence  of  such  mis- 
statement, or  even  unintentional  error,  would  have  meant  an  imme- 
diate severance  of  our  relations  with  such  correspondent.  We  pro- 
vided for  this  contingency,  although  we  would  never  have  expected 
to  use  this  provision.  The  concerns  we  had  in  view  have  agreed  to 
do  this  of  their  own  free  will  for  years,  but  during  their  activity, 
covering  periods  of  from  20  to  45  years,  have  never  been  called  upon 
to  redeem  a  loan  for  such  reasons. 

If  for  any  reason  whatsoever  forecloseure  proceedings  became 
necessary,  our  correspondent  was  to  take  back  the  loan  in  question. 

For  reasons  which  I  do  not  care  to  put  into  the  record  this  bank 
of  mine  failed  to  materialize,  although  we  worked  day  and  night, 
spent  considerable  money,  and  had  reached  a  point  where  the  nec- 
essary capital  seemed  to  be  fully  in  sight.  The  principle  upon 
which  my  plan  was  based  was  correct;  in  fact  some  of  the  leading 
loan  concerns,  insurance  companies,  and  bankers  proclaimed  my 
plan  as  the  most  feasible  and  practical  ever  proposed.  This  adven- 
ture, however,  cost  me  all  I  had  and  some  more,  and  it  was  hard 
for  me  to  realize  that  a  certain  wall  was  too  strong  and  high  for 
me  to  break  through  or  climb  over. 

This  is  as  much  as  I  think  I  ought  to  say  by  way  of  introduction 
about  myself  and  my  experience. 

Mr.  Chairman  and  gentlemen  of  the  Senate  and  House  com- 
mittees, before   I  now   address  myself  to  the   subject   before   you, 


,>74  EUEAL   CREDITS 

permit  me  to  thank  you  for  the  opportunity  of  testifying  as  to  what 
I  know  of  rural  credit.  I  deeply  appreciate  the  honor  you  do  me 
in  listening  to  me,  but  at  the  same  time  I  think  it  but  right  to  declare 
to  you  that  I  have  no  personal  or  financial  advantages  to  gain  from 
one  form  or  another  of  a  bill  that  may  ultimately  be  passed.  I  have, 
I  am  sorry  to  say,  nothing  but  an  academic  interest  in  the  subject, 
which,  if  T  had  heeded  the  advice  of  m}^  very  practical,  good  wife — 
who,  by  the  way,  was  born  and  brought  up  under  the  rather  fixed 
principles  of  French  economy — I  should  have  dismissed  it  from  my 
mind  long  ago,  as  it  has  not  added  a  penny  to  my  income  for  several 
years  past. 

However,  I  felt  I  had  certain  knowledge  to  which  the  Congress  of 
the  United  States  is  entitled,  and,  although  born  and  educated  in 
Germany,  I  am  now  a  good  American  and  am  happy  to  be  here 
to-day,  particularly  after  having  noted  the  apparent  seriousness  of 
purpose  with  which  you  gentlemen  apply  yourselves  to  the  subject. 

Land-credit  reform  became  a  necessity  of  the  future  on  the  day 
when  the  United  States  Government  donated  the  first  160  acres  of 
land  to  the  immigrant  willing  to  settle  thereon  and  make  it  his  home- 
stead. The  average  immigrant  that  comes  to  this  country  never  had 
more  than  20  acres  of  land.  I  might  even  say  less  than  that.  My 
father,  as  a  preacher,  had,  as  a  part  of  his  salary,  the  use  of  about 
30  acres  of  land,  the  income  from  which,  computed  at  a  certain 
figure,  made  up  for  part  of  his  salary.  Of  this  36  acres  of  land  we 
rented  20.  We  cultivated  16,  and  on  this  16  acres  of  land  father 
supported  a  family  of  six  children,  kept  alive  three  servant  girls  and 
a  hired  man,  who  acted  as  coachman.  That  means,  in  all,  really  12 
people,  not  to  forget  two  meals  a  day  supplied  to  every  man,  woman, 
and  child  who  helped  in  the  work,  particularly  at  harvest  time. 
That  was  all  done  with  food  derived  from  16  acres  of  land.  Now, 
in  addition  to  that,  we  sold  rye,  oats,  potatoes,  etc.  We  butchered 
for  ourselves  about  five  hogs  during  the  year,  one  or  two  steers,  a 
calf  or  two,  and  so  forth,  and.  excepting  for  certain  occasions  when 
army  officers  of  high  rank,  like  the  Crown  Prince  of  Germany  or 
the  Prince  of  Coburg-Gotha,  took  quarters  with  us  during  the  army 
maneuver*.  I  might  say  we  never  bought  a  piece  of  meat  of  the  town 
butcher. 

The  immigrant  from  Germany,  Sweden,  Norway,  and  France  is 
used  to  this  kind  of  agriculture,  but  why  should  he  do  it?  He  is 
working  160  acres  of  land,  and  the  size  of  his  property  makes  him 
in  a  year  two  superficial;  he  gets  away  from  doing  things  the  wa3r 
they  do  over  there.  Instead  of  cultivating  the  land  he  begins  farm- 
ing' it.  and  the  result  is  that,  in  the  first  place,  instead  of  raising  40 
bushels  of  wheat  per  acre  upon  old  land  he  raises  only  an  average  of 
17  bushels  on  virgin  land.  And  another  consequence  is  that,  instead 
of  creating  the  economic  unit  of  a  little  village — a  street  with  houses 
on  both  sides  and  land  laying  around  it — he  is  forced  to  live  alone, 
sometimes  as  far  as  2  or  more  miles  away  from  his  neighbor,  and  we 
get  the  isolated  farmer  instead  of  the  community-loving  agricul- 
turalists. 

It  may  seem  as  if  that  had  nothing  to  do  with  the  matter,  but 
it  has. 

I  do  not  intend  to  say  very  much  in  regard  to  cooperative  en- 
deavorers  in  this  country  nor  treal  extensively  cooperative  or  short- 


RURAL  CREDITS.  575 

time  credit  proposals,  because  there  are  others  that  are  able  to  talk 
more  intelligently  on  this  subject,  but  I  want  to  say  this:  That  co- 
operation, to  my  mind,  has  certain  prerequisites,  the  nonexistence 
of  which  precludes  its  successful  existence,  and  one  of  which  is  the 
most  desirable  influence  of  the  community  life.  I  do  not  mean  just 
a  street  and  houses  on  both  sides,  but  everything  that  goes  along  with 
it — the  personal  knowledge  of  each  other's  character,  the  opportunity 
of  studying  each  other's  good  and  bad  qualities,  and  therefore  the 
establishment  of  a  pretty  correct  basis  of  personal  or  character 
credit.  That  is  almost  impossible,  to  my  mind,  under  the  American 
mode  of  segregated  farm  life. 

Another  point  that  enters  into  this  question  of  cooperation  would 
be — well,  I  hate  to  mention  it,  because  it  might  start  a  long  discus- 
sion— anyway,  the  most  successful  cooperative  societies  that  I  have 
ever  seen  in  Europe  are  those  which  are  formed  or  run  by  people 
belonging  to  the  same  church.  In  Italy  the  societies  organized  and 
run  by  the  Roman  church  are  unquestionably  the  most  successful. 

Now,  Mr.  Robinson  told  us  yesterday  about  the  success  of  the 
Jewish  organization  of  which  he  is  general  manager,  and  in  this  con- 
nection let  me  say  that  I  have  run  across  some  Semitic  farming  conr 
munities  in  North  Dakota  and  that  I  was  impressed  with  the  spirit 
of  cooperation  existing.  They  were  people  of  the  same  race,  creed, 
tastes — people  that  knew  each  other  when  they  were  still  subjects  of 
the  Czar — that  know  exactly  what  and  what  not  to  expect  from  each 
other — people  that  are  willing  to  take  the  necessary  risks  if  for  no 
other  but  quasi-altruistic  reasons  to  better  each  other's  condition. 
Similar  conditions  exist  wherever  a  homogeneous  people  has  settled. 

I  met  a  farmer  out  in  North  Dakota  at  one  time.  "  Ed,"  I  said, 
"you  are  Swedish;  over  yonder  you  have  a  farmer  that  comes  all  the 
way  from  Russia;  and  across  the  road  there  lives  a  fellow  that  is 
Irish.  You  have  some  Germans,  Danes,  Italians,  and  Slovaks  within 
5  miles  of  you.  In  other  words,  you  have  here  in  this  particular  lo- 
cality nearly  a  dozen  nationalities  represented.  Would  it  be  possible 
for  37ou  people  to  form  a  society  from  which  you  could  borrow  money, 
even  in  small  amounts,  through  which  you  could  buy  supplies,  sell 
your  crops,  and  through  which,  in  case  of  necessity,  you  would  be 
willing  to  vouch  for  the  other  fellow's  debts?"  Just  what  Ed  said 
I  am  not  going  to  tell  you,  because  he  used  rather  emphatic  language, 
but  the  substance  of  it  was  that  he  would  not  think  of  such  a  thing. 

Senator  Hollis.  Bearing  on  that  point,  the  labor  unions  have 
found  it  practically  impossible  to  carry  out  their  form  of  cooperation 
in  their  eastern  mill  cities,  where  there  is  a  great  diversity  of  race 
and  language,  and  that  is  what  has  given  an  opening  for  the  I.  \Y.  W., 
which  is  along  the  same  line. 

Mr.  Badow.  Yes;  quite  so,  Senator.  I  have  made  similar  state- 
ments before,  and  some  people  told  me  that  I  did  not  know  what  I 
was  talking  about.  Maybe  I  didn't,  I  do  not  claim  to  be  an  expert 
on  anything  pertaining  to  cooperative  credit.  As  I  mentioned  before, 
my  father— who  I  am  happy  to  say  is  still  alive — was  a  pastor  and 
as  such  enjoyed  the  confidence  of  his  flocks,  and  he  had  as  many  as 
three  churches  to  preach  in  on  one  Sunday.  During  vacations  I 
would  go  around  with  him  or  some  other  pastor  and  preach  Raiffeisen 
to  the  peasants.  It  was  usually  on  Sunday  afternoons,  and  we  would 
go  down  to  the  Wirtshaus,  which  was  the  only  place  where  we  could 


576  RURAL   CREDITS. 

get  them  easily  together,  and  we  commenced  to  explain  the  proposi- 
tion of  cooperation  to  them. 

I  always  noticed  that  when  we  told  our  people  of  the  advantages 
of  keeping  money  in  town,  buying  together,  selling  to  the  best  bidder, 
etc.,  we  made  a  great  impression.  They  liked  that  idea  immensely. 
But  when  we  sort  of  mentioned  that  the  society  should  stand  behind 
its  weakest  members  and  even  make  good  for  an  indebtedness  that, 
for  instance,  August  Lehman  might  not  be  able  to  liquidate  when  it 
was  due,  their  faces  changed.  They  know  August  to  be  a  good 
farmer,  but  they  also  knew  that  he  sometimes  spent  more  money 
than  he  ought  to  on  the  more  spiritual  means  of  physical  sustenance; 
in  other  words,  they  knew  him  to  become  just  a  trifle  intoxicated 
sometimes.  They  perhaps  know  that,  in  spite  of  his  ability  to  make 
a  good  living  and  in  spite  of  his  popularity,  which  would  easily 
enable  him  to  become  a  member  of  the  society,  he  might  yet  forget 
himself  to  the  extent  of  getting  himself  into  trouble  or  not  paying 
his  debts  when  he  ought.  They  liked  well  enough  to  have  a  Eaiffeisen 
verein,  but,  as  Mr.  Potash  used  to  say,  "  that  vas  something  else 
again."  [Laughter.]  To  use  a  little  plain  Chicago  slang,  they 
got  "  cold  feet,"  and  I  did  not  blame  them  in  one  way.  In  order  to 
create  genuine  cooperation,  in  order  to  give  it  solidarity,  mutual  and 
joint  liability  seems  to  my  mind  to  be  essential. 

Mr.  Weaver.  Would  not  the  remedy  for  that  be  not  to  let  August 
have  the  money  ? 

Mr.  Badow.  In  practice  August  would  never  become  a  member, 
you  know.  At  the  same  time  it  is  a  pretty  ticklish  job  for  you  or 
anybody  else  to  tell  August,  "  Xow,  j^ou  may  drink  so  many  glasses 
of  whatever  it  is  and  I  shall  still  consider  you  sober,  but  if  you  drink 
more  I  consider  you  a  drunkard  and  you  can  not  get  any  credit." 
There  is  a  line  to  be  drawn  that  is  a  little  bit  too  psychological  for 
the  average  farmer  to  establish. 

Senator  Hollis.  They  would  not  want  to  insure  Gustave  against 
taking  too  much? 

Mr.  Badow.  Hardly.  Xow,  you  remember  when  Mr.  Roosevelt 
appointed  a  committee  to  inquire  into  the  causes  of  the  prevailing 
cost  of  high  living  [laughter]— really  I  meant  to  say  the  high  cost 
of  living — it  appeared  as  if  the  result  of  this  investigation  tended  to 
prove  that  it  cost  the  farmer  too  much  to  produce  what  he  produces ; 
that  the  money  used  in  farming-  was  too  dear.  With  an  admirable 
alacrity  the  cause  of  it  all  was  found  in  the  man  that  procured  land- 
credit  loans — the  loan  banker  and  broker.  Knowing  conditions  as 
I  did  then,  I  did  not  believe  this  implicitly,  but  began  in  my  travel- 
ing through  some  20  States  to  gather  statistics  as  to  loan  rates 
and  productive  capacity  of  farmers  in  the  various  localities.  I 
came  to  the  conclusion  and  maintain  to-day  that  the  cost  of  farming 
is  high  principally  because  of  the  miserable  results  the  average 
farmer  gets  from  a  soil  which  surpasses  that  of  Europe  by  far,  no 
matter  how  much  or  how  cheap  money  he  might  be  given.  Let  me 
exemplify  this  statement.  The  last  census  gave  the  gross  productive 
value  of  an  acre  of  Illinois  farm  land  as  $20,003.  Deducting  $3.22, 
which  is  given  as  the  average  cost  of  production  per  acre  (having 
no  information  to  the  contrary  I  assume  that  $3.22  represents  cost 
of  labor  and  does  not  include  possible  interest  charges  on  money  bor- 
rowed), we  obtain  a  net  productive  value  of  $16.84  per  acre  of  land 


RURAL   CREDITS.  577 

producing  17  bushels  of  wheat.  Such  land  would  call,  under  present 
conditions,  for  a  loan  of  $45  per  acre,  which  would  be  safe  and  con- 
servative. The  interest  charge  for  such  loan  would,  at  a  5|  per  cent 
gross  rate,  be  $2.47,  which  represents  12.32  per  cent  of  the  gross  and 
14.70  per  cent  of  the  net  productive  value  of  the  land.  If  our  Illinois 
farmer  was  an  agriculturist  in  the  German  sense  of  the  word  instead 
of  a  farmer  in  the  American  sense  of  the  word  he  would  produce 
at  least  40  bushels  of  wheat  per  acre.  Minnesota  and  Wisconsin, 
by  the  way,  did  this  last  year.  In  that  case  a  5^  per  cent  gross  rate 
for  farm-loan  funds  would  represent  only  a  little  more  than  5£ 
per  cent  of  the  net  productive  value  of  his  land. 

I  met  a  gentleman  from  Europe  some  three  months  ago,  who  was 
on  the  way  to  the  Dry-Farming  Congress,  in  Tulsa,  Okla.  Being 
rather  familiar  with  Oklahoma,  I  had  quite  a  little  talk  with  him 
and  told  him  where  to  go  while  in  Oklahoma,  whom  to  see,  and  re- 
ferred him  to  some  people.  I  suggested  to  him  that,  if  he  had  time, 
he  should  make  a  round  of  a  few  States;  get  off  the  cars  and  look 
over  the  farms  a  little  bit.  When  he  came  back  he  had  done  so.  He 
had  been  traveling  around  about  five  weeks,  which,  of  course,  is  not 
very  much.  At  the  same  time,  familiar  as  he  was  with  the  methods 
of  farming,  he  gained  quite  a  little  knowledge  as  to  how  they  are 
doing  it  here.  I  asked  him  what  rate  of  interest  the  American  farmer 
would  pay  in  Europe  if  he  worked  his  land  as  he  does  here,  and  the 
gentleman  told  me  that  if  he  could  get  any  money  at  all  he  would 
pay  at  least  10  per  cent.    I,  personally,  believe  that  is  so. 

Now,  while  I  am  about  it,  let  me  say  just  a  few  words  in  regard 
to  farm  indebtedness. 

To  begin  with — no  matter  what  we  believe  to  be  the  farm  indebted- 
ness of  the  country — let  us  remember  that  it  is  all  the  result  of  more 
or  less  correct  guessing.  Remarkable  as  it  is,  our  Government  is  not 
in  a  position  to  furnish  figures  not  subject  to  debate. 

On  page  33  of  the  preliminary  report  on  "  Land  and  Agricultural 
Credit  in  Europe,"  our  ambassador  to  France  asserted  that  the  Amer- 
ican farmer  was  adding  to  the  wealth  of  the  Nation  on  a  borrowed 
capital  of  $6,400,000,000,  on  which  he  paid  $510,000,000  of  annual 
interest.  The  inference  to  be  drawn  was  that  our  cost  of  living  was 
higher  by  just  that  last-named  sum. 

For  a  day  or  so  I  did  like  the  rest  of  the  country,  sat  back  in 
astonishment  and  believed  every  word  of  it.  However,  when  I  found 
no  figures  in  the  census  report  proving  the  statement,  I  began  figur- 
ing on  my  own  accord,  and  arrived  at  the  following:  In  the  first 
place,  instead  of  8-J.  per  cent,  I  found  that  gross  rate  on  farm-mort- 
gage loans  in  25  farming  States,  including  the  high-rate  States, 
where  as  much  as  2  per  cent  a  year  is  charged  as  commission,  to  be 
7.4625  per  cent,  and  in  this  connection  let  me  say  that  I  assumed 
that  an  average  of  \\  per  cent  commission  was  obtainable  in  every  one 
of  these  States,  including  those  where  one  is  lucky  to  get  2^  per  cent  of 
the  face  for  a  five-year  loan ;  in  other  words,  one-half  per  cent  a  year. 

As  to  the  total  debt,  I  found  that  by  using  existing  figures  as  to 
the  mortgage  indebtedness  of  farms  operated  by  owners,  by  calculat- 
ing tenant-worked  farms  to  be  mortgaged  to  the  same  extent  as  the 
aforementioned  class  (which  exceeds  the  case  in  fact)  and  by  assum- 
ing the  total  value  of  machinery  and  cattle  on  farms  to  be  pledged 
for  one-half  of  their  value,  I  obtained  the  following  totals : 
37031—14 37 


578  RURAL   CREDITS. 

Mortgage  debt. 

(a)  On  farms  operated  by  owners  (as  per  census) $1,720,172,851 

(b)  On  farms  operated  by  tenants 828,503,388 

(c)  On  farms  operated  by  managers 2(14,023,940 

Total  land-mortgage  debt 2.758,790,179 

On  which  I  claim  interest  is  paid  amounting  to 203,  S74,  471,  717 

Adding  to  tbis  land-mortgage  debt  a  sum  equal  to  50  per  cent 

of  tbe  value  of  all  macbinery  on  farms,  namely 632,574,391 

Likewise  50  per  cent  of  tbe  value  of  all  cattle,  etc 2.  4G2,  586,  805 

Grand  total 5,  853,  951.  375 

But  not  $6,400,000,000. 

I  do  say  this,  and  I  wish  to  repeat,  that  in  calculating  the  gross  rate 
of  interest,  I  took  into  consideration  only  25  States,  including  par- 
ticularly those  which  I  consider  as  having  a  general  market  for 
mortgage  loans  on  their  farm  lands.  The  rest  of  them  have  to  rely 
on  local  capital  to  market  their  mortgages.  But  most  of  these  25 
States  have  gained  the  confidence  of  investors,  in  other  States,  and 
can  sell  them  on  the  general  market.  According  to  figures  that 
I  have  been  able  to  get  from  these  different  States — and  I  have 
reason  to  think  that  they  are  correct — the  average  rate  is  not  8^  per 
cent,  but  is  7.625  per  cent.     I  just  wTant  to  put  that  in  as  a  statement. 

Mr.  C.  TV.  Thomson.  That  is  mortgage  loans? 

Mr.  Badow.  Farm-mortgage  loans. 

Mr.  Platt.  That  leaves  out  the  States  where  you  say  they  have  not 
gained  the  confidence  of  the  investors  ? 

Mr.  Badow.  It  does  not  include  Arizona  as  one,  and  does  not  in- 
clude Utah,  because  I  have  never  seen  a  loan  from  the  State  of  Utah 
in  the  market  anywhere.  It  does  include  New  Mexico,  because  I 
have  seen  New  Mexico  loans  sold  in  the  East.  It  is  what  you  might 
call  the  insurance  field. 

Mr.  Platt.  That  includes  the  cotton  belt? 

Mr.  Badow.  Oh,  yes;  the  cotton  belt  is  part  of  what  I  call  the 
insurance  field. 

Mr.  Bulkley.  Can  you  furnish  a  list  of  the  States  that  you  have 
included  in  that  estimate? 

Mr.  Badow.  I  can  not  do  it  right  now,  but  I  will  be  able  to  send 
it  to  you  when  I  get  back  to  Chicago. 

Mr.  Bulkley.  Yes;  I  think  we  ought  to  have  that  in  connection 
with  your  figures. 

Mr.  Badow.  I  am  getting  off  the  subject,  perhaps,  a  little,  but  last 
year  for  the  first  time  I  compiled  a  complete  statement  as  to  the  in- 
vestment of  life  insurance  companies  in  farm  mortgages  and  other 
securities.  I  had  attempted  this  work  before,  but  only  last  year  I 
succeeded  in  obtaining  practically  complete  data  on  the  subject. 
If  it  is  of  interest  to  you  I  will  give  you  these  figures  for  the  record. 

The  figures  herewith  given  concern  172  life  companies  and  show : 

Total  insurance  in  force $19,245,307,100 

Total   assets  admitted 4,370.575.503 

Bond  investments 1,  85S.  744.  723 

Stock  investments 97,640,  724 

City-mortgage  loans 90S.  729,  838 

Farm-mortgage  loans 572, 113,  033 


RURAL  CREDITS.  579, 

We  find,  therefore,  $1,956,385,447  of  bonds  and  stocks  and  $1,480,- 
842,871  of  real  estate  loans  in  their  possession.  In  a  month  or  so  I 
shall  be  able  to  show  figures  as  of  January  1,  1914,  and  I  think  this 
difference  will  disappear ;  if  not  almost,  but  pretty  nearly  so. 

Generally  speaking,  therefore,  bond  holdings  increased  by  4.56 
per  cent;  stock  investments  decreased  by  7.31  per  cent;  city  loans 
increased  8.53  per  cent;  and  farm  loans  increased  by  12.33  per  cent. 
So  if  you  choose  to  call  bonds  and  stocks  listed  securities  and  real 
estate  mortgages  unlisted  securities,  }rou  might  say  that  the  listed 
becurities  increased  3.98  per  cent  and  the  unlisted  securities — we 
had  better  call  them  real  estate  securities — increased  10  per  cent. 

The  reason  for  this  increased  investment  in  farm  loans  is  perhaps 
not  so  much  in  altrustic  motives  as  it  is  the  earning  capacity  of  the 
various  securities  held. 

The  companies  that  carried  farm  loans  and  no  stocks  in  1912 
averaged  5.57  per  cent  of  interest  on  the  mean  invested  assets.  The 
companies  that  carried  farm  loans  and  stock  averaged  5.08,  and 
the  companies  that  carried  no  farm  loans,  just  bonds  and  stocks, 
averaged  4.75  per  cent. 

I  presume  it  will  be  time  to  get  near  our  subject  here  and  that 
is  H.  R.  12585.  In  order  to  give  you  my  views  on  credit  in  gen- 
eral I  would  first  like  to  read  very  quickly,  if  it  is  permitted,  a  little 
article  here  that  I  wrote  some  time  ago  for  the  Rand  McNally 
Bankers'  Monthly,  free  of  charge,  if  you  please,  on  "  Organized  rural 
credit."  If  the  chairman  permits  it  I  will  read  it  to  you,  because  it 
will  answer  some  general  questions — which  I  anticipate  it  might  also 
serve  to  cause  some — but  I  will  leave  it  to  you  if  you  want  to  have  it. 

Mr.  Bulkley.  I  think  if  you  consider  it  germane  to  the  subject 
you  had  better  read  it. 

Mr.  Badow.  I  think  so ;  yes. 

Here  is  what  I  say : 

Organized  Rural  Credit. 

[By    Gerard   M.    J.    Badow,    correspondent   from    the    United    States    to   the    archive    and 
bureau  of  international  land-credit  statistics  of  Germany.] 

No  industry,  no  matter  how  well  financed  at  the  time  of  its  incipiency,  can 
carry  on  its  work  and  progress  without  using  at  one  time  or  other  credit. 
The  larger  the  particular  business  grows  the  more  freely  it  will  make  use  of 
borrowed  funds. 

The  fundamental  industry  of  any  country  is  that  which  supplies  the  actual 
necessities  of  life,  and  that  means  agriculture  without  any  question. 

No  matter  what  the  state  of  cultivation  of  a  country  the  cultivator  will  and 
must  borrow.  Neither  the  condition  of  the  country  nor  the  nature  of  land 
tenures  nor  the  relative  position  of  agriculture  can  affect  that  fact.  If 
the  country  is  undeveloped,  the  early  settler  hindered  by  defective  methods  and 
uncertain  climatic  conditions  must  borrow  to  overcome  the  handicaps  as 
soon  as  possible;  if  the  country  is  well  cultivated,  populous,  the  farmer  finds 
himself  forced  to  do  intensive  farming,  for  which  his  own  capital  is  seldom 
sufficient. 

But  it  must  be  remembered  that  in  agriculture  credit,  particularly  when  the 
borrower  is  proprietor,  represents  almost  entirely,  not  only  an  actual  business 
transaction,  but  a  product  real  or  potential;  an  advance  to  provide  for  the 
growth  of  crop,  an  advance  upon  a  crop  already  existing  or  growing,  or  an 
advance  upon  the  land  and  stock  of  the  farmer,  which  has  a  more  or  less 
fixed  market  value.  Land  credit  is,  therefore,  not  only  a  safe  transaction 
for  the  lender,  for  the  world  must  eat,  but  it  is  safe  in  its  essence  for  the 
borrower,  since  it  is  merely  the  anticipation  of  a  crop  or  a  series  of  crops, 
actual  or  potential,  or  it  is  a  temporary  and  partial  mobilization  of  capital 
possessed  by  the  farmer  in  his  land,  stock,  etc. 


580  RURAL   CREDITS. 

FARMKRS     MUST     BORROW. 

In  spite  of  that  fact  agricultural  credit  is  generally  not  as  easily  obtained, 
and  oftentimes  not  under  as  favorable  terms  as  commercial  credit.  It  is  true 
that  the  farmer  of  Iowa,  Illinois,  and  favored  sections  of  other  States  is  able 
to  obtain  credit  on  terms  as  favorable  as  his  urban  brother,  but  this  rule  does 
not  hold  true  in  the  majority  of  States,  particularly  in  sections  of  the  far 
West  and  the  South. 

But  since  credit  is  essential  to  agriculture,  it  is  equally  essential  that  credit 
be  cheap,  and  before  all,  safe.  Not  merely  cheap  and  facile  credit,  not  merely 
money  lent  on  easy  terms  without  regard  to  the  use  made  of  the  money,  but 
credit  facilities,  safeguarded  and  uniform,  are  the  fundamental  necessities 
of  the  present  time.  But  such  credit  should  not  be  credit  of  the  individual  agri- 
culturist, for  individual  credit  means  individual  and  often  ignorant  ideas  of 
the  use  of  credit;  credit  in  association  guided  and  influenced  as  to  its  use  by 
the  older  and  more  experienced  member  of  such  association ;  credit  which  not 
only  helps  over  embarrassment,  but  develops  the  character  of  the  borrower 
and  of  the  Nation  that  seems  to-day  to  be  the  restorative,  educative,  and  even 
disciplinary  remedy  of  rural  credit  ills. 

RECOGNIZES   THRIFT   AS   BASIS   OF   ALL   CREDIT. 

Credit  which  takes  care  of  the  lender  as  well  as  the  borrower  should  be 
promoted.  Thrift  and  prudent  conservation,  not  charity  or  State  subsidies, 
are  and  should  in  this  country  be  and  remain  the  basis  of  rural  credit.  Such 
credit  must  be  cheap  and  facile,  in  so  far  as  it  must  ever  be  on  hand,  but  it 
must  be  a  credit,  which  may  only  be  so  obtainable,  that  the  act  of  obtaining  it 
will  educate,  guide,  and  even  discipline  the  borrower,  and  it  should  be  granted 
only  to  those  that  have  learned  to  think,  plan,  and  save.  The  method  of  pro- 
viding such  credit  should  teach  the  much-needed  lession  of  self  and  mutual 
help. 

While  studying  rural  credit  conditions  and  proposing  schemes  for  their 
betterment,  present-day  reformers  should  always  bear  in  mind  that  it  is  not  the 
introduction  of  cheap  capital  merely  or  of  banking  credit,  but  of  some  system, 
which  will  ultimately  and  readily  develop  essential  national  qualities  which  are 
needed  in  this  country  of  a  thousand  nationalities. 

A  credit  system,  where  the  ignorant  may  be  taught  business  priciples,  the 
reckless  learn  needfulness,  thrift,  and  prudence,  the  idle  and  intemperate  re- 
turn to  industry  and  sobriety,  where  the  prudent,  sober,  the  skillful,  the 
well-to-do  unite  with  the  poorer  and  weaker  member  in  an  association  of 
mutual  help  and  self-development,  not  merely  rural  banks  seems  to  be  the 
demand  of  the  present  day. 

COUNSELS    STIMULATION    OF    THRIFT. 

Since  all  capital  is  derived  from  savings,  and  all  credit  should  be  based 
on  thrift  and  prudence,  stimulation  of  thrift  and  prudence  becomes  a  necessary 
antecedent  to  the  grant  of  credit.  It  is  emphatically  not  the  more  outpouring 
of  cheap  capital  that  the  farmer  of  this  country  needs,  not  the  mere  grant  of 
cheap  and  facile  credit — as  long  as  many  farmers  are  totally  unprepared  for 
such  boon — rather  a  promotion  of  facilities  as  well  as  tendency  for  saving, 
encouragement  of  his  individual  bank  deposits,  inculcation  of  the  true  objects, 
uses,  and  limits  of  credit,  or  in  other  words,  the  development  of  the  essential 
national  virtues  of  thrift,  foresight,  business  sense,  and  self-help  through  insti- 
tutions organized  for  that  purpose. 

While  the  necessity  for  cheapening  and  organizing  credit  is  fully  recognized 
to-day,  it  must  never  be  forgotten  that  it  was  not  the  mere  change  in  the 
credit  machinery  that  made  the  radical  changes  in  the  condition  of  the 
European  farmer  possible.  The  farmer's  awakening  to  his  moral  responsi- 
bilities was,  and  is  to-day  one  of  the  prime  objects  of  that  great  cooperative 
system  of  rural  banking  founded  by  Raiffeisen. 

The  principal  factor  which  made  cooperative  systems  successful  in  Europe 
was  by  no  means  the  superiority  of  any  law  over  those  of  any  other  country, 
but  rather  the  proximity  of  borrower  and  lender  and  the  homogeneity  of  the 
people,  extending  even  to  a  uniformity  of  religious  beliefs  in  a  given  section. 

Proximity  of  borrower  and  lender  is  undoubtedly  the  principal  condition 
under  which  credit  becomes  possible  and  available;   without  proximity  credit 


RURAL   CREDITS.  581 

becomes  practically  impossible  for  the  small  people.  For  proximity  involves 
knowledge,  mutual  confidence,  ease  and  cheapness  of  inspection  of  securities 
offered.  Because  of  distance  some  of  our  Western  States  find  it  most  difficult 
to  gain  the  confidence  of  the  Eastern  investor  to  the  extent  of  diverting  some  of 
his  funds  into  their  farm  securities. 

WHERE   UNITED   STATES   DIFFERS    FROM   EUROPE. 

Another  fact  worthy  of  consideration,  particularly  by  those  proposing  re- 
forms for  the  farmers'  benefit  on  the  cooperative  plan,  is  the  lack  of  a  homo- 
geneous people  which  confronts  the  legislator  of  this  country.  America  has 
truly  been  called  the  great  melting  pot  of  nations,  but  sight  must  not  be  lost 
of  the  equally  true  fact  that  no  finished  alloy  has  as  yet  been  obtained;  that 
we  are  still  melting,  so  to  speak. 

This  becomes  particularly  evident  in  any  of  our  more  recently  settled  States 
of  the  West.  The  picture  of  the  President  of  the  United  States  may  be  found 
in  many  a  farmer's  home,  but  just  as  often  may  be  seen  the  picture  of  some 
foreign  sovereign  along  side  of  that  of  our  Chief  Executive. 

And  even  if  the  ties  of  the  old  country  are  not  as  strong  as  that  any  more,  a 
distinct  difference  will  be  found  in  the  point  of  view  of  the  farmer  of  Anglo- 
Saxon  parentage  and  him  of  Norman,  Celtic,  or  Latin  origin. 

Again,  the  political  unit  of  European  countries  is  the  village,  from  twenty 
to  several  hundred  houses  built  along  one  or  more  streets,  lying  as  much  as 
possible  within  the  center  of  a  certain  acreage  of  land.  Everybody  knows  every- 
body else,  knew  father  and  perhaps  grandfather,  the  success  and  failure  of 
every  inhabitant,  his  desirable  and  less  desirable  qualities — in  short,  a  large 
family,  where  everybody  knows  his  neighbors. 

The  American  system  of  farming  on  large  areas  has  as  yet  not  produced 
anything  like  a  village  of  the  type  prevailing  in  Europe.  The  county  seat,  gen- 
erally speaking,  forms  the  only  point  of  more  general  contact  between  the  culti- 
vators of  a  given  area. 

Proximity,  the  fundamental  condition  of  credit,  therefore,  does  not  as  yet 
exist  to  any  extent,  not  even  among  borrowers,  still  less  among  borrowers  and 
lenders,  in  spite  of  telephone  and  steam  roads. 

In  attempting,  therefore,  to  organize  rural  credit  in  America,  the  main  requi- 
site seems  to  be  a  thorough  knowledge  of  agricultural  conditions  of  the  country, 
not  from  printed  facts  and  data  so  much  as  particularly  from  actual  living  in 
the  country,  knowing  from  own  nerience  the  facts  attending  the  request  or 
grant  of  a  loan  on  mortgage  or  otin-  -  security. 

A  second  requisite  one  might  think  desirable  in  the  man  proposing  legislation 
along  these  lines  would  be  a  thorough  knowledge  of  conditions  preceding  the 
establishment  of  rural-credit  organizations  in  Germany  and  other  countries 
and  a  practical  knowledge  of  the  manner  in  which  such  organization  has  been 
put  into  operation  and  continues  to  be  operated. 

And  if  such  man  could  be  found  he  should  be  wise  enough  to  recognize  that 
none  of  the  European  systems  can  possible  be  used  in  their  original  form  to 
apply  to  American  conditions. 

BEYOND   HUMAN   POWER   TO   CONCEIVE   SET   SCHEME. 

But  as  a  matter  of  fact  it  is  beyond  the  power  of  any  brain,  however  fertile, 
of  any  man,  however  well  informed,  to  conceive  in  advance  any  set  system  or 
method  of  rural-credit  banking,  least  of  all  in  a  country  of  so  vastly  differing 
conditions,  climatic  and  others,  as  the  United  States. 

It  is  true,  our  country  has  the  great  advantage  of  not  having  to  overcome 
governmental  obstinacy  and  antagonism,  such  as  Raiffeisen  as  well  as  Schultze- 
Delitzsch  had  to  encounter  during  the  early  days  of  their  struggles.  On  the 
contrary.  Federal  favor  seems  to  to  be  assured  toward  and  scheme  tending  to 
change  conditions  for  the  better. 

But  it  is  worthy  of  consideration  that  the  great  popular  movements  in  thrift, 
self  and  mutual  help,  emanated  from  individuals,  not  from  authority  as  usually 
understood.  Schultze-Delitzsch  labored,  and  the  German  popular  urban  banks 
came  into  being.  Raiffeisen  toiled  through  weary  years,  and  thousands  call 
him  to-day  Father  Raiffeisen.  Luzzati  and  Wollemborg.  of  Italy,  have  equal 
claims  as  pioneers.  Savings  banks  and  building  loan  societies  of  the  United 
States  are  the  outcome  of  individual  efforts,  the  law  exercising  but  regulating 
authority  and  powers  of  supervision. 


582  EUBAL   CREDITS. 

The  success  of  these  undertakings  arose  only  from  long-continued,  practical 
efforts  of  individuals,  adapting  a  principle  to  conditions,  not  carrying  out  a  set 
premeditated  scheme,  and  so  it  will  be  in  this  country.  Men  who,  while  well 
informed  as  to  the  details  of  every  system  yet  tried,  can  work  among  and  with 
the  people,  will  some  day  work  out  the  one  system  of  all  others,  which  will 
meet  the  requirements  of  the  American  farmer,  because  such  men,  while  em- 
bodying into  their  plans  all  the  good  of  European  systems,  will  be  able  to 
evolve  a  farmers'  system  of  cooperative  credit  rather  than  a  system  by  fiat  of 
law. 

WHEN  GOVERNMENTS   SHOULD   STEP  IN. 

The  moment  would  then  come  for  the  Government  to  act  by  removing  any 
obstacle  which  might  stand  in  the  way  of  facile  and  safe  credit  for  the  farmer 
and  small  landowner,  whether  they  be  the  obstacles  of  ignorance,  improvi- 
dence, or  fiscal,  legal,  or  executive  obstacles;  to  impose  all  necessary  restrictions 
upon  recklessness,  fraud,  speculation,  incapacity,  or  negligence;  to  lay  down  the 
principles  which  should  guide  rural  credit  by  means  of  special  laws. 

Such  has  been  the  course  of  development  of  organized  rural  credit  in  every 
European  country ;  such  would  be  the  logical  course  of  development  in  this 
country. 

This  touches  a  number  of  points  in  which  3^011  may  possibly  differ 
with  me,  so  if  there  is  any  question  I  would  rather  answer  it  now 
and  come  to  the  land-credit  question  in  particular. 

Mr.  Bulkley.  I  think  you  may  proceed,  Mr.  Badow. 

Mr.  Platt.  You  do  not  necessarily  mean  to  imply  that  because 
the  system  in  Europe  was  organized  cheaply  by  individual  effort 
that  individual  effort  is  necessary,  or  do  you  think  that  individual 
effort  could  succeed  in  any  substantial  way? 

Mr.  Badow.  To  be  entirely  frank  with  you  and  without  wanting 
to  appear  antagonistic  to  any  plan  you  might  finally  work  out  and 
put  into  execution,  a  cooperative  system  of  short-time  credit  or 
marketing  must,  to  my  mind,  come  from  the  man  that  is  going  to 
make  use  of  it — from  the  farmer  himself.  But  there  is,  of  course, 
to  be  considered  that  the  American  farmer  is  so  very  self-centered, 
that  he  very  often  does  not  give  a  continental  what  the  other  fellow 
does,  just  so  long  as  he  gets  along,  that  he  would  perhaps  very 
strenuously  object  to  having  any  kind  of  supervision  exercised  by 
his  neighbor ;  that  he  hates  to  be  considered  no  better  than  his  neigh- 
bor and  wants  to  get  ahead  of  him.  Therefore,  I  think  that  the  first 
step  in  that  direction,  perhaps,  might  be  taken  by  the  Government 
in  the  form  of  advice,  urging  establishment  of  cooperative  societies, 
because  I  do  not  think  that  in  the  next  50  }Tears  the  farmer  will  of 
himself  feel  the  necessity  of  societies  as  they  exist  in  Europe.  There 
is  no  question  in  my  mind  that  the  advent  of  closer  cooperation  of 
our  food  producers  is  most  desirable;  our  dealers  have  it  to  a  more 
desirable  degree.  We  consumers  would  welcome  cooperation  as  a 
wonderful  thing  to  have,  and  I  think  that  Congress  is  considerably 
ahead  of  the  times,  and  shows  a  very  fine — -well.  I  will  call  it  "  eco- 
nomical," foresight,  although  I  presume  that  there  are  other  sights 
discernible — in  bringing  this  matter  before  the  farmer,  although  the 
farmer  has  as  yet  really  not  come  to  you  and  brought  it  before  you. 
I  have  not  heard  of  farmers  talking  as  to  the  necessity  of  starting 
cooperative  societies  by  themselves.  1  have  not  heard  that.  I  have 
heard  them  express  their  opinion  as  to  what  they  would  do  in  case 
the  Government  organized  some  for  them.  You  know,  generally 
speaking,  we  often  very  much  prefer  being  invited  to  dinner  than 
inviting  others  to  come  to  our  home,  for  the  simple,  selfish  reason 


RURAL  CREDITS.  583 

that  it  causes  our  wives  more  work  than  if  they  had  only  to  dress 
and  go  to  the  invitor's  house-  The  farmer  is  perfectly  willing  to  let 
you  do  the  work  for  him ;  he  is  used  to  it.  When  you  can  prove  the 
thing  to  be  successful,  he  will  reckon  he  might  come  in,  too. 

Mr.  Platt.  Would  you  not  think  that  such  institutions  as  the  local 
grangers  of  the  Northern  and  Eastern  States  would  be  sufficiently 
close  to  each  other  to  form  a  cooperative  bank? 

Mr.  Badow.  Yes;  I  have  great  respect  for  the  grangers  in  many 
ways.  I  think  they  are  successful  in  a  certain  way.  But  I  think 
you  will  find  that  these  grangers  exist  in  local  cities  which  are  gen- 
erally inhabited  by  people  of — well,  the  same  stock,  I  might  say. 

Mr.  Platt.  I  think  that  is  true  to  a  great  degree. 

Mr.  Badow.  I  am  not  familiar  enough  to  say  in  what  States  they 
are  particularly  successful,  but  you  have  them  in  the  East,  and  they 
are  people  of  the  same  type.  I  presume,  for  instance,  in  Vermont  it 
would  not  take  any  time  at  all.  If  they  only  tried,  the  Vermonters 
might,  for  instance,  organize — well,  call  it  some  kind  of  a  coopera- 
tive cattle  society,  the  cattle  to  belong  to  the  community  according  to 
shares  held.  Vermont  has  got  thousands  of  acres  of  beautiful  pas- 
ture there  that  should  be  covered  with  pretty  black-and-white  Hol- 
steins  or  other  cows — very  many  more  than  one  sees  there  now.  You 
can  not  cultivate  that  land  very  well,  because  there  would  be  danger 
of  a  team  falling  off  backward  if  it  tried  to  take  a  plow  up  there. 
Vermont  cows  might  be  able  to  develop  the  ability  of  climbing  about 
as  well  as  those  of  Switzerland,  not  to  forget  goats.  Vermont  would 
become  even  more  of  a  dairy  State  than  it  is  now.  The  farmers  of 
Vermont,  I  think,  are  well  enough  knitted  together  to  form  such  a 
society. 

Mr.  Woods.  In  referring  to  the  cooperative  societies,  as  you  have 
done  several  times,  do  you  refer  to  the  unlimited  liability  of  the  indi- 
vidual or  the  limited  liability  ? 

Mr.  Badow.  Well,  I  do  not  refer  to  any  particular  kind.  Whether 
you  finally  decide  upon  limited  or  unlimited  liability  among  coopera- 
tive societies  remains  unimportant.  It  does  not  matter  very  much  in 
this  country,  I  think.  A  limited  liability,  like  the  double  liability  of 
banks,  would  be  just  as  safe  as  an  unlimited  liability,  because  a  man 
that  would  become  a  member  of  such  a  society  could  never  possibly 
be  in  as  abject  a  condition  of  living  as  those  poor  devils  among  whom 
Father  Raiffeisen  lived,  where  the  question  of  two  or  three  potatoes 
more  in  the  house  was  a  vital  question.  That  is  what  really  started 
the  Raiffeisen — the  actual  want  of  necessities — and  at  that  time  every- 
body was  perfectly  willing  to  do  anything  to  get  out  from  under  the 
yoke  of  such  pitiful  poverty.  You  know  that  you  will  agree  to  hard 
terms  when  you  are  in  dire  need.  After  they  had  lived  under  that 
promise  for  some  time — and  the  practice  had  been  proven  successful — 
others  made  the  same  promise,  although  they  may  not  have  been  as 
hard,  because  they  saw  how  fine  it  worked. 

Now,  let  me  approach  the  subject  of  land-mortgage  credit  legisla- 
tion, as  proposed  under  the  Fletcher-Moss  bill.  At  the  time  that 
the  first  so-called  Fletcher  bill,  S.  2909,  was  introduced  I  went  to 
the  trouble  of  writing  to  a  great  number  of  people  that  I  knew, 
asking  their  opinion  about  it,  although  I  did  not  expect  to  appear 
here.  After  I  just  got  through  with  it  out  came  the  new  bill,  so 
I  did  not  have  the  time  to  start   all  over  again.     I  thought  once 


584  RURAL   CREDITS. 

was  enough,  you  know.  I  have,  therefore,  just  made  a  few  notes 
as  I  read  it  over  and  over,  and,  as  a  matter  of  fact,  I  really  must 
say  that  I  read  it  five  times  before  I  ever  understood  this  bill.  I 
presume  that  is  nothing  but  a  proof  of  my  own  density. 

Mr.  Bulkley.  Which  bill  are  you  referring  to  now? 

Mr.  Badow.  I  am  referring  to  the  Fletcher-Moss  bill;  I  do  not 
know  its  Senate  number.  I  have  a  copy  only  of  H.  E.  12585.  I 
presume  it  is  another  number  in  the  Senate. 

Let  me  preface  my  remarks  by  saying  something  aside :  I  do  not  see 
why  in  the  world  we  should  have  a  farm-land  bank  bill  instead  of  a 
simple  land-credit  bill.  By  that  I  mean  this :  I  do  not  see  why  this 
august  body  here  in  Washington  is  so  particularly  anxious  about 
the  farmer  and  his  needs  in  regard  to  long-time  or  any  other  kind 
of  credit,  when  the  actual  facts  and  statistics  prove  that  the  small 
wage  earner  in  a  town  perfectly  honest  and  hard  working  has  the 
hardest  time  possible  to  acquire  a  home,  and  who  is  far  worse  off 
than  the  farmer's  hired  man  trying  to  become  a  landowner.  I  am 
referring  to  actual  statistics  that  the  United  States  Government  has 
compiled. 

The  statistics  showed  that  in  1912  real  estate  owners  in  urban 
communities  paid  in  33  cases  out  of  100  more  for  purchase 
money,  and  in  only  10  cases  less  for  purchase  money  than 
farmers  of  the  same  community.  Likewise  they  paid  in  21  cases 
more  for  short-term  loans  and  in  only  11  cases  less  than  the  farm 
loans.  I  do  not  think  that  the  farmer  is  getting  his  money  at  a 
higher  rate  than  the  city  dweller,  and  I  absolutely  believe  that  it  is 
far  easier  for  a  sober,  industrious  farm  hand  who  knows  his  business, 
who  gets  up  when  he  is  supposed  to  get  up,  and  does  not  sit  on  the 
haystack  with,  a  pipe  or  cigarette  in  his  mouth,  to  acquire  a  farm 
than  for  the  most  industrious  wage  earner  in  a  big  city  like  Chicago 
or  any  other  town  to  acquire  a  home.  Why,  therefore,  the  farmer 
has  been  singled  out  as  the  object  of  particular  care  and  benevolent 
consideration  by  Congress,  I  do  not  see. 

Mr.  Weaver.  You  are  not  talking  now  about  people  that  borrow 
money  on  a  commercial  basis  in  the  cities  ? 

Mr.  Badow.  I  am  speaking  of  land  credits  now. 

Mr.  Weaver.  You  are  comparing  one  '"lass  of  working  people  with 
another  class. 

Mr.  Badow.  Yes. 

Mr.  Weaver.  As  I  understand,  you  were  talking  about  the  wage 
earners  in  the  cities,  as  compared  with  the  wage  earners  on  the 
farm,  and  their  basis  of  credit? 

Mr.  Badow.  Their  ability  of  obtaining  money  by  a  mortgage 
transaction.  I  claim  that  it  is  easier  for  a  farmer,  and  he  gets  better 
rates.  I  maintained  that  for  years,  and  the  statistics  compiled,  I 
think,  by  Mr.  Holmes,  of  the  United  States  Department  of  Agri- 
culture, prove  my  contention. 

Mr.  Weaver.  You  would  not  claim  that  the  farmers  get  money  as 
cheaply  as  the  men  that  are  engaged  in  the  different  avenues  of 
commerce;  for  instance,  the  merchants? 

Mr.  Badow.  The  farmer  of  equal  caliber;  yes.  I  think  that  the 
farmer  gets  his  money  as  easily  and  as  cheap  as  the  commercial 
man ;  you  will  find  8  per  cent  country  is  8  per  cent  country  for 
everybody.     Bankers  have,  commercially  speaking,  no   preference, 


RURAL  CREDITS.  585 

for  8  per  cent  looks  alike  to  them  no  matter  who  pays  it,  as  long  as 
they  really  get  it.  If  they  have  a  preference  it  will  usually  be  in 
favor  of  the  former,  excepting  national  banks,  who  had  to  convey  a 
farm  loan,  so  that  the  examiner  did  not  find  it  until  now  they  can 
take  them  out  and  carry  them  on  the  books. 

Mr.  Weaver.  Are  you  speaking  of  the  United  States  generally? 

Mr.  Badow.  Yes,  I  do.  If  I  was  a  farmer  in  Iowa  to-day,  and  I 
wanted  to  borrow  $5,000  or  $10,000,  and  if  I  was  willing  to  pay, 
say,  5|  straight,  and  one-half  of  1  per  cent  commission,  I  know  that 
I  could  get  that  loan  just  as  quickly  as  I  signed  the  papers  and  got 
my  abstract  of  title.  There  is  no  question  about  that,  because  the 
Iowa  farmer's  credit  is  fully  established. 

Mr.  Weaver.  It  is  not  the  farmer's  credit.     It  is  the  land  credit. 

Mr.  Badow.  I  think  it  is  as  much  the  farmer's  credit  as  that  of 
the  land.  I  maintain  that  the  kind  of  farming  done  in  a  locality, 
the  type  of  farmers,  has  something  to  do  with  rates.  Of  course, 
proximity  to  money  centers  is  one  of  the  deciding  factors  in  rates 
to-day. 

Mr.  Btjlkley.  The  hour  for  adjournment  has  arrived  now,  and  we 
will  stand  adjourned  until  2.30  this  afternoon. 

(Whereupon,  at  1  o'clock  p.  m.,  the  subcommittee  adjourned  until 
2.30  o'clock  p.  m.) 

AFTER    RECESS. 

The  subcommittee  reassembled  at  2  o'clock  p.  m. 
Mr.  Bulkley.  You  may  proceed,  Mr.  Badow. 

STATEMENT  OF  MR.  GERARD  M.  J.  BADOW— Continued. 

Mr.  Badow.  If  you  will  permit  me,  Mr.  Chairman,  I  will,  as 
shortly  as  1  possibly  can,  touch  upon  the  strong  and  weak  points  as  I 
see  them  in  the  bill  which  is  known  under  the  name  of  the  Fletcher- 
Moss  bill. 

The  strongest  point  of  the  bill,  in  my  opinion,  lies  in  section  34, 
whereby  farm-land  bank  bonds  are  made  legal  investments  for  postal 
deposits,  for  trust  funds,  and  estates  under  the  supervision  of  the 
Federal  courts.  This  provision  will  elevate  the  statute  of  land-mort- 
gage securities  where  they  will  rank  next  to  Government  bonds. 
This  is,  of  course,  a  position  which  I  personally  think  well  secured 
farm-mortgage  bonds  are  entitled  to,  because,  after  all,  food-produc- 
ing mother  earth  is  of  more  importance,  in  the  economic  scheme  of 
life,  than  Government  itself.  As  a  matter  of  fact,  there  would  be  no 
people  to  be  governed  unless  it  had  land  to  obtain  food. 

But  if  by  legislating  for  the  farmer  you  standardize  his  security, 
why  should  you  not  do  likewise  for  the  owner  of  real  estate  in  our 
towns?  He  also  has  land  as  his  security  for  a  loan.  A  well-made 
real-estate  loan  is  a  safe  investment,  no  matter  if  that  real  estate  lies 
in  the  city  or  on  the  farm.  If  you  decide  to  exercise  supervision  over 
the  concerns  issuing  farm-mortgage  bonds,  by  all  means  do  not  pass 
by  those  concerns  pursuing  a  city-loan  business.  Our  large  cities 
and  millions  of  investors  would  be  more  than  grateful  to  you. 

Another  strong  point  lies  in  section  18,  whereby  land  banks  or- 
ganized are  exempt  from  Federal,  State,  and  local  taxation  as  they 
concern  their  capital,  surplus,  and  profits  derived  therefrom.     Now, 


586  RURAL  CREDITS. 

it  has  been  a  question  in  my  mind  if  that  is  constitutional.  I  know 
this  particular  provision  is  simply  copied  from  the  Federal  reserve 
act,  I  think  section  7.  However  the  Federal  reserve  act  provision 
includes  only  reserve  banks,  not  all  member  banks,  and  therefore  does 
not  impair  the  tax  revenue  of  States,  inasmuch  as  the  capital  of  a 
reserve  bank  is  composed  of  about  6  per  cent  of  the  already  taxed 
capital  of  member  banks.  The  capital  and  surplus  of  farm-land 
banks  as  here  proposed  can  not  be  regarded  in  the  same  light,  and 
the  question  arises  what  will  townships  maintaining  a  local  bank — 
what  will  States  say  to  this  provision? 

You  are  taking  a  considerable  item  out  of  their  tax  revenue.  It  is 
true  the  owners  of  stock  in  said  bank,  if  honest,  will  pay  Federal 
income  and  personal  property  tax  on  their  holdings;  but  so  do  the 
honest  possessors  of  stock  in  any  corporation,  and  corporations  never- 
theless pay  their  corporation  tax.  Supposing  you  had  to  consider 
the  question  of  taking  over  our  telegraph  and  telephone  lines,  and 
before  that  happens  perhaps  run  our  railroads?  If  you  exempt  one 
class  of  capital  from  taxation  you  will  justly  be  asked  to  exempt 
others,  and  before  the  States  know  it  they  will  have  nothing  to  tax 
but  real  estate.  If  that  should  ever  happen,  we  would,  of  course,  have 
the  most  disastrous  slump  in  real  estate  values,  as  everybody  would 
want  to  sell  their  land.  This  is,  however,  a  consideration  for  lawyers, 
and  I  am  not  a  lawyer. 

Let  me  now  come  to  the  weak  points  in  this  bill.  Among  the  objec- 
tions which  must  be  raised,  in  all  fairness  to  the  originator  of  the  bill, 
as  well  as  those  that  are  to  benefit  by  the  same,  there  is  one  which  is 
perhaps  the  least  thought  of.  I  mentioned  it  before.  Why  a  land- 
credit  reform  bill — and  the  country  needs  that  more  than  a  rural- 
credit  reform  bill — should  concern  itself  exclusively  with  the  farmer, 
when  statistics  of  the  United  States  Government  show  as  great  a 
need  for  credit  facilities  as  town-lot  owners,  is  not  clear. 

Had  the  clamor  of  the  farmer  been  so  overwhelming  as  to  necessi- 
tate speedy  relief  it  could  be  better  understood ;  but  this  has  not  been 
the  case.  Instead  of  the  farmers  of  the  country  beseiging  us  to  help, 
the  country  is  calling  to  the  farmers  to  improve  their  methods  of 
farming. 

The  question  might  also  be  raised  why  Federal  supervision  of  land- 
mortgage  bond  issues  should  be  exercised  only  in  regard  to  farm-land 
bank  bonds  instead  of  being  extended  to  city  mortgage  bonds  as  well. 
Our  large  cities  would  no  doubt  benefit  greatly  thereby. 

Of  this  I  have  spoken  before,  and  I  positively  affirm  that  lands  of 
the  latter  class  are  in  dire  need  of  a  regulating  supervision. 

Senator  Hollis.  Tell  us  of  some  of  the  ills  that  they  are  subject  to. 

Mr.  Badow.  Well,  you  take  cities  like  Chicago  and  New  York,  and 
even  here,  Washington,  or  any  of  the  larger  cities.  Bond  issues 
appear  in  the  market  based  on  values  which  are,  to  say  the  least,  not 
the  actual  and  productive  values  of  the  properties  mortgaged.  Often- 
times they  are  not  even  first  mortgage,  but  only  leasehold  bonds,  and 
represent  a  margin  of  security  which  the  investor  in  farm  loans 
would  not  consider  a  minute.  Still  farm  land  is  the  basis  of  a  pos- 
sible city's  method  of  appraisement.  The  National  Life  of  Vermont, 
when  making  a  city  loan,  follows  the  policy  of  loaning  50  per  cent  of 
a  brick  building,  demanding  a  repayment  of  5  per  cent  a  year  of  the 
original  loan,  and,  as  they  term  it,  bury  the  lot,  forget  all  about  it, 


RURAL  CREDITS.  587 

pay  no  attention  to  its  value.  That,  according  to  my  idea,  is  the  most 
conservative  manner  of  making  a  city  loan.  But  I  do  not  know  of 
any  other  concern  following  any  such  policy. 

Senator  Hollis.  What  I  was  getting  at  was  this,  whether  there 
are  any  special  rake-offs  from  the  city  borrower  on  real  estate  in 
the  way  of  commissions  or  other  extortions  that  did  not  apply  to 
farm  borrowers. 

Mr.  Badow.  Any  special  rake-offs? 

Senator  Hollis.  Yes. 

Mr.  Badow.  No ;  I  would  not  say  that.  I  will  say  that  I  think  the 
city  borrower  has  to  pay  about  the  same  kind  of  commissions,  or 
rake-offs,  as  you  call  them,  as  the  farm-land  borrowers.  I  am  quite 
sure. 

Now  I  come  to  the  weakest  point  in  your  bill  here.  It  is  the 
provision  permitting  a  $10,000  concern  to  issue  bonds  against  its 
mortgages.  That  I  think  would  lead  to  a  chaotic  condition  of  the 
market.  I  do  not  want  to  howl  calamity  now,  but  from  what  I  know 
of  the  land-mortgage  business  itself,  bonds  of  such  concerns  could 
not  be  sold.  I  would  not  buy  them  under  any  consideration  and 
would  strongly  advise  against  their  purchase.  The  only  concerns 
that  are  to-day  able  to  sell  their  mortgages  or  bonds,  farm  or  city, 
wherever  they  decide  to  sell  them,  are  those  which  are  able  to  point 
investors  to  an  unblemished  record  of  many  years  and  a  strong  moral 
and  financial  standing.  I  do  not  think  you  could  possibly  make  a 
$10,000  concern  strong  enough  to  command  confidence  beyond  the 
limits  of  its  own  county  in  less  than  10  years'  time,  unless  the  Gov- 
ernment agrees  to  guarantee  any  bond  issued  by  the  same  at  par  at 
any  time.  That  would  be  more  than  any  European  Government  has 
ever  done. 

Another  weak  point  lies  in  the  manner  in  which  this  bill  treats 
existing  loan  concerns.  The  loan  men  of  the  West  have  done  this 
country  a  greater  service  than  anyone  will  ever  recognize.  Men  like 
Robert  Deming,  of  Oswego,  Kans.,  stood  by  the  side  of  the  farmers 
as  well  as  investors.  He  went  around  to  every  uncle,  cousin,  brother, 
and  sister  and  borrowed  the  interest  money  rather  than  foreclose  the 
borrower  or  disappoint  the  lenders  of  the  East.  That  is  history ;  and 
men  of  such  unusual  degree  of  integrity  do  not  deserve  to  be  told  "  it 
is  liable  to  be  healthier  for  you  to  come  under  this  law  but  leave  what 
you  acquired  outside.  Operate  in  one  State  only,  or,  at  any  rate,  issue 
bonds  only  on  mortgages  in  your  own  State ;  in  other  words,  cut  your 
business  in  one-half,  one-fifth,  year  in,  16  to  1."  Forego  the  "result 
of  from  20  to  50  years  of  labor. 

There  is  the  Pearsons-Taft  Land  Credit  Co.,  of  Chicago — we  are 
all  proud  of  their  record — in  business  since  1848;  not  a  dollar  lost 
to  investors;  issuing  farm-land  mortgage  bonds  according  to  the 
European  system  for  20  years.  The  name  of  this  concern  is  a 
household  word.  They  have  something  over  $4,000,000  of  bonds 
outstanding;  have  loaned  close  to  a  hundred  million  dollars 
in  all.  This  concern  is  doing  a  successful  business  in  16  States. 
The  law  does  not  permit  the  establishment  of  branch  banks.  How. 
then,  is  a  concern  like  this  going  to  continue  to  do  its  business  if  it 
wants  to  come  under  the  law  ?  It  simply  can't  come  under  the  law, 
no  matter  how  much  it  might  like  to. 


588  RURAL   CREDITS. 

Senator  Hollis.  Have  yon  an  idea  that  any  considerable  number 
of  the  present  farm-loan  banking  houses — if  you  call  them  that — 
would  come  in  under  this  law?  I  supposed  that  this  was  meant 
to  cover  a  field  that  they  did  not  cover. 

Mr.  Badow.  Well,  it  covers  the  field  of  land  mortgages,  and  it  is 
bound  to  concern  every  man  that  is  in  that  line  of  business. 

There  are,  of  course,  not  many  concerns  doing  what  T  might  call 
an  interstate  business.  I  could  mention  the  Pearsons-Taft  Land 
Credit  Co.,  of  Chicago,  the  dean  of  land-mortgage  banks  in 
America;  the  Deming  Investment  Co.,  of  Oswego,  Kans. ;  the  Ameri- 
can Investment  Co.,  of  Oklahoma;  the  Peters  Trust  Co.,  of  Omaha; 
E.  J.  Lander  &  Co.,  of  Grand  Forks;  and  perhaps  half  a  dozen 
more  if  I  had  my  files  here.  Most  loan  concerns  operate  in  a  num- 
ber of  counties  only.  A  number  of  Kansas  concerns  make  loans  in 
Kansas  and  Oklahoma,  and  commercial  banks  like  the  Merchants' 
Loan  and  Trust  Co.  and  the  People's  Trust  and  Savings  Bank,  of 
Chicago,  operate  farm-loan  departments  in  conjunction  with  their 
banking  business,  which  purchase  loans  in  more  than  one  State. 

I  hardly  think  that  there  are  more  than  30  of  such  concerns,  but 
those  I  have  mentioned  are,  in  ray  opinion,  the  best  managed,  finan- 
cially strongest,  and  morally  most  reliable  concerns  we  have. 

I  omit  intentionally  a  number  of  foreign,  particularly  English, 
concerns,  because  of  the  fact  that  their  bonds  are  not  sold  in  this 
country,  at  least  not  as  far  as  I  know. 

Mr.  Weaver.  Do  you  not  think  that  the  corporations  and  other 
private  capitalists  engaged  in  loaning  money  now  on  land  and  who 
are  doing  a  profitable  business  would  oppose  a  system  which  would 
result  in  reducing  the  rate  of  interest,  and  the  creation  of  a  new 
system  that  would  interfere  with  their  business?  Do  you  not  think 
that  naturally,  simply  on  a  business  and  selfish  basis,  they  would 
oppose  this  proposition  for  creating  this  new  system? 

Mr.  Badow.  No.  It  is  immaterial  to  private  capital  engaged  in 
the  loan  business  for  gain  what  rate  they  are  permitted  to  charge. 
If  the  establishment  of  this  system  will  make  the  investor  buy  low- 
rate  bonds,  farmers  will  receive  low-rate  money  from  the  broker. 
Loan  concerns  would  make  3  per  cent  loans  to  the  farmer  if  they 
knew  where  to  get  2  per  cent  money. 

Now,  the  Pierson-Staff  Land  Credit  Co.,  I  think,  operates  on  a 
basis  of  much  less  than  1  per  cent  basis. 

Mr.  Bulkley.  How  long  have  they  been  doing  that? 

Mr.  Badow.  Since  1848. 

Mr.  Bulkley.  Have  they  been  operating  at  that  small  margin  all 
the  time? 

Mr.  Badow.  That  is  what  they  are  doing  to-day,  but  I  do  not 
think  they  have  been  able  to  do  it  all  the  time;  no,  sir. 

Mr.  Bulkley.  How  long  have  they  been  operating  below  1  per 
cent? 

Mr.  Badow.  You  would  have  to  get  that  information  from  them; 
I  could  not  tell  you. 

Senator  Hollis.  Is  that  concern  partly  philanthropic? 

Mr.  Badow.  Absolutely  not. 

Senator  Hollis.  It  is  plain  business? 


RURAL  CREDITS.  589 

Mr.  Badow.  Quite  so.  I  think  that  a  1  per  cent  basis,  an  annual 
difference  of  1  per  cent  between  the  rate  demanded  by  the  investor 
and  the  rate  paid  by  the  borrower,  is  fully  sufficient  for  a  concern 
that  is  in  operation  for,  say,  10  years ;  but  I  do  think  that  a  $10,000 
concern  could  pay  one  decent  salary  under  this  bill  for  some  years 
to  come. 

Under  the  bill  as  you  have  it,  considering  the  various  percentages 
of  investments  permissible — I  do  not  want  to  give  this  as  being 
absolutely  correct,  but  I  figured  out  that  the  total  amount  that 
could  be  earned  bv  a  $10,000  concern  in  a  year  would  be  about 
$2,602.50. 

Mr.  Bulklev.  You  are  speaking  now  of  a  $10,000  bank? 

Mr.  Badow.  Yes;  a  $10,000  bank  with  a  $5,000  surplus,  with 
$7,500  of  deposits  and  with  $5,000  of  postal  savings  deposits,  having 
a  total  of  funds  available  for  farm  loans  of  $26,995.  They  would 
then  be  able  to  earn  $3,299.25  a  year,  according  to  this  law. 

If  such  bank  may  sell  its  mortgages  in  their  original  form  is  not 
indicated  in  the  bill ;  the  chances  are  they  could  not  market  them, 
anyway.  They  may.  however,  insure  bonds  against  mortgages  not  to 
exceed  fifteen  times  their  capital  and  accumulated  surplus;  that 
would  in  the  case  of  a  bank  with  $10,000  capital  and  $5,000  surplus 
mean  outstanding  bonds  of  $225,000,  1  per  cent  on  which  would  be 
$2,225.  Adding  to  this  an  average  income  of  3|  per  cent  on  deposits 
carried  and  funds  invested  according  to  the  law  in  Government  or 
State  bonds,  I  calculate  an  additional  income  of  $437.50  as  being 
derived  from  $12,500  of  such  other  funds,  a  high  rate  at  that,  and 
my  total  income  would  be  $2,662.50.  The  loans  carried  would  have 
cost  about  $150  to  make,  supposing  that  they  were  20  in  number 
or  all  in  close  proximity  to  the  bank,  and  there  would  be  other 
expenses,  so  that  less  than  $2,000  would  remain  for  salaries,  divi- 
dends, surplus  accumulation,  etc. 

Mr.  Badow.  I  have  not. 

Now,  Mr.  Chairman  and  gentlemen  of  the  committee,  if  you  were 
to  ask  me  which  principal  changes  should  be  made  in  the  Fletcher- 
Moss  bill,  I  would  begin  by  changing  its  name  and  call  it  by  a  short 
title,  "  Land-credit  bank  bill,"  a  mortgage-bank  act,  and  I  would  by 
all  means  put  the  making  of  city  mortgage  as  well  as  farm  mortgage 
loans  under  its  sphere  of  application.  My  reasons  for  that  I  men- 
tioned before. 

I  would  make  it  easier  for  existing  loan  concerns  to  comply  with 
this  law  by  permitting  them  to  operate  in  such  localities  as  they, 
upon  examination,  can  show  to  be  thoroughly  familiar  with,  no  mat- 
ter in  how  many  States  they  may  be  located.  That  would  simply 
mean  such  territory  in  regard  to  which  they  have  reliable  records 
and  data  covering  at  least  five  years.  This  would  not  affect  very 
many  concerns,  anyhow,  so  it  would  not  make  much  difference.  But 
it  would  enable  those  concerns  to  come  in  under  the  law. 

You  have  a  great  many  provisions  in  that  bill,  but  I  could  not 
find  a  single  one  that  lays  down  the  method  of  making  a  loan.  I 
personally  think  that  a  uniform  method  of  making  loans  should  be 
established  by  law.  as  it  is  established  in  European  countries.  The 
method  of  making  loans  is  so  very  varied  that  some  definite  basis 
should  be  laid  down  first,  and  whatever  local  conditions  or  accidental 
money-market  conditions  demand  in  the  way  of  changes  could  be 


590  RURAL  CREDITS. 

supplied  afterwards  by  the  supervising  authority  from  time  to  time. 
Such  local  provisions  could  find  place  in  the  by-laws  or  could  be  pro- 
mulgated through  regulations  from  Washington. 

But  the  bill  should  contain,  to  begin  with,  something  as  to  the 
security  which  is  acceptable.  The  value  accepted  as  the  basis  for  a 
loan  should  not  exceed  the  forced-sale  price  in  a  normal  market  ar- 
rived at  by  testimony  of  residents  and  property  owners  of  at  least  10 
years'  standing  and  corroborated  by  records  of  forced  land  sales  for 
a  period  of  at  least  five  years  past  by  more  than  25  per  cent ;  or,  put- 
ting  it  in  another  way,  the  interest  which  a  farmer  pays  on  his  debt 
should  not  be  more  than  one-third  the  gross  income  from  his  farm. 
If  a  man  has  a  gross  income  of  $300  from  his  farm  he  should  not  get 
a  loan  on  which  the  interest  would  be  more  than  $100  a  year.  Prop- 
erty that  does  not  yield  a  lasting  revenue  should  not  be  considered  at 
all. 

Improved  property  should  be  loaned  on  at  the  rate  of  50  per  cent 
of  value  arrived  at  as  above.  In  the  city  loan  the  cost  value  of  a  new 
building  should  be  taken  as  basis,  and  a  clause  for  a  mandatory  reduc- 
tion of  the  debt  by  5  per  cent  every  year  should  be  put  into  the  agree- 
ment. In  downtown  sections  of  cities  50  per  cent  of  the  value  of  the 
lot  should  be  left  out  of  consideration  in  arriving  at  loan  values. 

Unimproved  real  estate  should  be  loaned  on  at  the  rate  of  33 }  per 
cent  only. 

This  to  apply  to  loans  of  five  years  or  less:  Whenever  the  loan 
runs  more  than  five  years  an  additional  2  per  cent  of  the  total 
value  of  the  security  might  be  loaned  for  every  year  such  loan  is 
to  run  above  five  years,  but  in  no  case  should  the  margin  of  security 
exceed  60  per  cent.  So-called  leaseholds  should  not  be  accepted  as 
security  for  bond  issues  enjoying  the  privileges  of  this  act. 

Loans  of  more  than  five  years  must  be  reduced  annually  by  about 
7  per  cent.  That  is,  the  amortization  or  prepayment  must  be  manda- 
tory in  a  loan  that  is  made  to  run  more  than  five  years.  The  average 
farmer,  if  he  gets  a  60  per  cent  loan  under  certain  conditions,  I  think 
it  will  take  him  about  15  years  to  pay  that  loan  back  with  the  earn- 
ings and  without  going  and  borrowing  the  money  to  pay  off  that 
loan. 

Of  course,  if  you  extend  this  act  to  city  loans,  theaters  and  churches 
should  never  be  loaned  on  by  banks. 

Loans  to  joint  owners,  unless  the  mortgage  is  placed  on  the  total 
property  with  the  consent  of  all  owners,  should  not  be  made.  Some 
of  these  provisions  exist  in  European  laws,  and  I  consider  them  most 
essential  to  the  successful  operation  of  these  banks.  They  should  not 
be  left  to  the  discretion  of  whoever  is  going  to  administer  this  law — 
the  commissioner  or  a  board. 

In  regard  to  amortization  payment — I  do  not  want  to  go  into  the 
amortization  question  at  all.  That  has  been  thrashed  out.  and  every- 
body knows  what  amortization  is.  But  partial  loans  or  amortization 
loans  should  be  repaid  only  in  such  manner  as  to  shorten  the  time  of 
the  life  of  the  loan  without  disturbing  the  amount  of  the  annual  pre- 
payment specified  when  amortization  annuities  were  agreed  upon. 
Tliis  will  save  a  lot  of  bookkeeping.  I  do  not  know  if  that  is  going 
into  too  much  detail  or  not.  But  that  is  a  point  that  I  think  should 
not  be  left  to  by-laws. 

Mr.  Platt.  I  think  it  is  a  good  suggestion. 


RURAL   CREDITS.  591 

Mr.  Badow.  I  thought  I  might  tire  you  with  these  things,  because 
it  might  be  going  too  much  into  detail.  But  I  want  to  tell  you  that 
my  personal  opinion  is  this :  There  is  not  a  man  in  the  United  States 
to-day  that  knows  farm-loan  conditions  in  every  State  of  the  Union 
sufficiently  to  be  able  to  lay  down,  in  an  executive  capacity,  rules 
according  to  which  that  loan  business  should  be  carried  on  without 
creating  either  two  much  red  tape  or  leaving  out  something  essential. 
You  have  the  opportunity  here  of  hearing  men  from  every  State  in 
the  Union,  and  two  or  three  from  a  State,  perhaps,  if  you  care  to, 
and  you  are  very  much  better  able  and,  as  I  stated  during  recess, 
better  fitted  to  evolve  the  fundamental  regulations  according  to  which 
that  law  should  be  put  into  execution  than  a  commissioner,  whoever 
he  is,  worth  to  the  country  only  $6,000  a  year.  I  do  not  know  of  a 
man  who  will  be  able  to  do  that  work  that  would  not  be  worth  at 
least  $25,000  a  year.  Any  man  that  is  able  to  carry  this  law  into 
effect  according  to  the  bill  as  it  is  here  is  worth  $50,000  a  year.  That 
is  what  I  think. 

Another  thing:  This  law  should  establish  the  rule  that  a  borrower 
must  not  pay  interest  on  his  loan  with  borrowed  money.  He  must 
earn  that  money,  and  if  he  has  not  got  it,  he  should  come  and  say  so; 
but  he  must  earn  that  money ;  he  must  not  borrow  the  money  to  pay 
interest. 

Mr,  Weaver.  How  are  you  going  to  tell  whether  the  man  earns 
the  money  or  not?  Suppose  he  does  not  earn  it;  then  are  you  going 
to  foreclose  on  him  because  he  can  go  and  borrow  the  money  from 
somebody,  and  not  let  him  do  that? 

Mr.  Badow.  Well,  no;  I  would  not  foreclose,  but  I  would  scare 
him  by  telling  him  that  it  is  against  the  law  to  do  so;  besides,  I  would 
put  this  into  the  application  blank  as  a  condition  under  which  the 
loan  is  made.    I  think  it  would  have  the  desired  effect. 

Mr.  Bulkley.  What  is  the  purpose  of  that  restriction  ? 

Mr.  Badow.  To  prevent  borrowers  from  pretending  they  are 
doing  well,  and  they  are  really  hard  up,  and  simply  happen  to 
have  a  friend  that  loaned  him  the  money  to  pay  his  interest. 

Mr.  Bulkley.  In  what  way  is  that  dangerous  to  the  holders  of 
the  mortgage? 

Mr.  Badow.  Well,  the  holder  of  the  mortgage  is  led  to  believe  that 
all  is  well,  although  it  is  not  so.  That  practice  is  liable  to  cause  trouble 
later  on,  if  it  should  happen  that  the  friend  calls  for  his  money  when 
the  second  interest  is  due  and  the  farmer  may  have  to  borrow  again, 
and  so  on. 

Mr.  Bulkley.  Well,  I  take  it  for  granted  that  it  is  not  particu- 
larly desirable  to  borrow  money  with  which  to  pay  interest ;  but  when 
a  man  has  not  got  it  I  do  not  see  any  reason  why  he  should  not 
borrow  it. 

Mr.  Badow.  He  should  not  have  to  do  it.  If  a  man  has  a  crop 
failure,  this  bill  should  be  as  lenient  as  are  the  provisions  of  the 
credit  foncier,  which  in  case  of  crop  failures,  floods,  or  other  dis- 
asters gives  borrowers  a  reasonable  time  of  from  30  to  60  days  to 
pay  up.  I  think  we  are  big  enough  to  provide  similar  provisions. 
If  a  man  is  honest  and  industrious  any  loan  concern  will  give  him  a 
chance. 

To  give  an  illustration,  in  North  Dakota  one  day,  in  summer  of, 
I  think,  1910,.  between  11  a.  m.  and  2  p.  m.,  I  have  known  of  some- 


592  RURAL   CREDITS. 

thing  like  5,000  acres  of  wheat  burned  up,  and  some  of  the  people 
had  nothing  in  the  world  but  that. 

Senator  Hollis.  What  do  you  mean  by  "  burned  up  "  ?  You  do  not 
mean  killed  by  insects,  do  you  ? 

Mr.  Badow.  No  ;  burned  by  the  heat. 

Senator  Hollis.  Not  physically  burned? 

Mr.  Badow.  No;  just  destroyed  by  the  heat  within  three  hours — 
thousands  of  acres.  There  is  a  calamity  which,  if  we  were  still  bend- 
ing our  heads  down  to  the  ground  when  praying,  I  suppose  we  would 
probably  call  a  visitation  from  Heaven. 

Senator  Hollis.  We  have  thought  that  extreme  heat  comes  from 
the  other  place,  you  know.     [Laughter.] 

Mr.  Badow.  So  I  have  been  told  also,  but  this  one  came  from  above. 
In  this  connection  let  me  urge  upon  you  a  provision,  making  di- 
versified farming  in  some  way  mandatory  upon  borrowers.  It  would 
be  a  particular  blessing  to  the  South,  even  if  the  one  nigger,  one 
mule,  one-bale  tradition  has  begun  to  change. 

The  cost  of  every  appraisal,  title  investigation,  or  inspection,,  or  any 
other  service  necessary  for  passing  on  a  loan  should  be  paid  by  the 
borrower  whether  the  loan  is  made  or  not.  For  the  appraisement  of 
a  loan  a  fixed  scale  of  prices  should  be  adopted,  and  I  think  that 
should  be  adopted  in  the  law,  instead  of  making  it  a  subject  for  regu- 
lation by  the  by-laws,  because  the  cost  would  be  about  the  same  in  all 
sections  of  the  country. 

Mr.  Bulkley.  You  say  those  expenses  ought  to  be  borne  by  the  ap- 
plicant whether  the  loan  is  made  or  not  ? 

Mr.  Badow.  Yes ;  whether  the  loan  is  made  or  not. 

It  is  the  rule  in  France  and  other  countries  and  it  is  only  fair  and 
should  be  the  rule  here.  I  have  spent  as  much  as  a  day  on  one  farm, 
where  the  loan  amounted  to  less  than  $2,500,  and  I  inspected  that 
farm,  went  over  every  acre,  got  muddy,  had  to  drink  a  cup  of 
bad  coffee,  contracted  colds  and  other  varieties  of  discomfort,  and 
when  I  got  back  to  the  office,  had  recommended  that  the  loan  be 
made,  and  we  had  gotten  the  papers  ready,  we  received  a  letter 
saying  that  "  Tom  Riding  Horse,"  or  whatever  his  name  was,  did 
not  want  the  loan,  as  somebody  else  would  give  him  more  money, 
and  all  my  work,  time,  and  money  was  spent  for  nothing. 

Mr.  Bulkley.  Now,  suppose  that  you 

Mr.  Badow  (interposing).  That  is  an  expense,  by  the  way,  loan 
men  count  on  in  fixed  charges  and  which  the  other  fellow  pays. 

Mr.  Bulkley.  Suppose  that  you  recommended  that  the  loan  be 
not  made? 

Mr.  Badow.  Yes. 

Mr.  Bulkley.  Then  do  you  think  that  the  applicant  should  pay 
the  expense? 

Mr.  Badow.  Yes:  just  the  same.  That  is  not  my  fault  that  the 
security  is  not  good  for  the  amount  demanded.  If  that  man  is  not 
willing  to  accept  the  amount  I  can  conscientiously  lend  it  is  his  fault. 
You  know  there  is  not  a  piece  of  productive  land  on  which  a  loan  of 
some  kind  could  not  be  made.  But  if  the  man  is  not  willing  to  accept 
the  loan  which  I  am  willing  to  make,  then  he  would  be  giving  me  all 
that  trouble  for  nothing.  If  I  appraise  the  land  to  be  good  for 
a  loan  of  $1,800.  he  ought  to  be  satisfied  and  not  insist  upon  $2,000. 
He  should  know  that  the  loan  man's  profit  lies  in  having  his  money 


BUBAL  CBEDITS.  593 

out  day  and  night — the  more  the  merrier.  But  borrowers  have 
seldomthat  much  reasoning  power,  they  must  have  $2,000 ;  they  even 
offer  more  commission  for  stretching  a  point  or  two,  and  if  I  can 
not  honestly  see  my  way  to  recommending  such  a  loan,  I  think  that 
he  ought  to  pay  the  expenses.  He  would  have  to  do  it  in  almost  every 
other  country  in  the  world. 

Mr.  Platt.  Do  you  think  that  the  expenses  of  inspecting  lands  on 
which  loans  might  not  be  made,  or  would  not  be  made,  would  be  quite 
a  considerable  item? 

Mr.  Badow.  Yes;  it  would  be  a  considerable  item.  I  think  that 
you  will  find  that  the  majority  of  loan  concerns  reject — well,  I 
am  safe  in  saying  50  per  cent  of  the  loans  that  are  offered  to  them ; 
10  per  cent  of  such  rejections  are  made  after  inspection. 

Mr.  Platt.  And  you  think  that  would  be  likely  to  be  about  the 
proportion  with  these  farm-land  banks? 

Mr.  Badow.  It  may  and  it  may  not  be  the  same,  because  I  presume 
that  the  prospective  borrower  from  this  community  farm-land  bank 
would  never  have  the  courage  to  come  and  ask  the  people  who  know 
him  and  his  land  for  a  $2,000  loan  when  he  knows  that  the  biggest 
amount  he  could  properly  get  on  that  land  would  be  $1,000.  He 
would  not  do  with  them  what  he  often  tries  to  do  under  the  present 
system. 

Do  not  think  for  a  minute,  gentlemen,  that  the  loan  men  are  run- 
ning the  farmer.  That  is  not  the  case.  On  the  contrary,  I  am 
personally  convinced  by  experience  that  it  is  the  farmer,  particularly 
in  the  better  sections,  that  runs  the  loan  banker.  I  have  seen  it 
happen  in  Iowa,  and  know  it  to  be  true  in  other  States,  that  instead 
of  accepting  what  the  bank  is  willing  to  give,  the  farmer  tells  the 
banker  the  rate  he  is  willing  to  pay. 

Mr.  Platt.  That  is  to  say,  there  is  enough  competition  for  farm 
loans  now,  in  the  best  sections  of  the  country,  so  that  if  a  farmer 
can  not  get  his  loan  on  the  terms  he  desires  in  one  place  he  can  do 
so  in  another. 

Mr.  Badow.  Oh,  yes. 

Mr.  Platt.  That  is  the  condition,  is  it? 

Mr.  Badow.  Yes;  undoubtedly. 

Now,  if  a  loan  is  to  be  made  the  proceeds  of  which  are  partially  to 
be  used  to  repay  a  former  indebtedness  the  credit  foncier  retains  the 
amount  necessary  to  liquidate  that  former  debt  and  completes  pay- 
ment, instead  of  giving  the  money  to  the  borrower.  I  think  this  is  a 
good  provision  and  we  should  adopt  it. 

Mr.  Platt.  That  is  the  sort  of  regulation  that  the  commissioner  of 
farm-land  banks,  or  the  commissioners  if  there  are  more  than  one, 
should  make,  is  it  not? 

Mr.  Badow.  Well,  I  feel  that  these  are  fundamental  rules  good  for 
all  times,  and  they  should  be  contained  in  the  bill. 

Mr.  Platt.  It  is  very  well  to  bring  the  matter  out  now,  but  it  is  a 
question  whether  we  ought  to  put  that  into  the  bill. 

Mr.  Badow.  Why  not?  It  would  eliminate  a  great  deal  of  experi- 
menting. 

Now,  Mr.  Chairman  and  gentlemen  of  the  committee,  let  me  give 
you,  just  as  quickly  as  I  can,  my  idea  of  rural  credit  reform. 

37031—14 38 


594  RURAL   CREDITS. 

As  I  take  it,  you  have  before  you  here  a  threefold  problem.  The 
first  one  is  the  providing  of  cheaper,  more  facile  land  credit,  to  what 
Mr.  Robinson  yesterday  called  "solvent"  owners — I  will  simply  say 
to  property  owners,  and  I  mean  b}^  that  both  farm  and  city  owners. 

The  second  would  be  the  providing  of  funds  whereby  a  poor, 
honest,  hard-working  man,  farm  or  city  worker,  can  procure  a  piece 
of  property  for  his  use  and  support  on  conditions  which  have  to  vary, 
of  course,  very  materially  from  those  which  apply  to  an  established 
farmer  seeking  loan  funds. 

Third,  you  have  before  you  the  problem  of — I  do  not  say  organiz- 
ing a  cooperative  system,  because  I  do  not  think  you  have  that— but 
you  do  have  the  problem  of  doing  your  very  level  best  to  get  the 
farmers  to  the  point  where  they  will  organize  among  themselves  a 
cooperative  system.  Now,  those  are  the  three  problems.  I  think  that 
all  of  them  could  best  be  solved  by  a  board,  which  I  will  call  a  "  Fed- 
eral land-credit  board."  Whether  that  land-credit  board  should  be  a 
part  of  the  Federal  Reserve  Board  or  an  independent  body  is  a  some- 
thing on  which  I  am  not  quite  clear.  I  am  not  quite  prepared  to  state 
that.  I  think  it  can  be  combined  with  the  Federal  Reserve  Board ;  I 
am  almost  sure  it  can. 

Instead  of  having  one  commissioner,  such  as  this  bill  provides,  I 
would  have  this  board.  Now,  if  it  was  an  independent  land  credit 
board,  then  I  Avould  have  on  that  board  a  representative  from  the 
different  sections  of  the  country,  divided,  just  as  the  United  States 
Government  does  in  getting  up  its  statistics,  into  groups  somewhat 
as  follows:  One  from  the  South  Atlantic  States,  one  from  the  North 
Atlantic  States,  from  the  Central,  Southern.  Middle  Western.  North- 
western, Southwestern,  and  Far  Western  States:  that  would  give 
eight  members  of  the  board — one  from  each  section  of  the  country. 

In  addition  to  these  members  I  would  have  the  Secretary  of  Agri- 
culture and  the  Secretary  of  the  Treasury  sit  on  the  board  besides 
the  governor,  appointed  by  the  President.  The  Secretary  of  Agri- 
culture and  the  Secretary  of  the  Treasury  being  members  of  the 
Cabinet,  the  President  would  practically  have  the  appointment  of 
three  members  of  the  board :  the  other  members  would  be  elected  by 
the  one  national  land  credit  bank  of  each  State  belonging  to  the 
geographical  region  mentioned. 

One  national  land  credit  bank  to  be  created  by  all  banks,  trust  com- 
panies, and  loan  concerns  within  the  State  which  have  complied 
with  the  Federal  land  credit  act. 

The  capital  of  such  State  institution  should  be  not  less  than  75 
rents  per  inhabitant,  and  the  surplus  25  cents  per  inhabitant.  I 
mean  by  that,  that  if  you  have  a  State  like  Arizona,  for  instance^ 
you  should  not  demand  a  $5,000,000  or  any  other  million  dollar 
capital,  because  it  could,  perhaps,  not  be  obtained,  and  that  Slate 
would  never  be  able  to  have  such  bank  on  a  fixed  minimum  amount 
of  capital  provision.  On  the  other  hand,  in  the  city  of  Chicago,  I 
presume,  it  would  not  take  60  days  before  we  would  have  a 
$25,000,000  concern,  provided  a  practical  law  was  passed.  As  I 
mentioned  this  morning.  I  had  an  institution  like  this  in  view,  and 
if  it  had  not  been  for  the  apparent  uncertainty  as  to  action  by  Con- 
gress on  this  particular  subject  we  would  have  gone  ahead  and  we 
would  have  had  a  big  concern  in  Chicago  to-day — but  it  was  thought 
better  to  wait  until  Congress  had  acted  and  had  laid  down  the  law. 


RURAL   CREDITS.  595 

We  intended  to  come  before  Congress  and  ask  you  for  a  Federal 
charter  later  on. 

The  national  land-credit  bank  of  each  State  which  I  propose  makes 
loans  in  the  State  wherever  it  wants  to.  The  local  bank  makes  its 
loans  in  its  own  particular  territory;  but  such  territory  may  be  en- 
tered by  the  State  bank,  for  the  simple  reason  that  a  $10,000  local 
bank  could  not  make  a  $10,000  loan,  which  a  State  bank  could  make, 
the  local  bank  acting  as  agent  for  the  State  bank.  The  local  bank 
would  take  care  of  the  small  borrower,  and  the  larger  borrower  would 
be  taken  care  of  by  the  State  bank.  The  national  land-credit  bank 
of  each  State  is  the  only  bank  to  issue  bonds  on  land  mortgages  of 
that  State.  Bonds  thus  issued  would  be  available  as  acceptable  se- 
curity for  funds  of  the  Federal  Government  only  upon  deposit  by 
the  State  institution  with  the  federal  land-credit  board  as  trustee  of 
$11,000  worth  of  mortgages  for  every  $10,000  of  bonds  they  are  to  se- 
cure. A  like  deposit  to  be  made  for  bonds  to  be  offered  in  extra  State 
markets. 

The  federal  land-credit  board,  ex  cfficio,  would  be  trustee  for 
mortgages  of  the  State  banks  that  form  the  basis  for  certain  bond 
become  a  national  land-credit  bank. 

As  to  the  local  national  land-credit  bank,  any  loan  concern,  an}^ 
State  bank  or  trust  company  wishing  to  come  under  this  system, 
having  a  capital  of  $10,000  and  a  surplus  of  $2,500,  may  do  so  and 
become  a  national  land-credit  bank. 

As  it  would  probably  be  just  as  desirable  to  have  the  federal  land- 
credit  board  form  a  part  of  the  Federal  Reserve  Beard,  the  smaller 
banks  could  thus  become  members  of  the  Federal  reserve  system  and 
enjoy  the  privileges  of  the  same,  which  through  the  present  minimum 
capitalization  of  $25,000  is  withheld  from  banks  with  a  smaller 
capital.  I  understand  that  there  are  many  banks  to-day  willing  to 
increase  their  capital  to  $25,000  but  for  the  fact  that  their  territory 
could  not  support  such  capitalization.  Mortgages  made  by  a  local 
bank  to  be  used  for  securing  the  bond  issues  of  the  State  bank  are 
to  be  discounted  by  the  State  institution  at  a  premium  of,  say,  one- 
half  of  1  per  cent,  or  under  what  we  call  the  "  split  indorsement." 
I  presume  you  are  familiar  with  the  split  indorsement? 

Mr.  Weaver.  Well,  it  will  be  better  not  to  make  too  many  violent 
presumptions. 

Mr.  Badow.  Well,  a  split  indorsement  Avould  be  this : 

Take  an  ordinary  note  of  6  per  cent  made  by  John  Smith  to  him- 
self. Before  he  indorses  it  on  the  bank  by  signing  his  name,  some- 
thing like  this  is  stamped  upon  the  reverse  of  the  note : 

"  Pay  to  the  order  of  the  Wisconsin  National  Land  Credit  Bank 
eleven-twelfths  of  the  interest  and  all  of  the  principal  of  this  note  as 
collected,  and  one-twelfth  of  the  interest  to  the  Watertown  National 
Land  Credit  Bank  as  collected. 

"(Signed)  John  Smith.1' 

By  this  method  the  local  bank  is  sure  of  one-half  of  1  per  cent  a 
year,  and  the  bank  of  the  State,  by  this  indorsement,  obtains  a  like 
amount — the  one  for  making  the  loan,  the  other  for  carrying  it. 

Among  the  various  handicaps  which  exist  in  the  interstate  loan 
business  is  the  uncertainty  of  time  necessary  to  perfect  a  title.  I  am 
not  a  lawyer  and  can  not  discuss  the  subject  to  any  extent,  but  I  would 


596  RURAL   CREDITS. 

like  to  make  a  suggestion  here  and  leave  it  to  you  to  decide  its 
worth. 

It  is  in  regard  to  making  the  title  registration  of  real  estate  secur- 
ing loans  more  uniform.  I  think  that  as  soon  as  a  loan  has  been 
accepted  by  the  national  land-credit  bank  of  a  State,  the  pertinent 
facts  of  that  title  should  be  entered  in  the  title  register  of  the  bank, 
and  from  then  on  nothing  but  a  plain  certificate  issued  by  that  State 
institution  would  be  necessary  to  enable  the  owner  of  that  particular 
piece  of  property  to  borrow  money  again  from  such  bank. 

Mr.  Weaver.  That  is  a  sort  of  modification  of  the  Torrens  land 
system  ? 

Mr.  Badow.  Yes.  Although  I  have  not  looked  at  it  that  way  as 
yet,  I  think  it  will  have  the  effect  of  inducing  States  to  introduce  the 
Torrens  system. 

Mr.  Weaver.  We  had  a  vote  on  that  in  my  State,  Oklahoma,  and 
it  was  carried  by  quite  a  large  majority  of  the  voters. 

Mr.  Badow.  Yes;  I  heard  about  it. 

Mr.  Weaver.  But  not  sufficient,  under  our  constitution, to  make  it  law. 

Mr.  Badow.  I  see. 

Mr.  Weaver.  Let  me  make  an  explanation  about  Oklahoma.  The 
constitution  of  Oklahoma  can  be  amended  by  a  majority  vote. 

Mr.  Badow.  Yes. 

Mr.  Weaver.  But  it  must  be  a  majority  of  all  the  persons  who  vote 
at  that  particular  election;  and  when  this  Torrens  land  system 
amendment  was  offered  in  our  State  a  number  of  other  questions 
were  presented,  and  a  great  many  voters  did  not  vote  at  all  on  that 
question,  and  for  that  reason  it  did  not  get  a  majority  of  all  the  votes 
that  were  polled  at  the  election  and  did  not  become  a  part  of  the 
organic  law. 

Mr.  Badow.  Well,  after  such  titles  have  once  been  entered  in  this 
Federal  land  bank  title  register  the  owner  of  this  particular  piece 
of  land  from  then  on  can  borrow  at  any  time  from  either  the  local 
or  the  State  bank  without  having  to  pay  any  attorney's  fees  to  get 
that  title  searched,  and  all  that  sort  of  thing.  It  will  simply  bring 
it  to  that  point. 

Mr.  Platt.  Would  it  not  do  to  accept,  in  a  similar  way.  the  titles 
of  any  land  on  which  mortgages  had  previously  been  placed  by  State 
banks  or  mutual  savings  banks? 

Mr.  Badow.  I  did  not  quite  understand  that. 

Mr.  Piatt.  Or  building  and  loan  associations.  On  any  lands  on 
which  loans  have  already  been  made  by  mutual  savings  banks  or 
State  banks,  could  those  titles  be  presumed  to  be  good  and  be  regis- 
tered with  the  State  farm  land  bank  without  any  further  prelim- 
inary? If  the  bank  has  already  accepted  a  loan  on  the  land,  pre- 
sumably it  has  gone  into  the  question  of  title  as  fully  as  can  be  done. 

Mr.  Badow.  No:  I  would  not  consider  this  acceptable,  and  I  will 
tell  you  why:  No  matter  how  excellent  the  men  that  are  running  an- 
other bank,  loan  association,  or  whatever  it  may  be,  the  land  credit 
bank,  being  responsible  for  its  loans,  must  have  made  its  own  in- 
vestigation. I  mean  the  bank  can  not  go  after  the  officials  of  an- 
other concern  and  say,  "  Well,  how  about  it ;  you  told  us  the  title  was 
good?"  They  must  absolutely  rely  on  their  own  judgment.  For 
that  reason  T  think  they  might  just  as  well  make  a  thorough  in- 
spection once  more,  so  far  as  the  title  is  concerned,  and  whatever 


RURAL   CREDITS.  597 

they  found  then  to  be  the  actual  facts  they  can  keep  on  record  from 
that  time  on. 

Mr.  Platt.  Well,  this  amortization  principle — suppose  these  farm- 
ers take  one  of  these  long-time  loans;  it  will  be  a  long  time  before 
you  get  the  title  straightened  out  in  that  case.  If  a  man  takes  a  loan 
from  you  for  20  or  30  years,  he  would  not  want  to  make  another  loan 
for  a  long  time. 

Mr.  Badow.  Well,  hardly,  as  a  matter  of  fact  he  couldn't  without 
a  release  from  the  first  loan.  As  to  amortization  loans,  they  will 
become  of  real  importance  only  in  connection  with  what  I  call  "  part 
2  "  of  the  problem,  which  I  would  like  to  see  taken  care  of  by  this 
law.  the  problem  of  the  "  insolvent "  but  very  desirable  young  man 
that  wants  to  acquire  land ■ 

Mr.  Weaver  (interposing).  You  do  not  mean  "  insolvent"? 

Mr.  Badow.  I  mean  he  has  not  money  enough  to  buy  his  home. 

Mr.  Weaver.  Well,  what  we  call  an  insolvent  man  is  one  that  is 
practically  bankrupt. 

Mr.  Badow.  Yes ;  but  I  am  using  the  expression  "  insolvent "  in 
the  sense  in  which  Mr.  Eobinson  used  it  yesterday,  meaning  a  man 
without  capital.  That  will  be  the  kind  of  man  that  will  use  the  amor- 
tization plan. 

Mr.  Platt.  Well,  he  has  to  have  50  per  cent  of  the  value  of  his  land, 
anyway,  to  pay  down  in  cash.    You  can  not  call  him  "  insolvent." 

Mr.  Badow.  Yes.  As  the  bill  stands  now  that  is  true.  But  under 
what  I  call  part  2  of  the  problem  before  you,  he  would  not  need  50 
per  cent. 

Of  course,  I  know  that  you  can  get  hundreds  of  families  that  will 
come  across  from  Russia  or  Poland  with  enough  money  to  buy  a  farm 
of  40  acres  by  paying  half  of  it  down  and  giving  a  mortgage  for  the 
balance.  But  Russia  is  far  away.  Those  poor  fellows  in  the  steel 
mills  south  of  Chicago  are  nearer  to  my  thought.  They  knew  noth- 
ing but  farming  when  they  came,  and  yet  they  are  working  in  the 
steel  mills  and  losing  their  fingers  and  having  an  eye  put  out  or  a 
leg  cut  off  in  trying  to  make  a  living  when  they  could  live  nicely  on 
the  farm.  The  little  money  they  had  is  now  gone  from  many  of  them. 
Give  them  a  chance  to  get  a  piece  of  land,  and  say,  "  Well,  the  price 
is  so  much ;  you  pay  me  so  much  down  " — make  it  one-third ;  make  it 
one-fifth;  I  do  not  care  with  how  much  you  trust  them;  they  will 
make  good.  They  will  pay  that  debt  off  just  as  soon  as  they  possibly 
can,  and  I  do  not  think  a  single  one  of  them  would  take  20  years  to 
do  it. 

Mr.  Weaver.  Those  Chicago  people  that  you  were  speaking  about 
are  working  in  the  steel  mills  and  are  mostly  foreigners,  are  they  not, 
who  have  immigrated  to  this  country? 

Mr.  Badow.  Yes. 

Mr.  Weaver.  Of  what  nationality  are  they? 

Mr.  Badow.  They  are  mostly  Russians,  Poles,  Slovaks,  and  Finns, 
although  you  will  find  Irish,  Swedes,  and  Germans  sometimes. 

Mr.  Weaver.  What  are  they  doing  here  ? 

Mr.  Badow.  Unskilled  labor.  Each  one  has  just  one  particular 
operation  to  perform,  such  as  opening  a  furnace  door,  cooling  bars, 
catching  a  piece  of  red-hot  metal,  etc. 

Mr.  Weaver.  They  belonged  to  the  farming  population  of  Russia 
and  other  countries  before  they  came  here  ? 


598  RURAL   CREDITS. 

Mr.  Badow.  Yes;  most  of  them;  just  as  fine  farmers  as  the  German 
farmers  were  who  came  over  here  a  long  time  ago  and  had  money 
enough  to  keep  alive  until  the  homestead  land  produced.  The  Rus- 
sian farmer  is  perhaps  slower  and  clumsy,  but  he  is  of  the  same  material 
as  the  very  besl  Swede.  Norwegian,  or  German.  I  know  it.  I  have 
met  those  Mushiks  in  the  Dakotas.  They  are  goods  farmers;  and  you 
do  not  need  to  give  them  L60  acres;  40  acres  is  all  they  need.  They 
will  perhaps  never  become  captain-  of  industry,  but  they  are  fine 
farmers,  and  will  raise  vegetables  and  fruit  in  addition  to  wheat  and 
other  staple-.    They  will  make  a  good  living  anyway. 

Mr.  Weaver.  This  bill  is  not  designed  for  the  benefit  of  the  cap- 
tains of  industry,  anyhow,  is  it? 

Mr.  Badow.  No. 

Mr.  Platt.  Some  way  would  have  to  be  found  to  give  those  men 
a  margin.  Of  course,  that  could  be  clone  by  another  local  associa- 
tion, which  would  grubstake  them  and  give  them  50  per  cent  of 
the  price  of  the  land. 

Mr.  Badow.  Who  is  going  to  grubstake  a  man  who  goes  to  a  farm- 
ing section  and  whom  nobody  knows?  I  mean  that  it  will  take  him 
years  to  establish  himself,  and  even  when  he  will  not  be  able  to  get 
anything  from  a  local  loan  association  under  the  present  conditions, 
as  he  owns  no  property,  he  could  not  get  a  loan  to-day  to  buy  a 
piece  of  land  worth  $20  an  acre,  with  only  one-fourth  of  the  price 
in  his  jeans.  I  do  not  think  that  he  could  get  such  a  loan  under 
present  conditions. 

Mr.  Platt.  Do  you  not  think  it  would  be  possible  for  him  to  get 
that  loan,  just  as  in  the  case  Mr.  Robinson  spoke  of,  through  his 
own  countrymen;  that  is,  through  a  lot  of  them  going  ahead  and 
organizing  a  local  credit  union? 

Mr.  Badow.  Yes;  perhaps  so. 

I  have  in  mind  the  work  done  by  the  Union  Pacific  and  other  rail- 
roads in  Canada,  with  assistance,  and  I  think  more  than  encourage- 
ment by  the  Dominion  Government. 

The  last  time  I  was  in  Winnepeg  the  immigration  commissioner 
was  getting  ready  to  go  East  and  supervise  the  arrival  of  some  75,000 
farmers  from  various  European  countries ;  they  were  to  receive  land 
at  a  certain  price,  cows,  teams,  implements,  seeds,  and  everything 
else  needed  to  get  them  started.  In  return  the  immigrant  had  to 
pay  a  very  small  amount  year  by  year.  If  Canada  can  do  it  why 
can  not  we  do  that.  We  would  not  have  to  go  to  Europe  to  get  our 
men;  they  are  already  here. 

As  to  the  third  problem,  as  I  see  it  before  you,  I  think  it  consists 
more  of  a  consistent  advocation  of  cooperative  societies  before  any 
law  is  passed.  Europe  first  had  its  societies  before  it  set  about  to 
regulate  their  conduct  by  law.  Why  wTe  should  want  to  start  the 
other  way  I  do  not  know ;  neither  do  I  know  if  the  time  is  ripe  for 
it:  if  the  farmer  has  realized  the  need  of  cooperation.  The  Gov- 
ernment having  surely  extensive  information  on  the  subject  is  un- 
questionably in  a  position  to  know  how  ready  the  farmer  is  for 
cooperation.  But  no  matter  how  ready  he  is,  let  him  evolve  a  system 
first,  aid  him  in  doing  it.  but  postpone  legislation  on  the  subject 
until  such  legislation  would  really  be  the  consensus  of  opinion  of 
those  concerned. 


RURAL   CREDITS.  599 

Now,  Mr.  Chairman  and  gentlemen  of  the  Senate  and  House  com- 
mittees, I  think  I  have  given  you  substantially  my  humble  views  on 
the  whole  subject.  I  am  very  sorry  Senator  Hollis  had  to  leave  so 
early,  as  I  would  have  liked  him  to  hear  the  last  part  of  my  disser- 
tation. 

Since  the  chairman  has  to  leave  also,  I  am  sorry  to  say  you  will 
probably  not  have  time  to  ask  me  any  questions,  and  I  therefore 
thank  3^011  for  all  the  many  courtesies  you  have  shown  me,  reiterat- 
ing again  that  I  am  deeply  indebted  to  you,  Mr.  Chairman,  for 
having  called  me  here.     I  enjoyed  every  minute  of  my  stay. 

That  is  all  I  have  to  say,  Mr.  Chairman. 

Mr.  Bulkley.  Mr.  Badow,  we  thank  you  very  much  for  your 
attendance  and  the  information  that  you  have  given  the  committee. 

(Thereupon,  at  4.10  o'clock  p.  m.,  the  subcommittees  adjourned 
until  Tuesday,  March  10.  1914,  at  10.30  o'clock  a.  m.) 


TUESDAY,  MARCH   10,  1914. 

House  of  Representatives, 

Washington,  D.  G. 
The  subcommittees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Robert  J.  Bulkley  presiding. 

Present:  Representatives  Seldomridge,  Stone,  Moss,  Piatt,  and 
Woods. 

Mr.  Bulkley.  Mr.  Cunningham,  we  will  hear  you  now. 

STATEMENT   OF  JOHN   CUNNINGHAM,   FARMER,   GRANVILLE, 

OHIO. 

Mr.  Bulkley.  Please  state  for  the  record  your  occupation  and 
connection  with  this  subject. 

Mr.  Cunningham.  My  name  is  John  Cunningham;  I  reside  at 
Granville,  Ohio;  am  a  farmer,  and  at  present  a  member  of  the  Ohio 
Senate.  My  connection  with  the  subject  has  been  in  the  nature  of 
commissioner  representing  Ohio  in  studying  the  European  coopera- 
tion in  agricultural  finance  with  the  American  commission  last  sum- 
mer, and  in  compiling  and  making  a  report  to  the  governor  of  Ohio. 

Now,  Mr.  Chairman  and  gentlemen,  notice  to  come  down  here  was 
rather  unexpected,  and  my  preparation  to  make  an  address  before 
you  has  been  rather  limited.  Anyway,  I  feel  that  you  have  had  a 
very  large  amount  of  testimony  given  to  you  on  the  subject  of  rural 
credits,  and  that  there  is  no  need  for  me  to  go  into  any  detail  with 
reference  to  analyzing  it.  I  take  it  that  what  is  most  important 
before  the  committee  is  a  discussion  of  the  proposed  bills  that  are 
up  for  your  consideration.     Is  that  right,  Mr.  Chairman? 

Mr.  Bulkley.  Yes,  sir. 

Mr.  Cunningham.  The  matter  of  amortization  and  the  manner 
of  loaning,  and  such  things  as  that  I  will  not  attempt  to  go  into  in 
detail.     It  has  not  been  my  privilege  to  have  a  copy  of  all  the  pro- 

Eosed  bills  that  are  before  you,  but  there  are  two  bills  which  I  have 
een  studying  more  or  less  closely,  one  proposed  by  Senator  Fletcher 
and  Mr.  Moss,  and  one  proposed  by  Mr.  Bathrick  of  Ohio. 

Now,  I  will  attempt  to  make  my  remarks  as  a  larmer  and  on  the 
subject  that  deals  directly  with  a  farmer,  without  bias  or  prejudice, 
not  being  guided  by  any  selfish  interests.  I  am  not  connected  with 
any  financial  institution,  and  I  am  not  a  financier  in  that  sense  of 
the  word  at  all.  My  thought  on  the  subject  is  what  will  be  for  the 
betterment  of  agriculture,  what  will  better  the  condition  of  the 
agricultural  people  of  the  whole  United  States. 

I  realize,  in  the  first  instance,  to  compare  the  subject  of  rural 
credits  legislation  with  that  that  is  in  effect  in  Europe,  we  have  many 
conditions  to  meet  in  this  country  that  are  not  pertinent  in  Europe. 
In  the  first  instance,  the  scope  which  our  Government  covers  is  so 

600 


RURAL    CREDITS.  601 

much  larger  in  area,  and  the  conditions  so  much  more  varied  than 
any  particular  country  Europe  has  to  deal  with  that  it  makes  a 
much  larger  subject  for  us  to  handle.  For  instance,  Germany,  the 
home  of  cooperative  credit,  is  a  country  with  an  area  much  less  than 
that  of  the  State  of  Texas.  We  have  possibly  25  or  30  times — I  do 
not  exactly  know  the  comparative  area  at  this  time  and  have  not 
thought  on  that  point — but  we  have  possibly  "25  or  30  times,  or 
maybe  even  more,  area  to  cover,  than  the  Germans,  so  that  in  scope 
of  legislation  proposed  there  is  a  much  larger  area  and  much  more 
diversified  conditions  to  cover.  While  the  principle  applied  to 
German  agricultural  credit  may  be  embodied  or  followed  to  a  great 
extent  by  the  legislation,  either  by  tne  Nation  or  by  the  States, 
when  we  come  to  divide  those  parts  off  to  be  worked  out  to  meet  the 
conditions  of  the  various  sections  of  the  country  we  may  have  to 
make  some  changes  in  details.  There  are  conditions  in  the  various 
States  that  make  it  particularly  hard,  I  believe,  to  adequately  frame 
national  legislation  so  that  they  will  harmonize,  but  I  think  in  the 
bill  proposed  by  Mr.  Moss  and  Senator  Fletcher  that  these  condi- 
tions have  been  admirably  taken  care  of — that  is,  speaking  as  to 
principle.  There  may  be  some  minor  points  that  can  be  changed  to 
materially  help  the  bill,  but  I  think  the  bill,  as  drafted,  combines  all 
tne  primary  essential  and  best  features  that  make  for  the  success  of 
the  different  systems  in  Europe,  and  that  they  have  to  a  very  large 
extent  been  so  arranged  that  it  makes  it  possible  for  their  easy  appli- 
cation in  this  country.  It  is  also  made  possible  for  the  various 
States  to  supplement  this  bill  with  legislation  that  will  put  an  agri- 
cultural credit,  farm  credit,  system  into  operation  with  the  least 
friction  or  expense. 

I  am  well  aware,  as  a  farmer  and  a  member  of  farmer  organizations, 
that  the  Fletcher-Moss  bill  has  some  opposition;  but  I  think,  and 
say  so  as  a  farmer  and  a  member  of  these  farmer  organizations,  that  a 
great  deal  of  this  opposition  comes  from  a  feeling  of  being  slighted  in 
some  manner  or  other,  and  some  from  not  having  made  a  close  study 
of  the  agricultural  credit  systems. 

Now,  if  I  may  be  permitted  to  explain  myself  with  reference  to  this 
point,  I  mean  there  that  the  Bathrick  bill  has  been  indorsed  by 
certain  farmer  organizations,  and  the  reasons  given  for  the  indorse- 
ment are  at  variance  with  the  principles  laid  down  by  those  same 
organization  that  indorse  the  Bathrick  bill.  For  instance,  certain 
organizations  declare  for  an  equal  opportunity  for  the  agricultural 
class  in  connection  with  their  business  organizations.  They  declare 
against  any  special  privilege  for  any  paternalism,  but  they  turn,  on 
the  other  hand,  and  come  back  and  ask  for  a  bill  that  is  paternalism  in 
itself,  and  the  main  part  of  the  bill  really,  to  my  mind,  is  of  a  paternal- 
istic nature. 

Mr.  Bulkley.  Which  organization  are  you  referring  to  now  ? 

Mr.  Cunningham.  I  refer  primarily  to  the  National  Grange.  I  am 
a  granger  myself,  but  I  hold  no  official  position  outside  of  the  county 
organization,  but  at  the  same  time  I  am  very  familiar  with  grange 
work. 

Mr.  Bulkley.  Do  you  mean  in  that  respect  the  legislative  com- 
mittee of  the  grange  has  failed  to  fairly  represent  the  sentiment  of  the 
grange  ? 


002  RURAL   CREDITS. 

Mr.  Cunningham.  I  can  not  say  that  I  will  answer  that  in  that  way. 
I  will  say  that  I  think  the  Legislative  committee  of  the  National  Grange 
has  not  attempted  to  find  out  the  exact  position  of  the  orange,  bat 
have  at  templed  to  lead  the  indorsement  of  the  grange  to  tneir  way  of 
thinking. 

Air.  BuLKLEY.  Is  it  your  judgment  that  the  membersliip  of  the 
grange  generally  does  not  agree  with  that? 

Mr.  Cunningham.  It  is  my  judgment  that  the  membership  of  the 
grange  primarily  has  not  entered  into  this  subject  to  such  an  extent 
thai  they  are  in  position  to  pass  judgment  in  the  manner  that  is 
desired  by  the  committee;  that  the  action,  primarily,  of  the  granges 
has  been  taken  on  certain  statements  sent  out  by  the  executive  com- 
mit tee  of  the  National  Grange,  and  that  they  have  not  entirely  covered 
the  subject  in  an  unbiased  manner. 

Now,  then,  the  only  condition  of  the  Bathrick  bill  which  I  take 
exception  to,  and  which  substantiates  my  proposition  of  being  both 

Eaternalistic  and  biased,  is  the  fact  that  the  provision  of  the  Bathrick 
ill  providing  that  the  Government  may  loan  money  to  farmers  at 
4^  per  cent  if  the  money  is  borrowed  at  3£  per  cent  on  bonds,  and 
giving  one-half  per  cent  of  that  1  per  cent  profit  to  organizations  for 
handling  loans.  One  criticism  that  the  grange,  if  I  shall  speak  plainly, 
makes  of  the  Fletcher-Moss  bill  is  that  it  throwTs  such  a  large  profit 
into  the  hands  of  private  organizations.  This  one-half  per  cent  that 
it  is  proposed  to  give  to  farmers  organizations  for  handling  these 
loans  amounts  possibly  to  as  large  a  profit  as  in  the  other  case,  with- 
out their  having  anything  at  stake  and  practically  no  responsibility, 
and,  I  think,  fundamentally,  that  provision  itself  would  queer  the 
bill. 

Another  thing  which  I  believe  farm  credit  legislation  should  avoid 
is  a  matter  of  encouraging  speculation.  Farm  credit  legislation, 
as  I  take  it,  is  primarily  to  help  the  small  farmer  or  the  tenant  and 
the  small  landowner,  and  not  necessarily  to  help  the  large  landowner, 
for,  in  most  instances,  they  are  able  to  take  care  of  themselves;  but 
it  is  to  reduce  the  tenant  class  and  to  encourage  the  ownership  of 
homes,  not  large  estates,  but  homes. 

Mr.  Woods.  Mr.  Cunningham,  will  it  bother  you  to  answer  a  ques- 
tion there? 

Mr.  Cunningham.  No,  sir. 

Mr.  Woods.  Do  you  know  of  any  farmer  in  Ohio  who  works  his 
own  farm  and  has  it  improved  and  lives  upon  it  who  can  not  at  this 
time  borrow  at  least  50  per  cent  of  the  actual  value  of  his  farm  at  a 
reasonable  rate  of  interest? 

Mr.  Cunningham.  I  might  answer  that  question  in  this  way,  that 
probably  there  are  very  few  instances  where  a  farmer  could  not  bor- 
row 50  per  cent  on  his  farm;  but  that  50  per  cent  would  be,  in  their 
judgment,  reliable  security.  That  50  per  cent  should  be  the  only 
encumbrance  on  that  farm;   and  if  that  were  so,  he  could  borrow. 

Mr.  Woods.  The  commission  bill  provides  that  lie  can  secure  50 
per  cenl  from  these  banks;  that  is,  50  per  cent  of  the  actual  value 
of  the  property,  providing  the  money  is  to  be  used  in  the  way  provided 
for  in  the  bill. 

Mr.  Cunningham.  One  great  feature,  which  I  should  have  spoken 
of  before,  of  the  land-credit  proposition,  and  the  principal  one,  to  my 
mind,  is  t  he  feature  of  the  amortization  plan  of  repayment  of  the  loan. 


RURAL   CREDITS.  603 

It  is  not  so  much  in  enabling  a  man  who  has  adequate  security  to 
get  a  loan,  for  he  can  get  one  in  that  case  either  from  individuals  or, 
in  some  instances,  from  our  State  and  private  banks  and  from  build- 
ing and  loan  associations,  but  many  things  add  to  the  cost  of  the  loan, 
and  the  manner  of  repayment  in  most  instances,  handicaps  the 
farmer  either  from  living  as  he  should  in  his  station  or  in  making 
sucli  improvements  as  he  should  to  conserve  and  get  the  best  results 
from  his  farm.  Therein  it  has  a  bearing  on  the  people  and  the  wel- 
fare of  the  people  of  the  country  as  a  whole  in  that  particular. 

Mr.  Woods.  xVre  not  the  loan  companies  anxious  to  renew  these 
loans  to  farmers  at  a  very  small  rate  of  interest? 

Mr.  Cunningham.  They  are  anxious  to  get  money  at  a  fair  in- 
vestment. In  Ohio  the  average  interest  rate  on  farm  property  by 
building  and  loan  and  other  associations  ranges  from  6  to  8  per  cent. 

Mr.  Woods.  Take  the  straight  loan;  what  rate  is  that? 

Mr.  Cunningham.  Usually  6  per  cent — the  straight  loan. 

I  believe  1  was  discussing  the  proposition  in  connection  with  the 
Bathrick  bill  features  having  a  tendency  to  stimulate  circulation  in 
farm  values. 

The  fact  is  that  there  is  something,  if  I  am  correctly  informed, 
over  $3,000,000,000  of  loans  on  farm  propertv  in  the  United  States. 
If  the  Bathrick  bill  should  become  a  law  that  $3,000,000,000  would 
demand  recognition  under  this  provision  to  be  refunded,  and,  sec- 
ondly, the  Government  itself  would  have  to  start  out  with  over 
$3,000,000,000  issue  of  bonds  to  meet  that  particular  issue.  In  the 
next  instance,  without  any  limitations  it  would  increase  circulation 
in  farm  lands,  and  this  speculation  with  the  development  of  the 
country,  to  my  mind,  is  unwise  and  would  be  \qtj  detrimental. 

Mr.  Woods.  What  is  the  reason,  if  you  have  any,  for  thinking  it 
would  increase  speculation  ? 

Mr.  Cunningham.  Because  it  makes  possible  the  borrowing  of 
money  very  easy  at  a  low  rate  of  interest,  and  at  the  present  time 
it  is  becoming  recognized  that  loans  on  farm  property  are  probably 
the  safest  investment  possible  for  capital  to  make,  and  that  is  becom- 
ing more  popular  and  more  desired  all  the  while.  It  would  have  a 
tendency  to  create  a  speculative  market,  because  money  would  be 
easily  available. 

Mr.  Woods.  Do  you  think  farmers  are  going  to  borrow  just  for 
the  sake  of  borrowing  ? 

Mr.  Cunningham.  What  is  that  ? 

Mr.  Woods.  I  say,  do  you  think  the  farmers  are  going  to  borrow 
just  for  the  sake  of  borrowing  ? 

Mr.  Cunningham.  I  think  not  only  farmers,  but  other  financial 
interests,  if  they  see  an  opportunity  for  profitable  investment,  will 
take  it.  A  farmer  or  other  business  man  wTould  take  an  opportunity, 
if  it  presented  itself,  to  make  a  speculative  investment. 

Another  point  that  comes  to  mind  in  connection  with  that  is, 
if  the  Government  should  have  a  large  amount  of  money — bonded 
indebtedness — invested  in  farm  securities,  and  any  distress  should 
overtake  this  country,  such  as  devastation  from  war  or  other  uncon- 
trollable circumstances,  that  the  Government  would  not  be  able  to 
call  in  those  loans  to  redeem  its  indebtedness.  It  could  not  force 
the  people  to  take  up  arms,  and  possibly  leave  their  farms  and  meet 


604  RURAL   CREDITS. 

the  obligation  to  the  Government  at  the  same  time,  and  so  in  that 
instance  I  believe  it  would  be  a  serious  handicap  to  the  welfare  of 
the  Nation  as  a  whole. 

On  the  other  hand,  land  banks  in  Europe  have  not  been  affected 
at  any  time,  or  not  seriously  affected,  by  wars  which  have  occurred 
during  their  existence,  and  while  Government  bonds  have,  depre- 
ciated, land-mortgage  bonds  have  nearly  kept  the  equality  of  values, 
so  that  with  those  points  as  my  chief  objections  to  the  Bathrick  bill 
as  not  being  compatible  with  the  sentiment  desired  by  farmers  and 
land  owners  of  the  State  and  Nation,  I  think  the  rest  of  my  time 
will  be  devoted  to  the  agricultural  credit  bill,  as  presented  by  Mr. 
Moss  and  Senator  Fletcher. 

Mr.  Bulkley.  In  connection  with  the  relative  standing  of  land 
mortgages  and  Government  bonds,  would  not  your  statement  of 
European  experience  tend  to  show  that  it  would  be  easier  to  make 
collections  on  land  mortgages  than  it  would  to  raise  money  to  sup- 
port a  war  by  selling  new  bonds  ? 

Mr.  Cunningham.  1  think  it  would.  I  think  that  history  will 
bear  me  out  in  the  statement  that  whenever  a  war  scare  or  the  war 
is  actually  on,  interest  rates  go  up  and  the  actual  raising  of  money 
becomes  more  difficult  for  the  Government. 

Mr.  Bulkley.  So  that  if  the  Government  owned  a  vast  amount  of 
mortgages  on  farms,  although  they  might  have  some  difficulty  in  col- 
lecting on  them,  it  still  might  be  easier  than  to  sell  new  bonds'? 

Mr.  Cunningham.  You  mean  it  still  might  be  easier  to  collect  on 
those  bonds  ? 

Mr.  Bulkley.  Collect  on  the  mortgages.  It  would  be  easier  to 
collect  on  the  mortgages  than  it  would  be  to  provide  a  war  fund  by 
the  use  of  newr  Government  securities  ? 

Mr.  Cunningham.  I  do  not  presume  that  they  could  provide  a  war 
fund  by  issuing  bonds  on  farm  mortgages. 

Mr.  Bulkley.  I  was  assuming  the  condition  that  they  had  already 
borrowed  the  money  and  loaned  out  on  farm  mortgages,  and  I  was 
trying  to  compare  the  possibility  of  collecting  on  those  mortgages 
with  the  alternative  of  issuing  new  bonds. 

Mr.  Cunningham.  I  think  I  can  answer  your  question  bv  saying 
that  if  you  have  from  :?:5, 000,000, 000  to  $5,000,000,000  of  bonds  issued 
on  farm  mortgages,  that  that  in  itself  would  be  taken  into  considera- 
tion by  investors  when  the  Government  attempted  to  issue  bonds  for 
war  purposes  or  anything  of  that  sort.  Secondly,  you  will  make  it 
much  harder  for  the  Government  to  raise  additional  money,  and  I 
believe  that,  of  course,  the  land  itself,  as  long  as  proper  precautions 
are  taken,  would  be  available  for  raising  mone}',  either  by  bonds  or 
otherwise,  up  to  the  full  amount  of  the  limitation,  but  do  not  believe 
under  that  that  your  question  would  be  pertinent,  that  they  could 
raise  money  for  war  purposes  on  land  bonds. 

Mr.  Bulkley.  No;  I  did  not  ask  that.  I  assume  that  we  had 
been  borrowing  under  the  Bathrick  bill,  and  that  we  had  borrowed 
money  and  issued  the  bonds  in  times  of  peace. 

Mr.  Cunningham.  Oh,  I  see. 

Mr.  Bulkley.  And  that  we  had  invested  that  money  in  mortgages; 
then  the  question  was  whether  we  could  not  simply  cash  in  on  those 
mortgages  as  they  became  due  by  amortization  payments,  and  would 


RURAL   CREDITS.  605 

it  not  be  easier  to  get  money  that  way  than  it  would  by  the  issue  of 
new  bonds  in  war  time  ? 

Mr.  Cunningham.  I  hardly  know  how  to  answer  that  question, 
because  I  take  it  that  the  Government  could  not  force  payment  any 
faster  than  it  became  due  on  the  bonds. 

Mr.  Bulkley.  Oh,  no;  it  certainly  could  not. 

Mr.  Cunningham.  Consequently,  I  do  not  see  how  they  could  raise 
money  any  easier  on  these  bonds  than  by  collecting  what  was  due. 

Mr.  Bulkley.  On  the  mortgages,  you  mean  % 

Mr.  Cunningham.  On  the  mortgages.  I  see  your  point  now.  You 
asked  the  question  of  taking  the  mortgages  and  raising  the  money  on 
the  mortgages  instead  of  issuing  bonds  for  other  additional  purposes. 

Mr.  Bulkley.  Yes.  You  raised  the  question  of  what  would  hap- 
pen in  case  we  had  to  meet  the  expenditures  of  a  war.  Of  course  I 
realize  that  that  is  difficult,  however  you  look  at  it,  but  I  was  trying 
to  get  at  whether  it  would  not  be,  in  fact,  easier  by  having  these 
land  mortgages  than  it  would  be  by  simply  issuing  a  new  issue  of 
bonds  on  the  credit  of  the  Government,  which  would  have  to  be  put 
on  the  market  during  war  times. 

Mr.  Cunningham.  In  other  words,  you  would  use  these  mortgages 
for  additional  security.     Is  that  the  idea? 

Mr.  Bulkley.  That  might  be  done,  or,  if  you  have  a  vast  enough 
amount  of  them,  the  amortization  payments  amount  to  something. 

Mr.  Cunningham.  Yes. 

Mr.  Bulkley.  Simply  by  stopping  the  making  of  new  loans  and 
cashing  in  your  amortization  payments  you  would  have  considerable 
money. 

Mr.  Cunningham.  I  do  not  believe  that  any  such  plan  as  that  would 
be  practicable  to  couple  up  in  connection  with  any  land-mortgage 
or  land-fund  proposition;  that  the  land-mortgage  facilities  or  money 
issued  on  land  mortgages  or  land  bonds  based  upon  land-mortgages, 
should  not  be  complicated  with  any  other  conditions.  I  think  it 
should  be  clear  and  apart  in  itself  and  removed  from  anything 
speculative  in  that  nature. 

Now,  I  have  some  minor  criticism  to  offer  in  a  few  places  in  the 
bill  itself.  I  presume  that  is  the  bill  in  the  report,  that  it  is  the  same 
as  the  printed  bill.     I  have  not  had  a  copy  of  the  printed  bill  itself. 

Mr.  Bulkley.  Yes:  it  is  the  same. 

Mr.* Cunningham.  In  section  16,  under  part  A,  specific  powers; 
under  B,  what  is  designated  "first,"  "such  loans  are  made  for  not 
more  than  35  years." 

I  think  that,  while  not  a  very  vital  point  at  all,  25  or  30  years 
would  be  long  enough.  I  do  not  think  that  amortization  periods 
ought  to  be  carried  over  further  than  the  possibility  of  one  generation. 

Then  in  the  third,  under  A,  the  designation  of  the  purpose  for  which 
the  loans  can  be  made,  to  my  mind,  is  rather  limited.  In  other  words, 
it  says  to  complete  the  purchase  of  agricultural  land  mortgaged. 
Now,  it  might  happen  that  a  man  owning  a  small  farm — a  small  farm 
considered  as  having  an  area  of  75  acres  or  under — would  want  to 
purchase  an  additional  amount,  maybe  50  or  75  acres  that  might 
adjoin  him.  If  I  see  it  right,  he  would  be  barred  from  the  use  of 
these  facilities.     In  other  words,  that  he  could  not  use  an  added 


606  RURAL   CREDITS. 

amount  there  to  purchase  nev*  Land.  It  says,  "to  complete  the  pur- 
chase of  agricultural  land  mortgaged,"  and  that  he  could  only  use  a 
mortgage  to  the  extent  of  what  would  be  available  on  his  original  area. 

Mr.  Bulkley.  The  other  way  round,  he  could  use  whatever  he 
could  get  on  the  piece  that  he  was  buying. 

Mr.  Cunningham.  But  he  could  not  use  his  other  land  as  security. 

Mr.  Bulkley.  Not  under  this  system;  but  he  could  mortgage  it 
elsewhere. 

Mr.  Cunningham.  I  think  it  would  be  better  for  him  if  he  could 
use  it  in  this  system. 

Mr.  Bulkley.  How  far  would  you  go  with  that  ?  Would  you  open 
it  wide  and  let  them  use  any  proceeds  or  any  mortgages  generally  for 
the  purchase  of  land  without  limit  ? 

Mr.  Cunningham.  I  think  that  a  borrower,  in  the  first  instance  I 
believe  that  comes  in  another  part,  under  another  feature,  in  specific 
limitations  can  only  borrow,  or  the  bank  can  only  loan  to  any  indi- 
vidual, 20  per  cent  of  the  capitalization. 

Mr.  Bulkley.  Yes;  but  the  capitalization  is  unlimited. 

Mr.  Cunningham.  I  know  it  is  not  limited,  but  in  that  case  it  makes 
the  minimum  $2,000. 

Mr.  Bulkley.  That  is  the  maximum  loan  of  the  minimum  bank. 

Mr.  Cunningham.  Well,  that  is  right,  too.  I  think  that  they  could 
make  a  larger  percentage  of  loan  on  the  capitalization,  so  as  to  take 
care  of  the  smaller  banks,  but  with  a  maximum  loan  limit  to  any 
individual. 

Mr.  Bljlkley.  That  is  a  matter  that  we  have  had  suggested  a  good 
deal.     What  do  you  think  ought  to  be  the  limit  to  any  one  individual  ? 

Mr.  Cunningham.  That  is,  of  course,  another  very  debatable  ques- 
tion, but  I  think  for  the  welfare  of  the  farming  public  generally  and 
to  carry  out  the  purposes  of  this  bill,  which  are  to  help  the  small  land- 
owner in  the  attempt  to  acquire  a  home,  a  limit  not  to  exceed  815,000 
ought  to  be  ample  enough.  But,  on  the  other  hand,  the  small  capi- 
talization is  one  of  the  vital  necessities  for  bringing  these  facilities  to 
the  average  farmer.  In  many  communities  where  they  need  these 
facilities  it  would  be  impossible  for  them  to  subscribe  larger  capital 
in  order  to  avail  themselves  of  the  opportunity,  so  I  think  the  mini- 
mum capital  is  somewhere  near  proper. 

But  in  that  case  the  bank  of  $10,000  capitalization,  under  this  bill, 
can  issue  bonds  to  $150,000.  Xow,  if  a  bank  of  that  size  is  organized, 
it  will  be  organized  in  a  small  community  and  its  operations  will  be  of 
a  limited  nature.  In  such  a  bank,  then,  it  might  be  difficult  for  them 
to  handle  $150,000  of  bond  issues,  unl(  ss  the  maximum  loan  for  them 
was  raised.  In  other  words,  I  think  an  institution  of  that  description 
could  safely  handle1  loans  to  an  individual  of  $5,000  tinder  the  pro- 
visions of  the  bill  itself  which  safeguards  the  issuing  of  bonds  and  the 
making  of  loans. 

Mr.  Bulkley.  About  thai  limit  that  any  one  individual  might 
borrow,  do  you  think  $15,000  a  correct  maximum?  Do  you  think 
that  ought  to  be  the  limit?  Do  you  think  it  ought  to  be  so  high 
as  that  '.     That  is  higher  than  most  of  the  witnesses  put  it? 

Mr.  Cunningham.  I  think  so  in  view  of  the  upward  tendency  of 
land  values,  (specially  in  the  Central  and  Eastern  States — I  am  not 
familiar  with  the  Western  States — but  in  the  Central  and  Eastern 


RURAL   CREDITS.  60 7 

States  they  are  practically  free  from  any  speculative  values,  and, 
considering  the  fact  that  the  minimum  amount  of  acres  which  a  man 
can  most  profitably  handle  is  somewhere  from  100  to  125  acres.  I 
believe  that,  under  these  conditions,  much  less  than  $12,000  to  SI  5,000, 
especially  if  the  maximum  amount  that  an  individual  can  borrow 
remains  at  50  per  cent,  will  not  be  very  far  out  of  the  way. 

For  instance,  a  man  buying  an  150-acre  farm  valued  at  from  SI 00 
to  $200,  which  is  the  price  of  the  best  farm  land,  would  need  $10,000 
to  take  care  of  him  under  that  plan.  Of  course,  larger  farms  than 
that,  up  to  300  to  350  acres,  under  proper  management,  can  be  more 
economically  handled  than  the  small  farm.  Our  tenants  and  others 
remain  more  on  the  larger  farm,  ranging  from  200  to  300  acres  of 
land.  These,  especially  with  us,  are  the  rule  and  will  remain  so  for 
some  time  to  come.  I  find  in  my  work  and  investigations  that  there 
are  very  few  young  men  who  are  able  to  take  up  these  opportunities, 
because  they  can  not  raise  sufficient  money  to  buy  a  farm  of  that 
kind,  and  there  are  few  people  selling  farms  who  are  willing  to  divide 
them  as  yet.  So  I  think  under  the  bill  the  maximum  can  be  safely 
made  $15,000,  raising  the  minimum  to  the  individual  in  the  minimum 
bank  to  50  per  cent,  or  raising  the  minimum  to  50  per  cent  and 
limiting  the  maximum  amount  to  be  loaned  to  any  individual. 

Another  point,  while  it  might  not  be  so  pertinent  to  this  bill  as  the 
raising  of  the  maximum  percentage  to  be  loaned  to  any  individual, 
the  bill  limits  it  to  50  per  cent  and  I  think  that  it  could  be  safely 
operated  at  66 §  per  cent,  and  I  think  it  would  carry  out  the  purpose 
desired  by  the  bill  to  raise  the  minimum  to  that  amount.  I  recognize, 
on  the  other  hand,  that  the  States,  in  supplementing  this  bill  by 
whatever  legislation  may  be  necessary,  would  have  the  opportunity 
to  make  their  maximum  66|  per  cent.  But  at  the  same  time,  if  it 
was  carried  as  in  this  bill,  it  would  make  State  legislation  more  uni- 
form all  over  the  country  and  it  would  make  it  more  nearly  conform 
with  the  national  legislation,  and  for  my  part  I  would  rather  see  that 
part  raised. 

Section  18.  I  have  a  criticism  to  offer  with  reference  to  the  tax- 
ation. I  agree  that  mortgages  should  be  exempted  from  taxation. 
That  is,  mortgages  in  connection  with  this  land  mortgage  bill,  but  I 
do  not  think  that  the  profits  of  these  institutions  should  be  exempted 
from  the  income  tax.  1  think  that  it  is  foreign  to  the  purposes  of  our 
governmental  institutions  to  grant  a  special  privilege  of  that  nature 
to  any  corporation,  and  I  think  that  the  profits  and  capital  stock  of 
organizations  to  cany  out  these  provisions  should  be  subject  to  the 
income  tax.  But  to  properly  carry  out  the  other  provisions  and  to 
bring  the  greatest  benefit  to  the  organizations,  I  think  that  the  mort- 
gages and  bonds  should  be  exemped  from  taxation. 

Mr.  Seldomridge.  Will  you  let  me  ask  you  a  question  there? 

Air.  Cunningham.  Certainly. 

Mr.  Seldomridge.  If  you  do  not  make  this  exemption,  as  you  pro- 
pose, do  you  not  think  it  would  tend  to  increase  the  interest  rate  on 
these  mortgages  % 

Mr.  Cunningham.  You  mean  if  we  do  not  exempt  them  from  the 
income  tax  on  the  profits  of  the  institution  % 

Mr.  Seldomridge.  Yes. 


608  RURAL  CREDITS. 

Mr.  Cunningham.  It  would  increase  the  rates  on  the  other. 

Mr.  Seldomridge.  Yes. 

Mr.  Cunningham.  I  do  not  think  so  for  the  reason  that  these  insti- 
tutions and  their  surplus  and  profits  over  the  1  per  cent  which  they 
are  permitted  to  charge  in  addition  to  the  interest  rate  on  bonds. 
Consequently  they  could  not  make  up  the  income  tax  on  the  addi- 
tional charge  to  the  mortgage. 

Mr.  Seldomridge.  You  mean  they  should  pay  the  income  tax  out 
of  their  1  per  cent  ? 

Mr.  Cunningham.  They  should  pay  their  income  tax  out  of  their 
profits. 

Mr.  Bulkley.  What  do  you  say  about  the  income  tax  on  the 
bonds  ? 

Mr.  Cunningham.  That  is  a  question  really  I  had  not  thought  out. 
But  the  income  tax  on  the  bonds,  I  would  say,  without  detailed 
thought  on  the  subject,  would  be  added  to  the  interest  rate,  that  is, 
that  investors  would  take  that  into  consideration  when  buying  them, 
in  comparison  with  the  rate  the  bonds  carried. 

Mr.  Bulkley.  I  think  you  are  clearly  right  that  there  is  a  dis- 
tinction between  the  bonds  and  the  stocks. 

Mr.  Cunningham.  Now,  gentlemen,  that  is  practically  all  I  had  to 
discuss  on  the  subject.  As  I  said,  I  had  short  notice  and  was  busy 
at  the  time  and  could  not  meet  you  last  week  when  I  was  invited  to. 
I  have  had  very  little  time  since  to  go  into  any  detailed  consideration 
of  these  matters,  and  from  the  fact  that  I  know  you  have  not  only 
a  vast  amount  of  material  available  for  your  own  study,  but  possibly 
some  very  elaborate  talks  and  discussions  of  the  various  features  of 
making  land  mortgages  and  on  the  amortization  features  and  other 
forms  of  agricultural  credit,  I  do  not  care  to  go  into  that  phase  of 
the  subject.  I  have  confined  myself  more  particularly  to  these  bills, 
and  I  want  to  emphasize  that  the  very  important  part  in  framing 
land-mortgage  credit  is  the  amortization  feature  and  putting  it  to 
the  people  without  any  paternalism  in  it  more  than  is  justified  to  the 
people  as  a  whole.  As  farmers,  while  we  are  not  asking  special  privi- 
leges, we  are  only  asking  equal  opportunities  with  other  lines  of 
business.  Stop  for  a  moment  and  consider  the  fact  that  our  great 
commercial  interests,  which  are  not  equaled  anywhere  in  the  world, 
have  been  built  up  by  the  system  of  credit  which  we  have,  which  has 
been  friendly  to  commercial  interests.  On  the  other  hand,  we  have 
never  had  legislation  that  has  been  particularly  friendly  to  agricul- 
tural credit.  We  know  that  our  national  banks  and  our  State  banks 
can  not  meet  the  agricultural  conditions  demanded  of  them.  This 
bill,  to  my  mind,  very  nearly  meets  the  needs  of  the  agricultural 
interests,  and  after  studying  the  systems  in  vogue  in  Europe  I  think 
it  is  the  best  bill  that  I  have  seen  anywhere  in  this  country.  I  hope 
that  in  rendering  your  decision  and  recommendation  to  Congress  you 
will  closely  consider  this  Fletcher  bill. 

I  thank  you. 

Mr.  Bulkley.  We  are  very  much  obliged  to  you,  Mr.  Cunning- 
ham. 

Now,  Mr.  Jones,  if  you  arc  ready,  we  will  go  ahead. 


RURAL  CREDITS.  609 

STATEMENT  OF  GORDON  JONES,  PRESIDENT  UNITED  STATES 
NATIONAL  BANK,  DENVER,  COLO. 

Mr.  Bulkley.  Mr.  Jones,  will  you  just  state  your  banking  con- 
nection and  your  connection  with  this  subject  of  farm  banks? 

Mr.  Jones.  I  am  president  of  the  United  States  National  Bank,  of 
Denver.  I  am  a  member  of  the  American  commission  and  a  vice 
chairman  of  the  committee  on  finance  of  that  commission.  I  have 
been  in  the  banking  and  farm  loan  business  for  27  or  28  years  in  the 
States  of  Missouri  and  Colorado.  I  began  banking  in  a  small  $  10,000 
county  bank  in  1887.  I  was  bank  examiner  of  the  State  of  Missouri 
for  two  terms,  from  1894  to  1898. 

Mr.  Woods.  Is  that  State  bank  examiner? 

Mr.  Jones.  State  bank  examiner.  My  contact  with  the  farmers 
and  farmers'  needs  has  been  very  close  and  intimate.  I  am  now  a 
stockholder  and  director  in  a  number  of  country  banks.  I  aim  to 
meet  with  the  directors  of  those  banks  several  times  each  year. 
After  leaving  the  service  as  bank  examiner  of  Missouri  in  1898  I 
became  president  of  a  live-stock  bank  at  St.  Joseph,  Mo.,  which  did 
an  almost  exclusive  business  with  farmers  and  stockmen,  and  held 
that  position  for  a  number  of  years,  resigning  to  locate  in  Colorado. 

I  would  like,  Mr.  Chairman,  to  mention  to  start  with,  if  I  may  be 
pardoned  for  further  personal  reference,  that  I  believe  I  am  the  first 
Danker  who  suggested,  in  considering  the  revision  of  our  banking 
laws,  the  idea  of  regional  banks.  I  appeared  before  the  Banking 
Committee,  at  its  request,  when  it  held  hearings  in  Denver,  and  dur- 
ing the  hearings  Vice  Chairman  Vreeland  mentioned  the  need  of  some 
great  "reservoir"  for  mobilizing  the  credits  of  the  banks.  This  will 
have  direct  bearing  upon  what  I  shall  present  later. 

Mr.  Chairman,  I  represent  the  minority  of  the  American  commis- 
sion in  presenting  to  you  some  additional  arguments  that  probably 
have  not  already  been  presented  regarding  the  report  of  the  minority 
of  that  commission.  I  had  considerable  to  do  with  the  drafting  of 
the  minority  report.  Mr.  Von  Engelken,  a  practical  farmer,  who 
appeared  before  you  a  few  days  ago,  went  pretty  fully  into  detail  in 
explaining  our  ideas  regarding  land-mortgage  banks,  and  I  noticed 
several  times  he  made  reference  to  the  work  he  and  I  had  done  in 
drafting  the  report,  but  waived  several  questions  that  were  asked 
him  by  stating  that  Mr.  Gordon  Jones  probably  would  be  better  pre- 
pared to  answer.  I  judge  that  was  why  you  requested  me  to  appear 
before  you.  I  am  not  here  voluntarily,  though  I  am  glad  of  the 
opportunity  of  being  heard.  Your  letter  and  two  telegrams  follow- 
ing finally  induced  me  to  leave  my  business  at  a  very  inconvenient 
time.  If  I  can  say  anything  that  will  assist  you,  I  will  be  glad  to  do 
so.  I  am  at  your  service  as  long  as  you  want  me.  I  have  come 
2,000  miles  in  order  to  render  what  service  I  can  to  this  cause. 

I  was  appointed  on  the  American  commission  by  a  former  governor, 
as  Mr.  Seldomridge  knows,  Gov.  E.  M.  Amnions,  of  Colorado,  who 
asked  me  if  I  would  act  on  the  commission,  pajdng  my  own  ex- 
pense, as  there  was  no  provision  for  meeting  such  expense  by  the 
State,  in  order  to  see  if  something  could  be  devised  for  assisting  in 
financing  the  farmers,  particularly  in  my  own  section.  Before  I 
get  into  the  merits  of  the  minority  report,  I  would  like  to  clear  up  a 

37031—14 39 


610  RURAL   CREDITS. 

matter  or  two  that  I  noticed  have  been  brought  out  in  the  records, 
Mr.  Chairman,  and  gentlemen,  and  ask  personal  privilege  to  do  so. 

I  did  not  receive  any  copies  of  the  hearings  until  I  reached  Wash- 
ington yesterday  morning.  I  spent  the  whole  of  yesterday  and  a 
good  part  of  last  night  reading  over  these  hearings  to  bring  myself 
down  to  date.  Had  I  had  time  to  have  gone  over  them  before,  I 
could  have  made  my  testimony  before  you  a  little  more  consecutive 
and  possibly  more  interesting.  But  the  point  I  have  in  mind  at  the 
moment  in  desiring  to  clear  the  record,  or  at  least  to  clear  my  own 
record  in  the  records,  is  answering  a  statement  made  in  Part  2,  page 
75,  by  Congressman  Moss.     Mr.  Moss  states: 

I  am  going  to  call  to  your  attention  resolutions  which  have  been  passed  in  two 
States  by  farmers'  congresses  and  call  your  attention  to  the  important  features  of 
such  resolutions. 

Here  is  a  resolution  passed  in  Colorado.  I  wilL  read  it  complete,  as  I  desire  to 
have  it  in  the  record: 

Whereas  we  recognize  the  great  importance  and  necessity  of  cooperative  effort  among 
our  farmers;  and 

Whereas  we  recognize  the  vast  difference  in  conditions,  environment,  and  tempera- 
ment of  the  European  farmers  (among  whonj  cooperation  has  proven  so  successful) 
and  the  American  farmers;  and 

Whereas  we  believe  that  cooperation  can  be  more  generally  employed  by  the  Amer- 
ican farmers  in  much  of  their  endeavors  to  their  own  advantage  and  to  the  advan- 
tage of  the  consumer  as  well :  Therefore  be  it 
Resolved,  That  we  heartily  indorse  all  legitimate  and  conservative  means  toward 

cooperative  effort  in  the  rudimentary  branches  of  their  endeavors,  cautioning  them  at 

the  same  time  against  the  risks  that  would  be  involved  in  assuming  mutual  liability 

for  credit  purposes:  Therefore  be  it  further 

Resolved,  That  the  Colorado  Farmers'  Congress  hereby  heartily  indorses  the  views 

and  recommendations  expressed  in  the  minority  report  of  the  American  commission 

and  urges  caution  in  cooperative  credit  undertaken  by  the  farmers  which  has  as  its 

foundation  the  mutual  liability  feature. 

Congressman  Moss  adds: 

I  might  call  your  attention  to  the  fact  that  at  the  time  that  resolution  was  adopted 
the  United  States  commission  report  was  not  public,  and  so  far  as  I  know  the  minority 
report  of  the  American  commission  was  not  public.  It  was  absolutely  not  available. 
There  is  no  question  that  the  farmers  of  Colorado  or  anybody  else  could  have  known 
anything  about  the  views  of  the  minority  members  of  the  commission,  and  yet  here 
is  a  resolution  bravely  adopted  by  the  State  indorsing  the  views  of  the  minority  on  a 
proposition  that  had  at  that  time  no  publicity  and  which  was  not  yet  promulgated, 
and  certainly  was  known  probably  to  only  one  man  in  the  State  of  Colorado  at  that 
time. 

Mr.  Chairman,  the  minority  report  was  prepared  in  Washington 
five  days  following  the  meeting  of  the  American  commission  held  early 
in  December.  That  report  was  completed  in  my  office  in  Denver  by 
making  certain  changes  that  had  been  agreed  upon,  after  we  had  spent 
all  the  time  in  Washington  we  felt  we  could.  That  report  was  imme- 
diately forwarded  to  Senator  Fletcher,  with  request  that  it  be  made 
public  along  with  the  report  of  the  majority,  which  we  understood 
would  be  within  a  few  days.  I  had  promised  to  address  the  Colorado 
farmers  on  this  subject  for  some  weeks  previous.  The  date  I  was  to  be 
with  them  was  January  26.  I  presumed  that  long  before  that  time 
the  report  of  both  the  majority  and  minority  would  be  published.  It 
was  so  understood  before  we  left  Washington  and  by  subsequent  cor- 
respondence. I  was  told  that  it  would  go  to  print  in  a  few  days.  I 
prepared  my  talk  on  the  assumption  that  it  was  printed.  I  wired  and 
wrote  frequently  to  both  Senator  Fletcher  and  Dr.  Coulter  to  know 


KURAL  CREDITS.  611 

why  1  1  i ad  not  received  my  copies  of  the  printed  documents.  I  later 
learned  that  the  majority  and  not  the  minority  desired  to  make  some 
changes  in  its  report  before  they  were  published,  and  that  inasmuch 
as  the  minority  report  had  quoted  from  the  majority,  it  might  affect 
those  quotations.  I  received  numerous  inquiries  from  a  good  many 
sections  of  the  country  asking  why  the  minority  report,  completed 
weeks  before,  had  not  been  made  public. 

The  United  States  commission  report  had  been  made  public  and 
there  was  a  growing  feeling  among  certain  members  of  the  American 
commission  that  the  minority  report,  which  took  some  issue  with 
the  bill  proposed  by  the  United  States  commission,  had  been  held 
off  awaiting  the  publication  of  the  United  States  commission  report 
until  it  had  gotten  the  attention  of  the  President,  and  possibly  the 
administration  indorsement.  I  refuted  that  idea  to  those  who  wrote 
me  about  it,  but  I  wired  Dr.  Coulter,  to  whom  I  had  learned  Senator 
Fletcher  had  turned  over  the  minority  report,  and  urged  him  to  make 
it  public,  if  it  had  not  already  been  made  public,  for  the  good  of  the 
work  we  were  all  trying  to  do  and  to  prevent  any  feeling  that  both 
sides  or  all  sides  were  not  getting  a  fair  and  just  hearing.  Dr.  Coulter, 
now  present,  will  bear  me  out  and  if  I  have  made  any  misstatements 
I  will  ask  that  he  correct  me.  So,  after  we  had  urged  for  two  months 
that  our  report  be  made  public,  we  received  a  revised  copy  of  the 
majority  report,  which  had  changed  some  of  the  wording  that  we  had 
quoted.  Dr.  Coulter  wired  he  would  "hold  up"  the  minority  report 
until  we  had  corrected  the  quotations.  So,  during  all  this  time  I 
had  prepared  what  I  had  to  sa}r  before  the  Colorado  farmers'  congress 
on  the  assumption  that  my  address  would  be  delivered  weeks  after 
the  publication.  I  am  sure  had  I  been  able  to  have  made  the  expla- 
nation to  Mr.  Moss  he  would  not  have  seen  fit  to  criticize  me  in 
having  presented  a  report  that  had  not  been  made  public,  but  should 
have  been,  and  which  I  presumed  and  had  every  reason  to  believe 
had  been  made  public  long  before  I  brought  the  matter  to  the  atten- 
tion of  the  farmers  of  my  own  State.  I  merely  mention  the  incident 
to  clsar  the  record,  and  I  regret  the  necessity  of  doing  so. 

Mr.  Moss.  I  would  like  to  say  that  there  was  never  any  idea  on  my 
part  to  impugn  the  personal  motives  of  Mr.  Gordon  Jones.  I  had  the 
pleasure  of  associating  with  him  in  Europe,  and  know  him  to  be  a 
very  close  student,  and,  as  I  said,  is  a  very  competent  man,  and  the 
only  question  I  was  speaking  about  was  the  question  of  the  value  of 
an  indorsement  by  farmers'  organizations  in  the  State  of  Colorado  of 
a  minority  report,  and  mentioning  the  extent  of  the  publicity  at  that 
time,  and  if  Mr.  Jones  or  anyone  felt  that  I  meant  at  any  time  to 
reflect  upon  him  I  wish  to  enter  here  a  vigorous  denial  of  that  propo- 
sition, and  wish  to  say  here  that  I  know  of  no  man  that  was  with  us 
that  is  more  competent  to  discuss  this  subject,  and  that  is  the  whole 
reason  why  I  am  here  to-day,  to  avail  myself  of  the  opportunity  of 
hearing  what  he  has  to  say,  because  I  know  it  will  be  a  very  interest- 
ing and  a  very  able  discussion  of  the  subject. 

Mr.  Jones.  Thank  you,  Mr.  Moss,  for  your  assurance,  but  the  way 
the  record  reads  it  looks  like  you  were  impugning  my  motives.  I  was 
the  only  man  who  had  a  copy  of  the  minority  report  at  that  time  and 
I  was  the  only  one  who  could  have  presented  the  matter  to  the  Colo- 
rado farmers,  and  I  was  the  one  man  in  Colorado  to  whom  you  made 
reference. 


612  RURAL   CREDITS. 

I  sent  four  copies  of  the  resolution  passed  by  the  Colorado  Farmers' 
Congress  to  Washington — one  to  Senator  Fletcher,  chairman  of  the 
United  States  and  American  commissions,  one  to  Dr.  Coulter,  one  to 
each  of  our  own  Senators — and  certainly  by  this  act  showed  I  was  act- 
ing in  good  faith.  I  would  have  been  glad  to  have  furnished  a  copy  of 
the  resolution  to  Mr.  Moss.  Undoubtedly  he  did  use  one  of  the  copies 
I  sent  to  Washington,  of  which  he  became  possessed.  I  sent  the 
copies  to  Washington  for  the  express  purpose  of  showing  the  minority 
was  suggesting  something  that  the  farmers,  in  my  own  State  at  least, 
did  not  oppose. 

I  am  glad,  indeed,  that  you  mentioned,  Mr.  Moss,  our  association 
in  the  European  countries  during  our  investigations,  for  I  assisted 
you,  I  think,  very  materially  in  getting  in  connection  with  a  number 
of  strong  banking  institutions  and  mercantile  agencies  over  there  that 
gave  you  some  very  valuable  information,  and  thus  assisted  in  gather- 
ing your  evidence. 

Mr.  Moss.  I  am  very  frank  and  glad  to  make  that  acknowledgment. 

Mr.  Coulter.  Mr.  Chairman,  I  would  like  to  have  the  record  clear 
there. 

Mr.  Bulkley.  This  time  belongs  to  Mr.  Jones,  and  I  would  rather 
he  would  not  be  interrupted,  unless  he  wants  to  be  himself. 

Mr.  Jones.  Just  one  moment,  Dr.  Coulter.  I  find  a  statement  from 
you  here  that  I  think  clears  the  record  in  itself. 

Mr.  Chairman,  I  am  taking  your  time  because  the  record  here,  I 
think,  needs  some  explanation. 

Mr.  Stone.  The  fact  is,  Mr.  Jones,  that  at  the  time  these  farmers 
adopted  this  resolution  they  were  not  familiar  with  the  report  upon 
which  they  were  passing  their  resolution.     Is  that  not  so  ? 

Mr.  Jones.  They  were  familiar  with  the  minority  report,  Mr. 
Stone.  They  were  quite  familiar  with  the  entire  report.  They  had 
the  entire  report  before  them,  which  I  had  been  told  would  be  made 
public  a  month  before  that,  and  which  should  have  been. 

Mr.  Moss.  I  do  not  want  to  crowd  the  record,  and  I  do  not  want 
the  chairman  to  permit  it,  but  for  the  purpose  of  making  the  record 
clear,  I  think  that  the  United  States  commission's  report  was  only  a 
tentative  report,  and  it  was  in  the  hands  of  the  president  in  a  confi- 
dential way,  and  whatever  copies  were  sent  out  to  the  American  com- 
mission were  made  confidential  and  with  entire  reservation  on  our 
part  to  change  at  any  time  before  it  became  public.  I  feel  that  that 
ought  to  be  made  clear. 

Mr.  Jones.  Our  minority  report  does  not  criticise  the  United  States 
commission  report,  but  does  the  majority  report  of  the  American  com- 
mission, which,  as  a  member,  I  had  a  perfect  right  to  analyze,  criti- 
cise, and  comment  upon.  Dr.  Coulter,  I  think,  assisted  to  clear  the 
record  very  nicely  in  part  4,  page  37,  especially  in  so  far  as  the  resolu- 
tion passed  by  the  Nebraska  farmers,  to  which  Mr.  Moss  also  referred 
and  in  which  I  had  little  or  no  part,  although  I  did  appear  before  the 
Nebraska  farmers  and  presented  to  them  my  personal  views  even  before 
the  minority  report  or  majority  report  had  been  prepared  and  be- 
fore I  know  there  was  a  United  States  commission  report.  I  was  on 
my  way  to  Washington,  called  for  the  purpose  of  considering  these 
reports.  I  had  stopped  off  in  Omaha  and  addressed  the  Nebraska 
farmers  at  their  request  made  weeks  before.     That  resolution  is  as 


RURAL   CREDITS.  613 

follows.  I  will  not  take  your  time  to  read  the  Nebraska  farmers' 
resolution  but  I  would  be  glad  to  have  it  put  into  the  record  at  this 
point  just  as  it  was  read  by  Mr.  Moss  to  you  before. 

RURAL   CREDITS. 

We  note  the  recommendations  of  the  President  of  the  United  States  that  Congress 
speedily  pass  such  legislation  as  shall  provide  an  adequate  system  of  credit  for  the 
farmer,  to  be  commensurate  with  his  resources  and  operate  for  the  reduction  of  interest 
rates  to  a  level  with  those  given  to  other  enterprises. 

While  this  congress  commends  the  patriotic  recommendation  of  the  President,  we 
believe  that  the  farmers  of  the  country  are  not  yet  sufficiently  informed  on  the  subject 
nor  sufficiently  represented  at  Washington  to  bring  to  the  attention  of  Congress  the 
information  and  influence  which  are  being  exerted  by  the  powerful  banking  interests 
toward  similar  ends. 

We  believe  that  the  subject  of  rural  credits  has  its  proper  foundation  in  the  local 
community  and  that  it  is  a  legitimate  subject  of  State  rather  than  of  Federal  legisla- 
tion, until  it  has  been  developed  satisfactory  in  its  preliminary  stages. 

We  therefore  express  our  conviction  that  Federal  legislation  upon  this  subject  at 
this  time  is  untimely  and  may  possibly  operate  to  defeat  the  ends  it  is  designed  to 
serve,  and  we  call  upon  our  representatives  in  the  Senate  and  House  of  Representatives 
to  proceed  with  due  caution  and  decline  to  act  upon  such  measures  as  are  or  may  be 
proposed  until  they  shall  have  been  submitted  to  representative  farmers'  organizations 
tor  their  approval  or  rejection. 

I  did  not  know  of  this  resolution  for  several  weeks  later,  and  when 
I  learned  that  there  had  been  a  resolution  adopted  in  Nebraska, 
I  wrote  to  the  president  of  the  Nebraska  Farmers'  Congress  and 
requested  a  copy  of  the  resolution.  I  received  his  letter  in  reply,  from 
which  I  quote  as  follows: 

I  inclose  copy  of  resolution  passed  by  the  Nebraska  Farmers'  Congress. 

This  letter  is  dated  February  11,  1914,  at  Elgin,  Nebr.  It  is  signed 
by  Mr.  George  Coupland,  who  was  president  of  the  Nebraska  Farmers' 
Congress.     He  adds,  after  some  personal  felicitations: 

I  am  certain  you  are  right  in  your  views.  I  have  enjoyed  personally  getting  in 
touch  with  your  views  and  I  commend  heartily  your  efforts. 

I  mention  these  facts  and  ask  the  privilege  of  getting  these  views 
of  the  farmers  of  my  own  and  a  neighboring  State  in  the  record  that 
it  may  be  understood  that  while  I  am  a  banker,  though  I  am  a 
farmer  to  the  extent  of  owning  several  farms,  I  am  not  considered 
at  home  as  antagonistic  to  the  farming  interests.  My  reputation  is 
exactly  the  opposite,  and  my  friends  often  greet  me  with,  "How  is 
the  farmers'  banker  friend  this  morning"?  I  hope  to  assist  the 
farmer  in  getting  broad  legislation  that  will  enable  him  to  come  into 
his  own. 

Now,  Dr.  Coulter,  do  you  wish  to  inject  anything? 

Mr.  Coulter.  Just  a  word.  The  majority  report  contained  a  num- 
ber of  really  immaterial  grammatical  errors  and  places  where  Dr. 
Butterfield  thought  the  expression  could  be  improved.  He  left  here 
immediately  for  Florida  and  carried  with  him  the  copy  which  was 
to  go  to  the  printer,  not  knowing  that  the  minority  report  was  going 
to  make  specific  quotations,  or  overlooking  it  if  he  did  know  that 
they  were  making  specific  quotations.  The  committee  had  the  major- 
report  in  proof  before  it,  so  that  they  know  any  change  that  was 
made  in  any  "a,"  "if,"  or  "or."  The  whole  thing  was  delayed  in 
getting  back  and  forth.  Then,  when  I  got  the  report  back  to  send 
to  the  printer,  I  found  that  a  number  of  the  very  quotations  which 


614  RURAL   CREDITS. 

the  minority  committee  had  made  were  corrected,  and  there  was  a 
difference  in  the  expression  but  not  in  the  meaning  at  all.  That 
made  it  necessary,  it  seemed  to  me,  to  send  it  forward  to  Mr.  Jones 
or  Mr.  Von  Engelken,  Colorado  and  Florida,  to  have  the  quotations 
corrected,  so  that  it  would  not  look  like  a  mess.  That  was  the  only 
reason,  of  course,  for  holding  up  that  report.  It  was  not  for  the 
purpose  of  getting  to  anybody's  ear  or  anything  of  the  sort. 

I  think  that  explanation  might  be  worth  while  to  make.  Both 
copies  arc  available,  if  you  want  them.  They  were  all  laying  around. 
There  were  50  or  60  copies  of  proof  of  the  majority  report  with  the 
corrections  on  it,  and  I  also  have  a  copy  of  the  minority  report  before 
and  after  correcting  those  quotations. 

Mr.  Bulkley.  Does  anything  material  depend  upon  whether  it  was 
changed  or  not  ? 

Mr.  Jones.  Not  at  all. 

Mr.  Bulkley.  Does  it  seem  to  you  that  there  is  anything  in  that 
which  would  make  any  difference  here,  whether  it  was  changed  or  not  ? 

Mr.  Jones.  No,  sir.  I  am  merely  making  the  point  to  explain  that 
the  changes  that  were  made  were  not  those  of  the  minority,  and  the 
accusation  by  Mr.  Moss  that  there  were  radical  changes  that  had  to 
be  made  before  the  minority  consented  to  the  publication  of  its  own 
report  is  not  supported  by  the  fact,  and  in  that  I  am  sustained  by 
the  statement  just  made  by  Dr.  Coulter. 

Mr.  Bulkley.  It  seems  to  me  that  we  as  legislators  and  public 
agents  are  entitled  to  the  last  best  guess  of  the  commission,  and  if 
they  want  to  make  any  changes  I  do  not  see  where  there  could  be 
any  objection. 

Mr.  Jones.  That  is  the  point  I  wanted  to  clear  up,  Mr.  Chairman. 
That  is,  the  changes  that  were  made  were  made  by  a  committee  after 
the  adoption  of  the  majority  report,  and  those  changes  necessitated 
like  changes  in  the  quotations  by  the  minority,  and  those  changes 
caused  the  delay  in  publication,  during  which  time  I  as  a  member 
made  a  talk  before  the  farmers  of  my  home  State,  and  they  saw  fit 
to  indorse  my  views  as  expressed  through  the  minority  report. 

Mr.  Seldomridge.  We  wanted  also  to  know  the  further  fact  that 
the  farmers  who  adopted  certain  resolutions,  before  referred  to,  did 
predicate  their  action  on  the  knowledge  which  was  given  to  them  of 
only  one  of  these  reports.  In  other  words,  the  minority  report  was 
presented  to  them  in  more  or  less  detail,  but  the  majority  report  was 
not  available  for  their  consideration.  Is  that  the  actual  condition  of 
facts? 
^  Mr.  Jones.  Mr.  Seldomridge,  have  you  read  the  minority  report? 

Mr.  Seldomridge.   Yes,  sir. 

Mr.  Jones.  As  you  know,  then,  the  minority  report  quotes  very 
fully  from  the  majority  report,  and  gives  them  credit  for  their  posi- 
tion, and  then  takes  issur  with  that  position,  so  this  report  in  its 
details,  just  as  we  have  it  here,  with  those  minor  changes  made  in 
the  majority  report,  was  what  was  approved  by  the  farmers  in 
Colorado. 

Mr.  Seldomridge.  As  a  member  of  the  committee,  I  would  sim- 

Ely  like  to  know  what  value  Ave  should  place  upon  resolutions  adopted 
y    farmers'    congresses    l>as<-d    upon    knowledge   concerning   which 
they  had  only  one  side  for  consideration. 


RURAL   CREDITS.  615 

Mr.  Jones.  These  resolutions  were  voluntary  on  their  part.  As 
you  know,  our  Colorado  farmers  are  an  intelligent  class,  and  un- 
doubtedly believed  they. had  sufficient  knowledge  of  the  subject  to 
act  intelligently.  As  Dr.  Coulter  has  testified,  it  was  Sir  Horace 
Plunkett,  whom  you  doubtless  all  know,  who  was  more  responsible 
for  the  Nebraska  resolutions  than  I  possibly  could  have  been;  for  he 
took  the  position  before  the  Nebraska  Farmers'  Congress  that  the 
time  was  not  yet  opportune  for  the  farmers  to  endeavor  to  obtain 
legislation  to  assist  them  in  obtaining  short-term  cooperative  credits. 
Dr.  Coulter  further  testified,  in  speaking  of  my  own  position  and  atti- 
tude regarding  a  land-mortgage  plan  before  you,  in  the  following  words : 

Mr.  Gordon  Jones,  of  Colorado,  is  enthusiastically  in  favor  of  it,  but  he  has  certain 
iecommendations  to  make  concerning  long-time  credits,  adopting,  as  he  does,  prac- 
tically all  of  the  suggestions  of  the  United  States  commission,  except  that  he  would 
like  to  have  a  central  bank  for  each  State  tacked  to  it  to  issue  the  bonds,  and  I  think 
he  is  justified  in  that  position  in  his  State. 

Mr.  Woods.  Mr.  Jones,  have  you  a  copy  of  Mr.  Plunkett's  speech 
in  Nebraska  ? 

Mr.  Jones.  No;  I  have  not.     But  I  could  get  it. 

Mr.  Woods.  I  would  like  to  have  it. 

Mr.  Jones.  It  was  an  off-hand  talk  taken  down,  I  presume,  by  their 
stenographer.  If  you  would  like  to  have  me  do  so  I  shall  endeavor 
to  get  a  copy  of  it  for  you. 

Mr.  Woods.  I  would  like  to  have  a  copy. 

Mr.  Jones.  I  only  remember  one  expression.  I  had  to  leave  to 
catch  my  train,  and  I  had  only  about  five  or  six  minutes  to  hear  Sir 
Horace.  He  immediately  followed  me.  The  expression  he  used  was 
something  like  this:  "In  the  most  of  what  Mr.  Jones  says  I  am  in 
hearty  accord,  but  I  do  believe  the  farmers  of  this  country  can  cooper- 
ate for  mutual  credit,  but  that  the  time  is  not  ripe  now;  that  it  will 
take  time  to  educate  them  to  reach  that  point." 

Coming  to  the  discussion  of  the  long-term  credit  plans  proposed, 
Dr.  Coulter  wrote  me  that  he  considered  the  difference  between  the 
minority  plan  of  the  American  commission  and  the  plan  of  the  United 
States  commission  so  insignificant  that  he  thought  probably  the 
minority  could  well  withdraw  its  report.  I  immediately  replied  that 
if  such  appeared  to  him  to  be  the  case,  I  was  sure  that  after  a  thor- 
ough analysis  of  the  two  different  plans  he  would  discover  in  their 
operations  and  workings  there  would  be  a  vast  difference.  I  men- 
tioned a  moment  ago,  Mr.  Chairman,  the  position  taken  by  me  at  the 
time  of  the  hearings  regarding  the  currency  law,  in  which  I  advocated 
regional  banks  for  the  specific  purpose  of  bringing  to  your  attention 
my  consistent  views  on  financial  organizations  and  operations.  For 
here  again  do  I  advocate  the  mobilization  of  credit  of  a  given  area. 
Senator  Vreeland  asked  me  this  question  during  the  Denver  hearing  at 
that  time:  "Do  you  not  think,  Mr.  Jones,  it  would  be  better  to  have 
one  big  reservoir  for  mobilizing  credits,  so  that  in  case  of  need  in 
issuing  currency,  that  from  that  reservoir  to  any  section  of  the  coun- 
try relief  and  assistance  could  be  sent  out  in  time  of  need  ?"  My 
reply  was  to  this  effect:  "We  of  the  West,  Mr.  Vreeland,  fully  under- 
stand and  appreciate  the  meaning  of  the  word  'reservoir.'  We  know 
safety  in  any  reservoir  system  is  greater  where  there  is  a  chain  of 
reservoirs.  We  know  from  actual  experience  that  although  you  may 
legislate  so  that  each  man  legally  has  the  same  right  of  supply  from  a 


616  RURAL   CREDITS. 

reservoir,  yet  in  the  actual  operation  the  man  nearest  to  the  headgate 
has  the  advantage." 

That  was  my  argument  against  a  central-bank  plan.  "What 
would  you  offer  instead?"  was  asked.  I  replied,  "I  would  prefer  a 
chain  of  reservoirs.  That  is,  I  would  urge  that  instead  of  providing 
one  big  central  'reservoir'  that  the  country  be  divided  into  districts, 
so  that  each  district  could  have  its  own  'reservoir.'"  In  that,  you 
will  see,  was  advanced  the  identical  idea  that  is  suggested  at  this  time 
in  the  establishment  of  land  mortgage  banks  under  our  minority 

Elan.  Now,  the  Fletcher-Moss  bill  has  built  up  a  vast  number  of 
ttle  units.  Every  community  which  can  raise  $10,000  can  have 
its  own  little  land  mortgage  bank.  We  should  ask  ourselves,  "  Would 
it  be  wise  to  subdivide  the  country  into  such  a  large  number  of  units 
without  some  plan  of  mobilization?"  After  years  of  experience  it 
has  been  found  necessary  to  mobilize  the  credits  of  our  unit  commer- 
cial banks  to  provide  strength  to  the  system.  Should  we  not  profit 
by  that  experience  ?  Why  establish  a  lot  of  units  without  the  ability 
to  give  the  best  service?  The  minority  report  of  the  American 
commission,  therefore,  Mr.  Chairman,  while  accepting  of  the  unit 
bank  idea,  would  federate  those  units  and  not  leave  them  to  struggle 
alone.  We  would  provide  wState  centrals  serving  in  somewhat 
similar  capacity  as  the  regional  reserve  banks  are  to  do  toward  the 
commercial  banks. 

Now  Mr.  Moss  brought  out  during  Mr.  von  Engelken's  testimony, 
and  well  brought  out,  two  or  three  points  on  which  the  minority  gave 
considerable  thought.  He  spoke  of  there  being  no  additional  capital 
in  our  proposed  centralized  bank.  On  that  point  I  noticed  Mr.  Piatt 
interposed  by  reading  from  the  minority  report,  as  follows: 

It  might  be  found  advisable  to  even  provide  the  central  with  a  larger  capitaliza- 
tion than  the  aggregate  amount  to  be  taken  by  the  different  locals.  In  that  case 
provision  could  be  made  for  selling  founders'  shares  similar  to  the  plan  working  most 
excellently  in  Hungary.  Such  snares  could  be  made  preferred,  if  deemed  advis- 
able, or  could  be  placed  upon  an  equality  with  the  shares  owned  by  the  locals.  This 
might  be  found  necessary  in  order  that  the  country  bankers  and  farmers  might  have 
desirable  financial  assistance  and  strong  connections  in  the  recognized  financial  cen- 
ter in  their  State  in  assisting  to  establish  a  market  for  the  securities. 

"Would  there  be  any  objection,"  Mr.  Piatt  asked,  "in  the  case  of 
an  organization  of  central  banks  to  handle  these  mortgages,  to  having 
outside  capital  coming  in?" 

Mr.  von  Engelken  did  not  answer  the  question,  I  judge,  presuming 
the  quotation  made  sufficient  reply.  I  should  like  to  elaborate  upon 
that  later. 

Mr.  Chairman,  my  business  connection  naturally  puts  me  in  very 
close  contact  with  the  investor.  I  think  I  know  his  mind,  and  I 
think  I  know  with  what  reluctance  he  is  going  to  look  upon  the 
security  of  the  farmer.  I  know  the  farmer  has  to  pay  a  higher  rate 
of  interest,  notwithstanding  bis  superior  security,  just  because,  in 
the  minds  of  many,  he  is  not  considered  a  good  business  man. 

Mr.  J.  J.  Hill  is  credited  with  having  made  the  statement  that 
whenever  the  farmer  gets  to  doing  business  on  a  business  basis  he 
will  not  have  so  much  trouble  in  financing  himself. 

Mr.  von  Engelken,  a  practical  fanner  himself,  brought  the  farmer 
more  to  task  for  his  ways  of  doing  business  than  I  would  dare  do. 
You  will  doubtless  recall  how  in  these  hearings  he  indicted  his  fellow 
farmers  for  their  loose  business  methods.     Thus  does  this  Florida 


BUBAL  CBEDITS.  617 

farmer  vindicate  the  railroad  magnate's  opinion  of  him,  as  a  class. 
But,  returning  to  the  possible  need  for  additional  capital  in  the  State 
organization  or  central  bank,  which  is  but  a  federation  of  the  State 
units.  It  will  be  necessary  to  assure  the  investor,  above  all  things, 
that  the  securities  behind  these  land  mortgage  bonds  are  absolutely 
good.     Your  enactment  must  cover  every  possible  weak  point. 

An  assurance  from  outside  capital,  as  well  as  from  the  unit  banks 
that  indorse  the  securities  that  are  hypothecated  to  protect  the 
bonds,  will  have  a  decided  influence  upon  obtaining  a  low  interest 
rate  and  in  making  a  market. 

This  outside  capital  should  be  furnished,  as  suggested  in  the  minority 
report,  by  well-known  financiersl  ocated  in  the  commercial  center  of 
operation.     Undoubtedly  this  cooperation  between  city  and  coun- 

Mr.  Platt  (interposing).  Mr.  Jones,  would  it  interrupt  you  if  I 
asked  you  a  question  now  ? 

Mr.  Jones.  No;  I  am  glad  to  answer  questions.  It  will  assist  in 
making  my  position  clearer,  I  am  sure. 

Mr.  Platt.  That  was  my  question  that  you  referred  to  and  Mr. 
von  Engelken  did  not  answer.  I  noticed  it  at  the  time;  I  did  not 
care  to  interrupt  him  further  then.  What  would  be  the  objection, 
or  would  you  have  any  objection  to  the  founding  of  these  central 
banks  first  and  let  them  set  in  motion  the  machinery  for  founding 
the  locals  ? 

Mr.  Jones.  No;  but  I  think  that  would  be  done  almost  simulta- 
neously anyway.  Dr.  Coulter  asked  me  that  question  when  this 
suggestion  was  first  made  to  him  and  Dr.  Butterfield.  It  was  his 
belief  that  before  any  of  these  little  banks  could  be  organized  it 
would  be  necessary  to  organize  a  centralized  bank. 

The  founders'  shares  could  be  paid  in  and  the  federation  built 
around  that.  Two  or  three  banks  could  then  federate.  You  might 
not  consider  it  necessary  to  prohibit  any  bank  from  operating  out- 
side of  a  federation,  though  I  believe  it  best  to  compel  them  to  fed- 
erate. It  is  our  argument  that  they  can  not  with  safety  be  allowed 
to  operate  as  small  units. 

Now,  the  statement  has  been  made  here  by  both  Mr.  Moss  and  Dr. 
Coulter  that  competition  is  what  you  want.  And  I  will  say  to  you 
that  no  bank  outside  of  the  federation  could  compete  with  the  banks 
of  the  federation.  I  am  firm  in  my  opinion  that  federated  banks 
would  reach  a  broader  and  a  better  market,  from  my  own  experience 
in  my  own  State.  Located  as  I  am  in  the  financial  center  of  the 
State,  I  realize  that  if  the  farmers  undertake  to  organize  little  rural 
banks,  scattered  throughout  the  State,  with  $10,000  capital  here 
and  SI 5, 000  capital  there,  they  can  not  come  into  Denver  and  sell 
their  securities  upon  any  basis  that  would  be  of  any  benefit  to  the 
borrower.  I  doubt  if  they  could  be  sold  at  all.  They  would  not  be 
known  in  the  cities;  they  would  not  be  known  to  the  investors. 

But  bring  the  securities  of  a  federation  of  banks  throughout  the 
entire  State,  10,  25,  50,  or  100,  or  whatever  the  number  may  be;  let  it 
be  known  that  they  are  federated  and  a  proportion  from  each  is  behind 
a  land-mortgage  Dond  issue  and  in  Denver  is  the  centralized  federa- 
tion; and  especially  if  in  addition  to  the  capital  furnished  by  the 
banks  throughout  the  country,  an  additional  founders'  capital  has 
been  put  up  by  some  of  our  well-known  business  men,  such  as  each 


618  RURAL   CREDITS. 

one  of  you  can  name  in  your  own  home  town;  that  such  men  have 
taken  this  founders'  capital  in  order  to  assist  the  enterprise,  and  give 
it  additional  capital  and  to  recheck  the  securities  sent  in,  there  is  no 
question  but  what  a  home  market  within  and  without  the  State  can 
be  built  up  for  the  bonds  issued  against  the  diversified  mortgages. 

I  do  not  believe,  in  my  own  case,  that  we  would  have  to  go  outside 
of  our  own  State  for  years  to  come  to  find  a  good  market  for  such  safe- 
guarded securities.  We  have  possibly  820,000,000  of  savings  and 
time  deposits  in  the  banks  of  our  own  city.  Considerable  of  this  is 
invested  outside  of  the  State. 

All  through  Europe  we  found,  in  the  cities  where  they  had  accumu- 
lated savings,  that  the  savings  went  back  into  the  agricultural  com- 
munities. How  do  we  invest  such  savings  outside  the  State?  We 
invest  them  largely  in  bonds  that  go  to  build  up  other  sections  of  the 
country.  We  have  some  of  such  funds  invested  in  our  own  State,  but 
the  proportion  is  not  as  it  should  be.  Our  banks  in  the  far  West  are 
hard  put  to  it  to  always  find  profitable  employment  for  their  funds. 
It  may  surprise  you  to  know  that. 

Mr.  Platt.  That  is  a  surprising  statement  to  me.  I  knew  that 
that  is  true  of  the  bankers  of  the  East. 

Mr.  Jones.  Commercial  banks? 

Mr.  Platt.  Yes,  commercial  banks  and  savings  banks  particularly. 
But  I  did  not  suppose  it  was  true  of  the  banks  in  Denver,  for  instance, 
which  are  growing  on  eastern  capital — at  least  the  communities  are 
growing  on  eastern  capital  all  the  time,  one  way  or  another. 

Mr.  Jones.  If  you  are  interested  in  that,  I  may  say  that  the  banks 
of  Denver  have  on  an  average  from  40  to  50  per  cent  reserve  all  the 
time.  That  means  that  the}'  carry  from  $40  to  $50  in  cash  and  sight 
exchange  against  every  $100  in  deposits. 

In  addition  to  that,  I  will  venture  to  say  that  at  least  20  per  cent 
of  their  entire  loans  are  loaned  outside  of  Colorado,  invested  in 
eastern  commercial  paper. 

Mr.  Platt.  Do  you  mean  that  they  have  a  cash  reserve  of  50  per 
cent  and  also  an  additional  reserve  of  bonds  which  are  regarded  as 
liquid  assets  or  call  loans  or  something  of  that  sort  >. 

Mr.  Jones.  Yes;  bonds,  call  loans,  and  commercial  paper. 

Mr.  Platt.  Is  that  regarded  as  necessary  to  good  banking? 

Mr.  Jones.  No,  sir;  it  is  a  condition  that  we  have. 

Mr.  Platt.  It  seems  to  me  that  it  must  be  due  to,  perhaps,  lack  of 
confidence. 

Mr.  Seldomridge.  To  verify  what  Mi.  Jones  has  said.  I  will  say 
that  there  is  a  lack  of  commercial  opportunity  out  there  for  the  in- 
vestment of  banking  funds.  We  have  not  got  the  market  for  com- 
mercial paper  that  is  available  in  the  East.  You  take  the  situation  in 
my  town  of  Colorado  Springs,  and  the  banks  there  have  paper  of 
John  Wanamaker,  and  the  II.  B.  Claflin  Co.,  and  Swift  &  Co.,  and 
Armour  &  Co.  That  class  of  paper  is  sold  out  there  to  banks.  They 
are  put  to  it  to  find  available  investments  for  their  funds. 

Mr.  Platt.  That  class  of  paper  is  purchased  by  banks  largely 
because  the  want  paper  which  will  be  paid  when  due,  is  it  not  \ 

Mr.  Seldomridge.  They  want  to  put  their  surplus  into  earning 
channels. 

Mr.  Jones.  If  they  did  nof  invest,  as  Mr.  Seldomridge  says,  they 
would  possibly  have  60  per  cent  reserve  \ 


KURAL  CREDITS.  619 

Mr.  Platt.  Well,  it  is  hardly  possible,  it  seems  to  me  that,  with 
the  rapid  development  of  the  West,  there  could  not  be  perfectly  safe 
investments  for  money  at  home 

Mr.  Seldomridge  (interposing).  Well,  development  in  the  West  is 
along  agricultural  and  mineral  lines,  which  are  not  recognized  as 
altogether  safe  channels  for  banking  investment. 

Mr.  Platt.  That  is  it,  then. 

Mr.  Seldomridge.  You  would  not  want  to  loan  a  man  SI  0,000  or 
$15,000  to  go  out  and  develop  a  gold  mine,  would  you? 

Mr.  Platt.  That  is  it;  you  do  not  recognize  your  local  industries 
as  sufficiently  safe  to  finance  at  home;  you  want  some  assistance  from 
down  East  ? 

Mr.  Seldomridge.  We  are  not  asking  people  from  down  East  to 
finance  mines,  or  anything  of  that  kind. 

Mr.  Jones.  You  have  brought  out  a  point,  Mr.  Platt,  that  I  want 
to  emphasize  in  order  to  explain  my  keen  interest  in  getting  through 
some  bill  that  will  assist  the  agricultural  industry. 

Our  cities  of  the  West  have  outgrown  the  agricultural  sections. 
We  do  not  have  support  enough  from  outside  the  cities  to  justify 
larger  industrial  or  commercial  undertakings.  Because  of  this  lack 
of  a  larger  rural  population  our  urban  enterprises  do  not  require  all 
the  capital  the  banks  have  available  for  them.  We  have  got  to  have 
a  consuming  population,  as  well  as  a  producing  one,  and  the  sur- 
rounding country  and  towns  furnish  both.  My  views  thus  expressed 
will  explain  why  I  went  abroad  as  an  American  commissioner.  It 
was  in  order  to  see  if  we  could  not  devise  some  system  for  safelv  lend- 
ing money  to  the  agricultural  interests  in  order  to  more  largely 
populate  the  rural  sections.  We  have  thousands  of  acres  of  land 
that  await  development — the  best  soil  under  heaven  and  the  surest 
water — irrigation — but  our  commercial  banks  can  not  loan  on  them ; 
yet  at  the  same  time  we  have  more  funds  than  we  know  how  to  loan, 
or  can  loan  under  existing  laws  in  our  own  State. 

I  made  a  similar  statement  that  was  questioned — I  do  not  mean 
that  my  veracity  was  questioned,  but  that  it  was  regarded  with 
wonder— before  the  Banking  and  Currency  Committee  of  the  Senate 
when  appearing  before  them  on  the  new  currency  act.  That  state- 
ment led  to  my  being  asked  how  we  came  out  during  the  panic  of 
1907,  with  the  idea,  I  presume,  of  showing  that  our  funds  were  locked 
up  in  New  York  and  we  could  not  get  it.  I  said,  "No,  on  the  con- 
trary, we  needed  funds  in  New  York  at  that  time. "  "Why,  was  not 
that  a  rather  unique  condition  V  I  was  asked.  "  I  do  not  know  what 
the  condition  was  in  other  sections  of  the  country,"  I  replied,  "but 
Denver  banks  needed  funds  in  New  York  to  settle  exchange  accounts." 
Then  I  was  asked  as  to  our  own  bank,  how  we  came  out  in  the  panic 
of  1907,  and  what  was  our  own  experience.  In  reply  I  said:  "We 
started  in  the  panic  of  1907  with  about  42  per  cent  reserve  against  all 
deposits  and  in  the  statement  following  the  panic  we  had  about  58 
per  cent  reserve." 

I  was  requested  to  furnish  copies  of  these  statements  for  the  records. 
So  T  went  to  the  comptroller's  office  and  got  the  statements  of  our 
bank  made  before  and  after  the  panic  and  filed  them  with  that  com- 
mittee. 

Now,  that  merely  illustrates  the  point  that  Mr.  Seldomridge  brings 
out;  for  our  condition  was  the  condition  of  the  other  Denver  banks; 


620  RUBAL   CREDITS. 

we  held  commercial  paper  of  makers  outside  of  our  territory,  such 
paper  as  Mr.  Seldomridge  mentioned ;  and  at  its  maturity  we  did  not 
renew:  that  led  to  an  accumulation  of  funds  as  it  came  due  and  it 
more  than  took  care  of  any  demands  upon  us. 

Mr.  Platt.  I  think  that  was  probably  true  of  nearly  all  the  country 
banks  in  the  United  States;  that  same  statement,  I  think,  was  made 
by  Mr.  Frame  in  the  hearings  before  the  Banking  and  Currency 
Committee. 

Senator  IIollis.  Yes;  we  had  to  "check  up"  New  York's  per- 
centage for  good  behavior  quite  a  good  deal  after  the  hearings. 
Senator  O'Gorman  attented  to  that  subject. 

Mr.  Seldomridge.  The  first  relief  that  the  Chicago  banks  had  in 
the  panic  of  1907  was  from  the  shipment  of  gold  from  Colorado 
Springs,  taken  out  of  the  Portland  mills.  They  were  supplied  quite 
regularly  from  that  source;  there  was  more  gold  out  there  than  the 
banks  needed,  and  they  relieved  the  stringency  in  the  Chicago  banks. 

Mr.  Jones.  We  shipped  upon  telegraphic  request  from  our  bank 
to  Topeka,  Kans.,  within  a  few  miles  of  Kansas  City,  the  cash  to 
meet  the  pay  roll  of  the  Atchison,  Topeka  &  Santa  Fe  Railway, 
because  they  found  difficulty  to  get  cash  enough  to  pay  their  em- 
ployees, and  they  did  not  want  to  pay  their  employees  in  cashier's 
checks.  We  shipped  to  many  other  places  about  the  same  time 
where  there  were  pressing  needs. 

Senator  Hollis.  Mr.  Jones,  of  course  you  want  to  make  as  much 
money  as  you  can  for  your  stockholders,  and  at  the  same  time  be 
safe.  You  have  a  reserve  of  about  50  per  cent  of  your  deposits; 
and  you  would  be  glad  to  buy  more  of  this  Wanamaker  and  H.  B. 
Claflin  Co.  paper  if  it  were  available.  Why  do  you  you  not  invest 
in  it  more  ? 

Mr.  Jones.  We  buy  from  $5,000  to  $10,000  of  each  desirable 
name  that  is  offered.  I  saw  the  statement  made  by  some  one  in  the 
records  of  your  hearings,  and  which  some  one  seemed  to  question 
that  the  present  rate  on  disirable  commercial  paper  was  4  per  cent. 
I  just  bought  some  such  paper  before  I  left  home  at  4  per  cent. 

Senator  Hollis.  Well,  would  your  bank  like  to  buy,  for  instance, 
these  bonds  if  you  were  assured  that  they  were  safe  and  liquid  ? 

Mr.  Jones.  You  are  asking  now  about  what  I  am  leading  up  to. 

Senator  Hollis.  That  is  what  I  want  to  find  out  about. 

Mr.  Jones.  That  is  what  I  am  leading  up  to;  to  show  you  that 
there  are  considerable  available  funds  all  over  this  country  that  you 
possibly  had  no  idea  existed  that  are  waiting  for  some  such  liquid 
investment  of  this  kind. 

Now,  1  personally  visited  the  Deutsche  Bank,  the  large  joint-stock 
bank  of  Germany,  to  find  out  if  they  were  buying  land-mortgage 
bonds,  and  I  found  that  they  were.  A  few  days  before  I  called  this 
big  bank  had  bought  $100,000  of  land-mortgage  bonds  from  one  pri- 
vate joint-stock  bond-issuing  land-mortgage  bank.  I  asked,  "How 
do  you  look  upon  them  '."  The  officer  replied :  "They  are  absolutely 
good.     There  is  no  question  about  them." 

Senator  IIollis.  Well,  how  liquid  were  they? 

Mr.  Jones.  Liquidity  has  two  definitions,  as  understood  by  the 
banker. 

Senator  IIollis.  Yes. 


RURAL   CREDITS.  621 

Mr.  Jones.  One,  the  loan  whose  maker  has  the  ability  to  retire  the 
note  out  of  his  own  active  assets  without  going  out  of  business  or 
injury  to  his  own  business.  The  other  is  an  investment  that  always 
has  a  ready  market.  This  investment  itself  may  not  be  liquid, 
but  the  effect,  so  far  as  the  investing  bank  is  concerned,  is  the  same. 

Senator  Hollis.  The  bonds  did  not  have  that  sort  of  liquidity — 
the  first  mentioned — because  they  probably  were  not  due  at  that 
particular  time. 

Mr.  Jones.  No;  they  came  within  the  second  definition;  the  li- 
quidity of  the  investment  on  account  of  it  being  marketable. 

Senator  Hollis.  That  is  what  I  was  inquiring  about. 

Mr.  Jones.  Take,  for  example,  the  financial  statement  of  almost 
any  commercial  or  savings  bank  and  analyze  it.  You  will  find  a 
large  amount  of  bonds  held  as  investments.  Why  ?  As  a  second- 
ary reserve.  A  bank  may  need  to  realize  upon  its  securities  even 
before  the  maturity  of  some  of  its  liquid  paper — that  which  is  liquid 
in  itself.  It  is  then  the  wisdom  of  holding  a  fair  amount  of  readily 
marketable  bonds  as  a  secondary  reserve  is  shown.  Now,  you  are 
going  to  find  a  great  big  market  for  your  land-mortgage  bonds,  prop- 
erly protected,  with  commercial  banks. 

Now,  let  me  suggest  a  caution:  Should  we  have  a  failure  or  two  in 
land-mortgage  banks,  the  whole  system  is  likely  to  go  into  disrepute. 
We  must  build  up  around  the  system  something  that  makes  doubly 
sure  the  security.  If  a  land-mortgage  bank  out  in  an  unknown  town 
in  New  Mexico  should  fail,  the  newspapers  all  over  the  country  would 
herald  in  big  headlines  "Land-mortgage  bank  fails." 

This  would  affect  the  market  on  all  such  bonds.  It  would  imme- 
diately raise  suspicion  regarding  the  land-mortgage  bank  system. 
That  is  a  thing  that  you  must  safeguard  as  securely  as  possible. 

Now,  I  am  speaking  from  the  standpoint  of  a  banker  and  what  I 
would  want  to  invest  in  myself.  If  I  knew  there  were  a  lot  of  these 
bonds  issued  by  the  Farmers'  National  Land  Mortgage  Bank  of 
Brownville,  N.  C.,  $10,000  capital,  or  by  the  National  Farm  Land 
Mortgage  Bank  of  Smith ville,  Kans.,  with  $15,000  capital,  what  would 
I  know  about  them  ?  Would  I  invest  the  funds  of  my  bank  in  them  ? 
Will  trust  funds  be  invested  by  any  man  who  is  responsible  to  account 
to  some  widow  or  orphan  or  to  some  court  ?  I  doubt  it.  But  if  you 
can  build  around  those  bonds  some  double-checking  system,  some- 
thing that  will  throw  about  thorn  greater  protection  than  there  is 
under  the  Fletcher-Moss  plan,  I  believe  you  will  reach  such  markets. 

Mr.  Seldomridge.  Just  what  protection  would  you  have  ? 

Mr.  Jones.  That  brings  up  the  minority  recommendation. 

Mr.  Seldomridge.  Well,  what  is  that  ? 

Mr.  Jones.  Now,  I  would  like  to  take  this  minority  report  and 
comment  upon  it  as  I  go  along,  for  this  is  probably  the  last  "say" 
that  the  minority  will  have. 

Mr.  Woods.  Mr.  Jones,  before  you  go  on  I  would  like  to  ask  this 
question:  You  spoke  of  these  small  banks  taking  stock  in  the  central 
bank.  Would  you  suggest  that  they  use  a  part  of  their  par-value 
capital,  or  pay  in  a  surplus,  say,  of  20  or  25  per  cent  for  that  purpose  ? 

Mr.  Jones.  I  think  you  can  safely  follow  the  plan  of  the  Federal 
reserve  bank  system,  where  the  member  banks  are  required  to  invest 
part  of  their  capital  and  surplus  in  the  regional  banks.  That  becomes 
a  permanent  investment,  and  by  building  up  a  federation  each  bank 


622  RURAL   CREDITS. 

would  put  part  of  its  capital  into  a  centralized  institution,  which 
alone  should  have  the  bond-issuing  power. 

And  may  I  mention  here  that  another  argument  for  this  federation, 
organizing  from  the  outside  toward  the  center,  is  to  keep  the  control 
of  the  land-mortgage  banks  back  in  the  country.  Under  this  Fletcher- 
Moss  bill,  gentlemen,  1  do  not  believe  that  we  will  have  any  small 
banks,  or  if  so,  that  they  could  long^  survive.  There  is  no  maximum 
limitation,  mind  you,  as  to  capital.  It  would  result,  therefore,  in 
the  establishment  of  a  number  of  large  banks. 

And  where  would  be  the  control  of  those  large  banks?  Still  in  the 
hands  of  the  money  lender;  still  in  the  hands  of  the  man  who  wants 
to  get  the  highest  rate  of  interest  possible  out  of  the  farmer;  in  the 
cities  reaching  out  into  the  agricultural  sections  through  their  agencies. 

But  accept  tile  proposed  plan  of  the  minority — which  might  be 
considered  an  amendment  to  the  report  of  the  United  States  commis- 
sion— in  this  respect  and  we  keep  the  control  right  back  in  the  coun- 
try. The  unit  banks,  all  federated,  would  therefore  control  the  cen- 
tral institution  and  would  control  its  policy.  It  can  not  be  taken  in 
the  interest  of  the  unit  banks,  in  turn  owned  by  the  farmers. 

I  would  limit  the  amount  of  founders'  shares  in  proportion  to  capi- 
talization, so  that  the  amount  could  not  get  where  the  control  could 
get  away  from  the  unit  banks,  or  members,  as  they  might  be  termed. 
Should  you  accq^t  of  the  founders'  share  plan  along  with  the  member 
banks,  we  would  reach,  as  I  said  a  moment  ago,  a  broader  market,  and 
the  law  of  supply  and  demand  would  operate  to  furnish  a  cheaper  rate 
of  interest.     I  will  mention  this  later. 

Mr.  Moss.  Let  me  ask  you  a  question  there,  Mr.  Jones.  These 
founders'  shares,  when  you  sell  them,  would  they  have  the  power  to 
issue  bonds  upon  the  founders'  shares  '. 

Mr.  Jones.  Yes. 

Mr.  Moss.  So  your  idea  would  still  be  that  the  capital  of  the  bank 
would  still  control  the  total  issue  of  the  bonds;  that  is,  15  to  1  ? 

Mr.  Jones.  That  the  capital  and  surplus  of  the  central  should 
control  the  issue  of  bonds.  If  you  will  note,  the  minority  report  has 
left  blank  the  maximum  amount  of  bonds  the  central  should  be 
allowed  to  issue  in  proportion  to  its  own  capitalization.  Dr.  Coulter 
suggested  that  we  put  it  at  15  times;  but  that  is  a  matter  for  careful 
consideration  and  mathematical  calculation.  I  will  bring  that  ques- 
tion up  later.     I  would  like  to  read  from  the  minority  report: 

It  is  proposed  that  the  farmers  cooperate  with  the  stockholders  of  banks  in  rural 
communities. 

We  propose  that  they  cooperate  with  stockholders  in  rural  banks  (which  banks  will 
be  found  generally  owned  by  the  farmers  themselves),  in  the  organization  in  their 
respective  localities  of  small  unit  land-mortgage  associations,  capitalized  in  propor- 
tion to  the  needs  of  their  respective  communities — -minimum  capital,  $10,000. 

Each  association  to  be  organized  upon  the  share  capital  plan,  cooperative  (as  to 
sharing  profits  with  borrowers  without  the  mutual  liability  feature)  or  noncooperative 
with  double  liability  of  shareholders),  as  might  be  desired. 

It  is  to  become  affiliated  with  and  have  close  interrelationship  with  the  rural  bank 
which  may  be  owned  by  some  of  the  same  shareholders,  in  that  it  may  have  its  office 
with  the  affiliated  bank  and  be  officered,  managed,  and  directed  by  some  of  the  same 
men,  to  which  could  be  added  other  desirable  farmer  directors,  if  such  rural  banks 
are  not  already  dominated  by  that  interest.     The  objects  sought  by  this  affiliation  are — 

Now,  please  follow  me  closely  on  these  three  points  which  bring 
out  the  need  of  this  affiliation — 

1.  To  utilize  the  facilities  already  in  existence;  to  obtain  the  accumulated  infor- 
mation regarding  the  intimate  financial  standing  of  the  farmers  in  the  community, 


RURAL  CREDITS.  623 

with  the  knowledge  of  their  ability  to  pay,  which  knowledge  has  been  gathered  by 
years  of  personal  contact  and  experience  with  them  by  the  local  banks;  to  have  the 
advantage  of  banking  quarters,  with  little  or  no  overhead  expenses,  excepting  such 
nominal  clerk  hire  as  might  be  necessary  as  part  of  the  duty  of  some  clerk  in  the  bank. 

2.  To  cooperate  with  the  existing  banking  facilities  in  a  manner  that  would  lead 
the  bank  to  foster  and  develop  the  growth  of  the  land-mortgage  association.  This 
would  work  in  many  cases  in  finding  a  market  for  bonds  issued  by  the  "central," 
later  referred  to,  for  every  bank  gathers  a  line  of  deposits  upon  which  it  pays  interest 
and  upon  which  there  is  little  profit.  It  is  believed  that  if  such  banks  could  divert 
a  portion  of  these  deposits  to  a  more  permanent  use  in  a  manner  so  that  it  would  share 
in  the  benefits  at  the  same  time  they  would  gladly  do  so.  The  influence  of  organized 
banks  in  recommending  such  securities  would  be  very  great. 

It  must  be  recognized  that  banks  operate  mainly  upon  deposits  and  are  either  re- 
stricted or  prohibited  by  law  from  loaning  their  funds  upon  real-estate  security  be- 
cause of  its  nonliquidity  and  length  of  maturity.  It  is  believed  that  our  country 
banks  have  for  so  long  operated  under  these  restrictions  that  they  will  welcome  a 
system  that  will  furnish  the  needed  facilities  to  their  respective  farming  communities, 
and  will  gladly  cooperate  to  bring  this  about. 

3.  To  place  each  country  bank,  whose  shareholders  join  in  the  organization  of  such 
a  local  land-mortgage  association,  behind  its  own  "local" — 

Now,  here  is  a  decided  point  which  will  be  of  advantage:  If  you 
can  get  the  stockholders  of  our  country  banks  financially  interested 
in  these  land-mortgage  banks,  you  are  going  to  get  them  behind  the 
mortgage  loans  in  this  way — 

Should  misfortune  overtake  any  of  its  borrowers  the  bank  would  be  interested  in 
furnishing  sufficient  funds  to  make  interest  and  amortization  payments.  Or  should 
the  borrower  feel  the  need  of  using  his  profits  from  a  season's  operations  in  other  direc- 
tions, such  as  additional  needed  improvements,  or  for  stocking  his  farm,  breaking  new 
land,  or  for  any  other  provident  purpose,  he  would  have  an  established  institution 
sufficiently  interested  in  him  and  of  sufficient  strength  to  advance  him  the  necessary 
amount  to  permit  of  this. 

Now,  let  me  dwell  on  that  point.  It  has  been  brought  out  in  your 
hearings  that  it  was  found  necessary  in  European  countries  for  land- 
mortgage  banks  to  become  affiliated  with  commercial  banks.  I 
notice  particularly  that  Mr.  Hill,  in  his  effort  to  induce  you  to  amend 
the  Fletcher-Moss  bill  so  that  farm-land  banks  might  receive  deposits, 
brings  out  some  argument  against  his  own  idea  by  citing  the  fact 
that  some  banks  in  foreign  countries  have  found  it  necessary  to 
affiliate  with  commercial  banks. 

He  refers  to  the  Landschaft — a  land-mortgage  bond-issuing 
society.  The  Landschaft  receives  no  deposits,  but  after  operating 
for  a  great  many  years  and  trying  to  find  a  ready  market  so  that 
when  the  borrower  gave  his  mortgage  he  could  get  the  money  immedi- 
ately on  his  bond,  found  it  expedient  and  necessary  to  establish  its 
own  independent  bank  and  not  encounter  the  danger  of  mixing  the 
two  classes  of  business. 

The  president  of  the  Landschaft  at  Halle  made  this  statement  to 
me  at  a  luncheon  in  his  private  rooms  over  the  bank.  As  has  already 
been  brought  out  in  your  hearings,  the  bank  occupies  the  first  floor 
and  the  Landschaft  the  second.  It  is  an  interesting  story,  that  of 
the  organization  and  operation  of  the  Landschaft  and  its  child, 
the  bank.  The  Landschaft  began  without  any  capital,  but  merely 
by  charging  a  nominal  membership  fee  of  borrowers.  Originally  all 
the  borrowers  or  members  mortgaged  to  it  their  lands.  This  gave 
each  borrower  a  line  of  credit  and  they  were  furnished  the  Land- 
schaft's  own  bonds  up  to  the  amount  of  their  mortgages  when  they 
needed  funds.  Occasionally  if  a  man  would  pay  off  his  debt  he 
would  allow  the  mortgage  to  stand  until  he  needed  help  again,  and 


624  RURAL   CREDITS. 

when  he  called  again  was  given  what  bonds  he  needed.  He  had  to 
find  his  own  market  for  the  bonds. 

After  operating  a  long  time  the  Landschaft  accumulated  a  large 
"reserve  fund."  We  would  call  it  "surplus"  in  this  country;  they 
refer  to  their  surplus  as  a  reserve  fund.  They  felt  the  need  of  having 
an  affiliation  with  a  commercial  bank;  a  bank  that  had  ready  funds 
with  which  it  could  take  up  these  bonds  from  their  borrowers.  So 
they  organized  their  own  commercial  bank.  The  Landschaft 
itself  owns  the  bank;  there  are  no  stockholders.  Hence  I  spoke  of 
the  bank  as  its  child. 

I  asked  the  president,  ""Who  owns  this  building?"  —  a  splendid 
building,  centrally  located  in  a  progressive  and  apparently  wealthy 
city  in  the  best  agricultural  section  of  Germany.  He  replied,  "Why, 
the  Landschaft  owns  the  building." 

I  asked  him,  "How  did  it  make  the  money  with  which  to  buy  the 
building?"  He  said,  "On  the  profits  between  the  interest  the  bor- 
rowers pay  and  what  our  bonds  draw."  I  said,  "You  own  a  bank, 
and  this  building,  and  have  started  without  any  capital  at  all?" 
(You  see  the  traits  of  an  inquisitive  American.)  He  seemed  amused 
and  replied,  "Yes."  "Well,  you  say  the  Landschaft  owns  the  bank 
and  the  Landschaft  owns  the  building?"  "Yes;  and  we  built  tnis 
building  and  capitalized  the  bank  out  of  the  profits  of  the  Land- 
schaft." "Well,  who  owns  the  Landschaft,  and  consequently  the 
profits  and  consequently  the  building  and  bank?"  He  laughed  and 
said,  "That  is  a  question  that  we  are  wondering  ourselves." 

I  said,  "What  provision  have  you  regarding  the  distribution  of 
your  profits?"  "None;  they  remain  with  us."  "Well,"  I  asked, 
becoming  exceedingly  interested,  "who  furnished  these  profits  of  the 
Landschaft  which  has  thus  become  its  capital?"  "Our  borrowers." 
"Who  are  your  borrowers?"  "The  men  who  are  borrowing  to-day; 
the  men  wTho  borrowed  last  year;  the  men  who  borrowed  a  generation 
ago,  or  a  hundred  years  ago;  men  whose  loans  exist  to-day,  men 
whose  loans  were  paid  off  years  ago,  men  living  and  men  long  dead." 

"Have  you  any  lawyers  in  this  country  ?"  I  asked.  He  said,  "Yes; 
why?"  "Well,"  said  I,  "they  are  not  American  lawyers,  or  some- 
body would  be  trying  to  prove  that  their  forefathers  had  an  interest 
in  this  building  to-day,  and  consequently  they,  their  rightful  heirs, 
are  joint  owners  of  the  building  and  bank."  He  said,  "You  know 
that  thing  is  just  beginning  to  be  thought  about." 

Senator  Hollis.  That  is  not  a  new  problem  in  New  England,  where 
we  have  our  mutual  savings  banks,  and  where  the  depositors  are  the 
only  persons  who  have  an  interest  in  the  profits,  and  where  they  are 
building  up  a  surplus. 

I  may  have  had  $5,000  in  that  savings  bank  for  five  years.  That 
money  is  invested,  and  they  have  earned  more  than  tin1  interest  which 
they  paid  to  me.  I  withdraw  my  $5,000,  and  the  surplus  earnings 
of  that  deposit  stay  there  for  some  indefinite  person's  benefit,  and  it 
has  never  yet  been  figured  out  just  when  that  must  stop  <>r  just  who 
has  a  right  to  it  or  how  far  the  banks  have  a  right  to  build  up  a  surplus. 

Mr.  Jones.  I  mentioned  that  incident  in  order  to  bring  out  this 

Eoint,  that  American  methods  and  American  customs  must  be  ad- 
ered  to,  or  we  are  liable  to  open  up  something  here  of  a  cooperative 
nature  that  is  going  to  get  us  into  a  lot  of  trouble,  unless  it  is  very 
clearly  defined  by  law.     Our  present  American  idea  is  the  joint  stock 


RURAL  CREDITS.  625 

association.  It  can  be  made  cooperative  if  desired.  In  the  last 
analysis  all  such  associations  are  cooperative  to  a  greater  or  lesser 
extent. 

Now,  you  see  we  have  incorporated  in  the  minority  report  this 
idea  of  affiliating  the  rural  land-mortgage  banks  with  present  existing 
successful  country  banks  already  owned  and  managed  by  farmers. 
If  they  do  not  find  such  a  bank  in  a  community,  it  is  easy  enough  to 
organize  without  that  bank,  and  if  they  feel  that  the  farmer  is  not 
properly  taken  care  of  or  would  not  be  safeguarded  there  is  no  reason 
why  they  should  not  organize  independently  and  in  time  might 
organize  their  own  bank  too. 

Mr.  Platt.  That  idea  is  not  entirely  foreign  to  the  report  of  the 
majority  of  the  United  States  commission,  is  it?  I  understand  that 
they  have  the  idea  that  banks  would  organize;  savings  banks,  per- 
haps small  country  banks,  would  organize  these  farm-land  banks  in 
connection  with  their  own  business. 

Mr.  Jones.  I  have  not  heard  them  express  themselves  on  that.  I 
think  it  would  be  the  natural  result. 

Mr.  Coulter.  We  discussed  that  somewhat. 

Mr.  Jones.  But  they  stop  there  with  their  isolated  organizations. 
It  is  going  to  be  absolutely  necessary  for  such  banks  to  federate. 
The  bill  restricts  the  earnings  so  that  it  is  inconceivable  that  there 
will  be  any  considerable  number  of  small  land-mortgage  banks  under- 
take to  organize  without  such  affiliation  or  federation  is  permitted. 
Therefore  the  very  objects  sought,  to  put  these  banks  within  the  reach 
of  the  rural  communities,  will  be  defeated.  What  can  such  a  bank 
do  ?  A  $10,000  bank  can  have  $150,000  of  bonds  outstanding  at  any 
one  time,  and  they  run  for  35  years.  It  can  only  receive  1  per  cent 
for  all  expenses  and  profits.  The  bank  will  operate  some  time  before 
it  reaches  its  limit.  It  will  have  overhead  expenses  to  start  with. 
If  this  bill  is  taken  just  as  it  stands,  the  Fletcher-Moss  bill,  with  all 
due  respect  to  those  who  prepared  it  and  advocate  it,  I  believe  we 
will  be  made  the  laughing  stock  throughout  Europe.  I  never  heard 
of  small  capitalized  land-mortgage  banks  anywhere  floating  bonds  for 
a  long  term  of  years. 

One  of  the  great  advantages  of  the  federation  is  holding  down  the 
expenses.  Mr.  Moss  brought  out  a  point  as  to  why  federation  would 
not  increase  the  expense  of  operation. 

Mr.  Moss  (interposing).  Mr.  Chairman,  I  do  not  want  to  interrupt 
Mr.  Jones;  but  I  would  feel  that  in  discussing  the  bill  the  provisions 
of  the  bill  ought  to  be  discussed  rather  than  my  discussion  of  it;  but 
of  course  I  have  not  any  objection  to  his  discussing  my  discussion  of 
the  matter.  But  the  question  I  was  discussing,  Mr.  Jones,  was  the 
question  of  appraisement,  namely,  that  if  the  central  bank  would 
make  a  central  appraisement,  that  would  increase  the  expenses  of  the 
administration.  That  was  the  point,  as  to  whether  or  not  the  local 
bank  was  to  have  the  exclusive  right  to  appraise,  or  whether  the  local 
bank  should  appraise  and  then  the  central  bank  should  reappraise, 
and  if  so,  the  question  that  I  was  bringing  out  was  the  question  of 
appraisement  with  respect  to  its  cost. 

Mr.  Jones.  I  am  mentioning  these  unanswered  points,  and  it  is 
rather  complimentary,  Mr.  Chairman,  to  Mr.  Moss  than  otherwise,  to 
show  that  ne  has  propounded  such  important  questions  that  can  but 

37031—14 40 


626  RURAL   CREDITS. 

assist  in  valuable  enlightenment,  if  answer  is  undertaken.  It  was  my 
desire  to  make  reply  to  his  objection. 

Mr.  Moss.  I  would  be  glad  to  have  you  answer  it. 

Mr.  Jones.  As  the  hour  has  arrived  for  adjournment,  I  will  answer 
that  later. 

(Thereupon,  at  1  o'clock  p.  m.,  the  subcommittee  took  a  recess 
until  2.30  o'clock  p.  m.) 

AFTER    RECESS. 

The  subcommittee  reassembled  at  the  expiration  of  the  recess. 
Mr.  Bulkley.  Gentlemen,  we  will  come  to  order  now  and  hear 
Mr.  Jones. 

STATEMENT  OF  GORDON  JONES— Continued. 

Mr.  Jones.  In  part  9,  page  4,  it  may  be  wrongly  quoted,  but  there 
is  a  statement  made  that  is  erroneous — referring  to  the  national-bank 
law.  You  may  have  under  consideration  the  advisability  of  limiting 
the  amount  of  stock  that  might  be  held  by  any  one  shareholder. 
From  the  records,  I  read: 

Mr.  Ousley .  I  notice  that  the  bill  provides  that  no  stockholder  shall  own  more  than 
10  per  cent  of  the  shares  of  the  capital  at  any  time,  and  I  would  like  to  inquire  why  that 
limitation  is  put  in  the  bill. 

Senator  Hollis.  Mr.  Moss  can  answer  that  question. 

Mr.  Ousley.  Yes;  I  should  like  to  know  why  the  limitation  of  10  per  cent  was  put 
in  the  bill. 

Mr.  Moss.  That  limitation  is  the  same  as  that  contained  in  the  national  banking  act. 
The  limitations  in  this  bill  on  individual  stock  ownership  and  the  making  of  loans  to 
individuals  are  precisely  the  same  as  in  the  national  banking  act. 

Mr.  Ousley.  But  this  provides  that  no  stockholder  shall  own  more  than  10  per  cent 
of  the  stock. 

Mr.  Moss.  You  will  find  that  same  provision  in  the  national  banking  act. 

I  think  there  was  a  misunderstanding  between  Mr.  Moss  and  Col. 
Ousley,  but  the  evidence  before  you  now  is  to  the  effect  that  the 
national-bank  act  prohibits  any  stockholder  from  owning  more  than 
10  per  cent  of  the  stock  of  a  national  bank.  There  is  no  such  limita- 
tion, as  doubtless  the  committee  knows,  regarding  stock  ownership 
of  a  national  bank.  I  myself  own  more  than  10  per  cent  in  several 
national  banks.  There  are  many  national  banks  largely  owned  in 
their  entirety  by  some  one  individual.  So  that  if  you  are  trying  to 
follow  the  national-bank  act  as  relates  to  stock  ownership,  permit 
me  to  correct  the  evidence  as  now  shown  in  your  records. 

The  limit  of  stock  ownership  to  which  Col.  Ousley  referred  had 
reference  to  proposed  cooperative  banks.  If  any  group  of  men 
wanted  to  organize  a  cooperative  bank  they  were  not  to  issue  more 
than  10  per  cent  to  an}*  one  stockholder.  What  Mr.  Moss  probably 
had  in  mind  was  the  10  per  cent  limitation  on  the  amount  that 
national  banks  can  loan  to  any  one  borrower.  That  of  course  is  too 
small  for  loans  secured  by  mortgage,  and  even  in  that  the  Fletcher- 
Moss  bill  makes  the  limit  20  per  cent.  The  minority  recommends 
25  per  cent  of  surplus  as  the  limit. 

In  part  2  at  page  21,  Mr.  Bulkley  asked  Mr.  John  S.  Hill  a  question 
which  he  did  not  answer.  We  witnesses  sometimes  become  very 
enthused  over  our  cause,  and  we  do  not  always  closely  follow  the 


RURAL  CREDITS.  627 

line  of  inquiry.  Mr.  Bulkley  was  endeavoring  to  ascertain  whether 
savings  banks  in  Italy  were  permitted  to  invest  in  long-term  land- 
mortgage  loans,  and  he  asked  the  question  twice,  and  Mr.  Hill  did 
not  answer  it  either  time.  It  is,  according  to  my  recollection,  that 
the  loans  throughout  most  of  the  European  countries  made  by  savings 
banks  using  savings  deposits  for  the  purpose,  arc  subject  to  call;  or, 
at  best,  short  notice  of  call,  and  that  such  loans  are  not  made  for  a 
definite  time. 

Senator  Hollis.  That  is  like  the  New  England  system  of  savings 
banks.     They  are  all  made  on  demand. 

Mr.  Jones.  Possibly,  yes.  Now,  Mr.  Hill  was  arguing  from  the 
viewpoint  of  a  banker  who  has  a  lot  of  savings  deposits  and  wants  to 
convert  his  bank  into  a  land-mortgage  bank  and  at  the  same  time 
wants  to  keep  his  savings  deposits.  We  were  repeatedly  cautioned  in 
Europe,  about  trying  to  combine  the  two.  One  of  the  reasons  for 
the  growth  of  the  long-term  land-mortgage  system  of  loaning  in 
Europe  was  because  the  savings  banks  were  thus  loaning  subject  to 
call,  which  they  had  to  do  to  operate  safely,  and  the  borrowers  were 
not  satisfied.  There  must  come  a  time  when  they  would  be  called 
upon  to  pay  their  loan  on  account  of  shrinkage  of  deposits,  and  at  a 
time  it  would  not  suit  them  to  pay.  That  brought  about  the  develop- 
ment of  the  land-mortgage  system,  independent  of  the  banks  that 
operated  upon  deposits. 

Senator  Hollis.  As  a  matter  of  practice  in  New  England  even  in 
1893,  when  the  savings  banks  got  in  such  a  bad  way,  I  do  not  know 
that  they  tried  to  collect  any  of  these  demand  mortgages.  I  have 
never  known  of  one  to  be  foreclosed. 

Mr.  Platt.  They  were  foreclosed  in  New  York.  I  do  not  pretend 
to  know  as  much  about  the  subject  as  Senator  Hollis  does,  but  when 
you  speak  of  deposits  being  demand  deposits  I  suppose  you  mean 

Senator  Hollis  (interposing) .  I  am  not  talking  about  deposits 
myself.     I  say  the  mortgage  loans  or  notes  were  all  made  on  demand. 

Mr.  Platt.  Is  that  so  ? 

Senator  Hollis.  Oh,  yes;  all  the  notes  in  my  section  are  made 
payable  on  demand.     But  they  are  never  called,  so  far  as  I  know. 

Mr.  Platt.  That  is  not  true  in  my  section.  The  mortgages  run 
for  two  or  three  years,  but  they  keep  right  on,  in  fact,  without  even 
any  renewals.  They  just  simply  keep  right  on  payiug  the  interest. 
Nobody  ever  renews  them.  I  would  not  say  nobody  does,  but  it  is 
not  the  ordinary  practice. 

Senator  Hollis.  That  is  considered  as  giving  the  banks  an  advan- 
tageous position  to  do  as  they  please,  otherwise  they  would  not  have 
it  all  their  way,  and,  of  course,  that  is  what  the  borrower  wants  to 
avoid,  and  I  do  not  blame  him. 

Mr.  Jones.  Now,  to  permit  the  organization  of  land-mortgage 
banks  and  at  the  same  time  allow  them  to  receive  savings  deposits  to 
any  appreciable  extent  and  make  35-year  loans  is  contrary  to  my 
idea  of  conservatism  and  safety.  This  criticism  would  not  attain  in 
case  savings  banks  or  commercial  banks  desired  to  invest  a  portion 
of  their  deposits  in  the  bonds  of  a  federation  of  regular  land-mortgage 
banks  that  in  themselves  do  not  operate  upon  deposits.  I  remember 
particularly  in  one  case,  the  president  of  a  land-mortgage  bank  in 
Europe  answered  this  question  that  I  put  to  him,  ''Do  you  receive 
deposits?"  by  saying  "Yes,  but  to  a  very  limited  extent;  we  do 


628  RURAL   CREDITS. 

not  make  a  specialty  of  it."  ''Why  do  you  not  make  a  specialty  of 
receiving  deposits;  would  it  not  assist  in  meeting  your  overhead 
charges?"  Yes;  but  we  do  not  believe  the  two  systems  should 
go  together;  it  is  too  dangerous."  While  the  minority  suggest 
receiving  savings  deposits  to  the  extent  of  50  per  cent  of  the  capital 
and  surplus,  I  personally  doubt  the  wisdom  of  that  even,  ana  my 
arguments  have  been  along  the  line  of  total  prohibition. 

Mr.  Platt.  Building  and  loan  associations  get  away  from  that. 
They  receive  deposits  and  loan  them  on  long  time. 

Senator  Hollis.  But  they  do  not  contract  to  pay  those  deposits 
until  the  shares  mature.  And  the  shares  mature  at  the  same  time  that 
the  loans  do,  so  that  they  are  paid  automatically.  That  is  the 
principle  of  the  building  and  loan  associations  in  my  State. 

Mr.  Platt.  That  is  true,  of  course. 

Mr.  Jones.  If  you  are  a  member  of  a  building  and  loan  association 
you  will  bear  me  out  in  this.  Their  savings  deposits  are  subject  to 
withdrawal  only  when  there  are  funds  on  hand.  Our  banking  laws 
make  the  banks  insolvent  if  they  do  not  pay  when  called  upon  to  do  so. 

Mr.  Platt.  In  the  savings  banks  if  a  man  withdraws  he  looses  his 
interest.  In  our  State  you  can  withdraw  only  after  notifying  the 
bank,  giving  them  60  days  notice,  I  believe.  They  have  that  legal 
right. 

Mr.  Jones.  Mr.  Platt  asked  a  question  several  days  ago  during 
these  hearings  that  I  do  not  find  directly  answered,  which  probably 
might  be  of  interest.  It  was  in  regard  to  the  high  rate  of  interest 
prevailing  while  we  were  in  Europe.  Mr.  Piatt's  question  was  to 
Mr.  Moss  and  is  as  follows: 

Mr.  Platt.  The  case  you  spoke  about  in  Austria  was  a  special  case  where  the  com- 
mercial banks  paid  a  higher  rate  of  interest  and  the  Government  borrowed  at  more 
than  6  per  cent  interest.  That  was  due  to  the  Balkan  war  and  to  the  shortness  of  money 
in  the  commercial  centers,  and  also  to  the  desire  of  the  Austrian  Government  to  get 
some  money  from  outside  sources  without  disturbing  local  conditions,  was  it  not? 

Mr.  Moss's  reply  failed  to  answer  the  question.  The  facts  are,  and 
Mr.  Moss  would  doubtless  have  answered  had  he  replied,  that  it  was 
due  to  the  Balkan  war. 

Mr.  Moss.  I  did  not  answer  the  question,  because  I  did  not  con- 
sider, from  the  point  I  was  presenting,  that  it  made  any  difference. 
The  point  I  wanted  to  get  before  the  committee  was  that  local  con- 
ditions could  make  a  lower  rate  of  interest  than  that  which  pre- 
vailed, but  I  did  not  want  to  go  into  that  question  because  it  did  not 
seem,  from  the  line  I  was  making,  that  it  was  of  any  consequence. 
It  was  with  no  intention  to  evade  the  question  at  all. 

Mr.  Platt.  It  seems  to  me  that  the  illustration  was  not  altogether 
a  fair  one,  because  it  did  not  show  general  conditions.  It  showed 
an  extraordinary  state  of  affairs. 

Mr.  Moss.  Since  the  question  has  been  brought  up,  I  should  like 
to  say  that  while  the  interest  rates  were  higher  in  Europe,  and  prob- 
ably due  to  the  war — I  do  not  care  to  dispute  that,  but  will  let  Mr. 
Jones's  answer  stand — it  is  a  fact  that  the  loans  made  through  the 
local  farm  organizations  were  almost  invariably  lower  than  those  of 
the  commercial  rates.     I  will  make  that  statement. 

Mr.  Jones.  That  was  a  peculiar  condition.  Local  rates  of  the 
larger  institutions  were  considerably   advanced,   but  this  was  not 


RUBAL  CREDITS.  629 

generally  done  by  the  smaller  institutions.  We  found  merchants 
under  the  cooperative  system,  that  would  have  no  financial  standing 
at  any  regular  commercial  bank,  and  were  scarcely  entitled  to  credit 
from  a  banking  standpoint,  were  borrowing  money  at  from  1  to  1| 
per  cent  less  than  the  strongest  merchants  in  the  same  community 
were  borrowing  from  the  larger  banks. 

Senator  Hollis.  How  do  you  account  for  that  ? 

Mr.  Jones.  It  is  because  the  smaller  merchants  who  had  no  access 
to  the  larger  commercial  banks,  had  combined  among  themselves  in 
a  cooperative  system,  under  the  Schulze-Delitzsch  plan.  They  do 
business  with  themselves;  they  receive  deposits  and  they  only  make 
the  rate  of  interest  to  themselves  just  enough  more  than  which  they 
pay  on  deposits  to  cover  operating  expenses.  They  are  not  profit- 
making  institutions. 

Mr.  Platt.  Well,  if  the  increase  in  the  general  rate  of  interest  out- 
side should  be  permanent  instead  of  merely  temporary  they  would 
probably  have  to  change  their  method  somehow,  would  they  not? 
Would  they  not  have  to  respond  somehow  ? 

Mr.  Jones.  I  should  think  it  would  so  result,  because  they  would 
soon  have  to  raise  the  rate  paid  for  deposits  to  hold  them  and  that 
would  automatically  raise  the  loaning  rate. 

Mr.  Platt.  Of  course  as  a  temporary  thing  they  could  go  right  on 
in  their  own  way. 

Mr.  Jones.  Yes.  They  did  not  need  to  raise  the  rate  to  meet 
temporary  conditions;  but  large  commercial  banks  had  to  protect 
their  reserves,  while  the  cooperative  banks  keep  little  or  no  reserves. 
The  Government  had  to  protect  its  gold  reserve,  and  therefore  raised 
the  Government  bank  rate  of  discount.  You  will  find  that  same  sort 
of  methods  adopted  in  our  country  after  we  get  the  Federal  reserve 
banks  operating.  I  believe  under  trying  conditions  the  country  banks 
will  be  loaning  at  cheaper  rates  of  interest  than  the  Federal  reserve 
banks- — that  is,  during  unusual  times  when  those  banks  are  endeavor- 
ing to  protect  their  gold  reserves. 

Mr.  Platt.  That  has  happened  a  great  many  times  already.  For 
instance,  during  the  panic  of  1897,  when  gold  in  New  York  was  up  2 
or  3  per  cent,  I  had  a  loan  running  right  along  at  5  per  cent,  and 
nobody  asked  me  for  any  more  collateral. 

Mr.  Jones.  Those  are  purely  local  conditions. 

Mr.  Platt.  They  were  local  conditions,  and  I  said  conditions  did 
not  last  long  enough  to  make  it  necessary  to  make  any  changes. 

Mr.  Jones.  Mr.  Seldomridge  asked  Mr.  von  Engelken  a  question 
regarding  the  advisability  of  permitting  the  land-mortgage  banks  to 
do  a  short-term  loaning  business  as  well  as  loaning  on  long  time. 
By  short-term  loaning  is  meant  personal  loans  for  temporary  needs. 
I  believe  the  commissioners  were  all  united,  so  far  as  I  have  ascer- 
tained, the  United  States  commissioners  and  the  American  commis- 
sioners, both  the  majority  and  the  minority,  in  their  opposition  to 
the  establishment  of  any  form  of  financial  institution  in  this  country 
that  combined  both  the  short-term  personal  credit  and  long-term 
mortgage  loan  features.  I  think  Senator  Fletcher  at  one  time  advo- 
cated this  and  introduced  a  bill  covering  both  plans,  but  subsequently 
withdrew  it. 

Mr.  Woods.  Mr.  Jones,  do  not  the  national  banks  under  this  new 
Federal  reserve  act  have  both  privileges  ? 


630  RURAL   CREDITS. 

Mr.  Jones.  Dr.  Coulter  defined  short  term  as  being  under  five 
years,  I  notice,  in  one  of  his  remarks. 

Mr.  Woods.  But  that  does  not  necessarily  follow  that  it  is  short 
term — five  years. 

Mr.  Jones.  No.  I  take  issue  as  to  that  being  a  short-term  loan. 
Yet  for  the  purpose  of  defining  mortgage  loans  he  refers  to  a  five- 
year  loan  as  a  short-term  loan,  and  to  a  35-year  loan  as  a  long-term 
loan.  Answering  your  question  direct,  yes;  there  is  a  provision  in 
the  Federal  reserve  act  permitting  a  limited  amount,  proportionate 
to  a  national  bank's  capital,  or  its  time  deposits,  to  be  invested  in 
farm  loans,  not  exceeding  five  years'  duration.  There  is  a  very  serious 
question  in  my  mind  as  to  the  wisdom  of  that  provision.  That  was 
inserted,  as  I  have  heard  said,  because  it  was  thought  necessary  to 
assist  the  farmer.  Undoubtedly  had  we  had  a  land-mortgage  bank- 
ing system  it  would  not  have  been  done. 

Senator  Hollis.  Of  course  the  trust  companies  do  that  indiscrim- 
inately, and  our  savings  banks  do  it  indiscriminately, 

Mr.  Jones.  When  I  speak  of  short  term  I  mean  loans  of,  say,  six 
months  and  under. 

Senator  Hollis.  You  understand,  of  course,  the  ordinary  trust 
company  will  make  a  loan  from  10  days  to  10  years,  as  it  chooses; 
that  is,  there  are  no  restrictions,  except  the  good  sense  of  the  bankers. 

Mr.  Jones.  Yes,  sir.     The  fact  of  trie  inability  of  commercial  banks 
to  take  those  kind  of  loans  has  been  the  real  reason  of  the  growth  of 
the  trust  companies. 
'■    Senator  Hollis.  Yes. 

Mr.  Jones.  I  really  regret  to  see  any  legislation  permitting  the 
national  banks  or  commercial  banks  to  invade  that  field.  I  think 
it  would  be  advisable  to  keep  them  strictly  in  the  commercial  field. 
Deposits  in  commercial  banks  fluctuate  violently.  If  they  have 
long-time  loans,  what  are  they  going  to  do  ?  They  must  have  early 
maturing  paper  that  automatically  takes  care  of  the  shrinkage  without 
forcing  their  borrowers. 

A  very  vital  point  was  brought  out  by  Senator  Hollis  that  I  would 
like  to  dwell  upon  a  moment.  In  part  8,  page  34,  a  signer  of  the 
minority  report,  Mr.  von  Engelken,  a  farmer,  made  this  statement: 

I  have  not  the  faith  in  the  farmer,  as  a  banker,  that  is  evidenced  by  the  gentlemen 
who  wrote  this  majority  report. 

Senator  Hollis  asks: 

I  can  not  see  where  it  is  necessary  to  have  it  a  bank  and  keep  open  during  banking 
hours — 

Referring  to  the  land-mortgage  banks— 

Take  $150,000  out  in  loans;  there  would  be  150  averaging  $1,000,  or  75  averaging 
$2,000,  spreading  over  a  period  of  35  or  40  years;  there  would  only  be  about  one  mortgage 
lasting  40  years;  there  would  only  be  about  one  mortgage  handled  in  a  month.  I  can 
not  see  the  need  for  having  a  regular  banking  room  open  during  regular  banking  hours. 

Gentlemen,  that  is  getting  right  at  the  crux  of  the  minority  report. 
We  ask  for  the  affiliation  of  land-mortgage  banks  with  our  present 
existing  country  banks  in  order  to  save  that  overhead  charge  and 
in  consequence  be  able  to  make  the  cheapest  possible  rate.  If  they 
receive  deposits,  even  with  the  50  per  cent  of  the  capital  and  surplus 
limit,  our  State  laws  would  require  that  they  shall  be  ready  during 
any  banking  hour  to  pay  those  deposits  when  called  upon.     That 


RURAL  CREDITS.  631 

will  require  keeping  open  during  banking  hours  every  day  in  the 
week,  holidays  and  Sundays  excepted,  to  be  ready  to  meet  the  de- 
mands of  checking  depositors,  whereas  in  strictly  a  land-mortgage 
bank,  as  Senator  Hoiks,  I  believe,  further  mentions,  it  might  be 
conducted  in  the  back  room  of  a  grocery  store,  where  some  one  man 
could  receive  applications  for  loans  and  accept  payments  on  existing 
loans. 

Mr.  Platt.  How  could  the  State  laws  compel  a  national  institu- 
tion to  keep  open  and  cash  checks  at  any  tune  that  is  organized 
under  national  law  ? 

Mr.  Jones.  If  not,  the  national  law  would  require  the  same  thing, 
unless  provision  is  made  whereby  the  bank  need  not  pay  the  depos- 
itor when  called  upon  to  do  so  during  banking  hours  or  need  have 
the  doors  open  at  its  convenience. 

Mr.  Platt.  I  think  that  could  be  arranged;  yes.  Perhaps  some- 
thing would  have  to  be  done  to  show  that  he  distinctly  understands 
that  he  could  not  get  his  money  at  any  time;  that  the  bank  is  not 
open  at  all  times.  But  that  is  true  in  the  banks  now;  they  are  not 
opened  until  10  o'clock  in  the  morning  and  close  at  3  o'clcok  in  the 
afternoon. 

Mr.  Jones.  They  are  open  every  day  during  banking  hours. 

Mr.  Platt.  Banking  hours  might  be  1  hour  a  week  just  as  well  as 
10  hours  a  day. 

Mr.  Jones.  I  am  not  clear  as  to  whether  the  law  requires  specific 
banking  hours.     But  usage  does. 

Mr.  Platt.  There  is  a  bank  in  New  York,  called  a  day-and-night 
bank,  which  is  open  all  the  time. 

Mr.   Seldomredge.  It  never  closes? 

Mr.  Platt.  No,  sir. 

Mr.  Jones.  I  think  it  is  well  to  consider,  if  you  are  going  to  let  the 
banks  receive  any  kind  or  amount  of  deposits,  as  to  what  hours  they 
should  keep  open. 

Mr.  Platt.  That  is  true. 

Mr.  Jones.  Reading  further  from  the  minority  report,  a  paragraph 
which  I  would  like  to  comment  upon  briefly: 

It'is  clear  that  no  small  local  unit  institution  could  have  sufficient  financial  strength 
to  place  its  securities  in  the  market  so  as  to  command  the  best  rates  of  interest,  if, 
indeed,  it  could  find  any  market  at  all  for  its  securities.  It  is,  therefore,  proposed  to 
federate  a  considerable  number  of  such  locals  in  a  given  State  by  organizing  a  central 
body  in  some  commercial  center  of  their  State.  This  is  to  be  done  somewhat  similar 
to  the  plan  of  federating  the  short-term  credit  societies  throughout  Europe,  in  that 
these  locals  are  to  own  and  control  the  central,  and  not  the  central  to  own  and  control 
the  locals.  In  the  latter  case  the  control  and  management  would  be  taken  out  of  the 
hands  of  the  farming  communities  and  put  into  the  hands  of  the  city  financiers;  whereas 
in  the  plan  proposed  the  rural  communities  would  retain  control,  so  as  to  insure  against 
exploitation|at  the^hands  of  outside  interest. 

Mr.  Breitung,  in  his  testimony,  dwells  upon  the  necessity  of  organ- 
izing sufficiently  strong  so  as  to  reach  the  market.  Here  are  his 
words,* quoted  from  the  records: 

The  only  thing  I  would  like  to  say  is  that  you  have  them — 

Land-mortgage  banks — 

large  enough,  so  when  we  go  over  there — 

Meaning  toJEurope  to  place  bonds — 

they  will  think  it  is  worth  while  and  will  consider  it.  We  want  to  get  real  considera- 
tion. 


632  RURAL   CREDITS. 

That  is  carrying  out  the  same  thought.  No  consideration  will  be 
paid  to  bonds  offered  by  such  small  units  as  proposed.  Therefore  I 
am  confident  in  my  mind  that  the  law  would  be  a  dead  letter,  so  far  as 
rendering  any  relief  to  our  agricultural  interests  if  these  little  banks 
should  be  permitted  to  organize  without  federating.  There  is  no 
prohibition  for  a  large  bank  of  a  million  dollars  capital  being  organ- 
ized in  some  center.  That  will  be  the  result  under  the  Fletch  r-Moss 
bill.  They  will  organize  large  banks  which  will  reach  out  with  their 
tentacles  into  the  rural  districts,  as  I  before  mentioned.  To  pass 
upon  each  loan  as  offered  from  a  distance  would  involve  tremendous 
expense.  This  leads  me  up  to  Mr.  Moss's  question  just  before  noon 
adjournment.  That  is  one  of  the  difficulties  we  are  up  against  now, 
and  why  the  farmer  does  not  get  a  cheaper  rate.  He  sends  in  an 
application  for  a  loan  of  $1  000.  The  lender  must  send  his  own 
inspector  out  into  the  field;  he  lias  got  to  pay  railroad  fare,  hotel 
fare,  livery  hire,  and  spend  from  one  to  several  days'  time.  I  am 
assuming  there  would  be  no  small  banks  under  the  Fletcher-Moss  bill, 
and  1  feel  confident  in  that  assumption. 

The  minority  thoroughly  considered  how  to  reach  the  appraisement 
in  the  safest  and  cheapest  w7ay.  Even  if  the  double  checking  were  to 
make  an  additional  cost,  this  precaution  would  sell  the  bond  at  a 
lower  rate  and  redound  to  the  benefit  of  the  borrowers.  Wehave 
taken  the  small  unit  banks,  allowing  them  to  make  the  loans  originally 
upon  the  appraisement  as  provided  in  the  bill,  by  local  men  who 
know  the  conditions  and  are  familiar  with  the  local  environments 
and  can  pass  upon  the  desirability  of  the  man  as  a  borrower.  If  this 
land-mortgage  bank  is  affiliated  with  the  local  county  bank,  they  have 
his  record  pretty  thoroughly  already.  Undoubtedly  in  many,  many 
instances,  however,  the  appraisement  made  in  this  way  will  be 
biased.  We  have  provided  'a  method  of  rechecking  the  appraise- 
ments which  we  think  absolutely  necessary.  This  can  be  done  when 
a  number  of  loans  are  completed  and  ready  to  be  used  as  a  basis  of 
bond  issue,  thus  reducing  the  cost  incident  to  appraisement.  To 
quote  from  the  minority  report: 

The  central  should  have  its  own  inspector  and  appraiser  to  check  the  examination 
and  appraisement  made  by  the  different  locals  of  the  securities  sent  in  by  them,  as 
well  as  audit  the  locals  from  time  to  time.  If  upon  his  visit  and  report  any  loan  that 
had  been  sent  in  by  a  local  should  be  found  not  up  to  standard  or  had  been  misrepre- 
sented, that  local  to  be  required  to  either  take  up  the  loan,  reduce  the  amount  forth- 
with, or  put  up  some  additional  collateral  for  the  purpose  of  margining  the  loan  to  the 
required  amount,  which  additional  collateral  would  be  deposited  with  the  securities 
behind  that  series  of  bonds  until  the  loan  itself  shall  have  been  reduced  to  proper 
proportions  by  the  borrower.  The  local  having  an  established  country  bank  behind 
it  will  be  amply  able  to  make  the  necessary  arrangements  to  do  either  of  these  required 
things. 

Naturally  every  farmer  wants  his  land  to  be  worth  as  much  as  pos- 
sible, lie  knows  that  if  John  Smith's  land,  across  the  road,  is 
appraised  at  $100  per  acre  it  is  going  to  more  nearly  maintain  his  idea 
of  his  value  at  $100.  I  have  had  some  very  intimate  experience  along 
that  line,  being  interested,  as  I  mentioned  this  morning,  in  other 
certain  sections  of  our  State.  For  several  years  I  took  issue  with  a 
local  board  of  directors  regarding  the  land  valuations  used  as  a  basis 
of  extending  credit.  In  my  recurrent  visits  I  tried  to  impress  upon 
them  that  they  were  oversanguine  regarding  their  values  and  held 
too  exalted  an  opinion  of  their  lands.     Finally  I  said:  "Gentlemen, 


EURAL   CEEDITS.  633 

I  think  I  had  better  stop  corning  here,  or  you  will  think  I  am  a 
knocker  on  your  section  or  a  pessimist,  but  I  can  not  see  that  you 
have  any  permanency  in  these  values."  This  was  possibly  five  years 
ago.  Fortunately  during  the  time  of  plenty  that  bank  accumulated 
a  handsome  surplus  and  undivided  profits  account.  Listen  to  the 
story  down  to  date:  Out  of  a  $50,000  accumulated  surplus  it  has 
taken  $25,000  to  charge  down  on  loans  made  upon  those  supposed 
values,  based  strictly  on  local  ideas  and  honest  best  judgment. 

Senator  Hollis.  And  what  percentage?  What  percentage  was 
loaned  on  that  valuation? 

Mr.  Jones.  The  loans  were  about  $250,000,  so  the  percentage  of 
loss  was  about  10  per  cent. 

Senator  Hollis.  What  percentage  of  the  valuation  was  loaned  on 
a  particular  piece  of  land  ? 

Mr.  Seldomridge.  Fifty,  forty,  or  sixty  per  cent? 

Mr.  Jones.  These  were  not  loans  directly  on  the  lands;  these  were 
loans  based  on  local  valuation  of  a  farmer's  property.  In  many  cases 
supposed  equities  did  not  exist. 

Senator  Hollis.  I  see;  based  on  his  property. 

Mr.  Jones.  Yes.  I  reluctantly  mention  this  personal  experience, 
but  believe  it  valuable  to  prove  our  contention  as  to  the  necessity  of 
an  outside  and  independent  appraisement.  Mr.  Van  Enyleken  brings 
you  a  similar  story  as  to  wiping  out  equities  in  Florida.  These  con- 
ditions can  be  shown,  repeated  over  and  over  again,  in  other  States. 
At  one  time  I  was  interested  in  a  bank,  gentlemen,  where  there  were 
three  straight  years'  crop  failures.  I  had  to  personally  put  up  money 
and  pay  off  the  deposits  and  took  over  the  assets  myself  of  that  bank, 
for  I  realized  the  condition  of  the  borrowers,  and  because  of  my 
identity  with  it  I  felt  a  moral  obligation  to  protect  its  depositors. 
Now,  there  was  a  local  condition  that  very  nearly  bankrupted  that 
entire  community.  Had  they  a  land-mortgage  bank  there  independ- 
ently floating  bonds,  you  can  see  what  would  have  been  the  result. 
But  if  it  belonged  to  a  federation  it  could  have  been  safely  carried 
through  by  the  combined  strength,  or  were  it  to  go  into  the  hands  of 
a  receiver  the  bondholders  would  be  none  the  wiser,  as  its  securities 
would  be  protected  by  the  federation.  But  where  would  such  a  unit 
bank  be  under  the  Fletcher-Moss  bill  ?  This  same  thought  is  carried 
out  in  our  laws  that  prohibit  fire  insurance  companies  from  putting 
too  many  risks  in  one  place,  and  prohibit  life  insurance,  fidelity,  or 
casualty  companies  from  taking  too  large  single  risks.  That  is  the 
same  underlying  principle. 

The  minority  would  even  restrict  the  amount  of  mortgage  loans 
behind  any  series  of  bonds  from  any  one  given  locality,  besides  limit- 
ing the  amount  to  be  loaned  any  one  borrower.  I  will  here  quote 
from  our  minority  report  on  this  point: 

The  central  alone  should  have  power  to  issue  bonds  or  debentures,  these  to  be 
secured  by  the  collective  mortgage  loans  made  on  the  amortization  principle  on  pro- 
ductive farm  property  received  through  and  having  the  indorsements  of  the  different 
locals.  When  the  central  receives  loans  aggregating  a  given  amount,  say,  one-half 
of  its  own  capital  stock,  it  would  be  empowered  to  issue  a  "series"  of  bonds  or  deben- 
tures against  such  mortgage  loans.  The  loans  from  any  such  local  securing  any  one 
series  of  bonds  issued  by  the  central  should  not  exceed  a  reasonable  proportion  of 
the  whole.  Thus,  by  this  plan  will  be  built  up  an  aggregate  of  diversified,  well- 
secured,  and  indorsed  mortgage  securities,  not  dependent  upon  the  conditions  of  any 
single  locality,  against  which  the  bonds  would  be  issued  and  which  should  find  a 
ready  market  and  command  the  cheapest  possible  rate  of  interest. 


634  RURAL  CREDITS. 

It  might  be  desirable  not  to  have  over  10  per  cent  of  the  total  loans 
behind  any  bond  issue  from  any  one  county. 

Senator  Hollis.  Mr.  Jones,  there  are  only  10  counties  in  my  State. 

Mr.  Jones.  Well,  you  can  organize  in  10  counties. 

Senator  Hollis.  I  think  we  would  come  a  little  nearer  the  ideal  by 
having  a  percentage  of  the  number  of  counties  in  a  State.  In  Del- 
aware there  are  only  three  counties,  by  the  way. 

Mr.  Jones.  It  might  be  found  necessary  to  extend  the  line  beyond 
the  States  where  there  are  such  conditions  as  that. 

Sciu, lor  Hollis.  You  might  intersperse  a  few  Colorado  counties 
in  Delaware.     They  would  be  adequate. 

Mr.  Woods.  Mr.  Jones,  I  understand  your  plan  is  that  the  central 
organization  should  issue  the  bonds  I 

Mr.  Jones.   Yes;  alone. 

Mr.  Woods.  What  would  be  the  privileges  and  duties  of  these 
local  organizations  '. 

Mr.  Jones.  The  local  organization,  it  is  proposed,  shall  put  into 
the  federated  central  just  as  the  national  banks  have  to  put  into  the 
Federal  reserve  banks,  a  portion  of  their  respective  capitals  and 
surpluses.  Our  proposal  is  that  it  shall  be  25  per  cent.  This  would 
leave  75  per  cent  ol  the  combined  capital  and  surplus  of  each  unit 
bank  unemployed  and  with  which  to  make  loans.  They  would  make 
mortgage  loans  on  the  amortization  plan,  closing  them  at  once  or  as 
soon  as  title  is  examined  and  inspection  made,  and  would  not  have 
to  wait  for  a  big  bank  in  the  city  to  send  out  to  appraise  the  land. 
When  they  accumulate  a  number  of  finished  loans  (they  could  hold 
them  as  long  as  desired  for  the  benefit  of  the  accruing  interest)  they 
are  to  guarantee  them  and  forward  them  to  the  central,  against 
which  the  central  alone  has  the  privilege  of  issuing  bonds. 

Mi-.  Woods.  What  is  the  objection  to  permitting  the  present  State 
bank  to  send  25  or  30  per  cent  of  their  capital  and  surplus  through 
the  Federal  reserve  bank? 

Mr.  Jones.  We  thrashed  that  over  for  a  solid  day. 

Mr.  Woods.  What  was  the  objection? 

Mr.  Jones.  You  can  not  expect  State  banks,  when  the  State  laws 

Erohibit  such  investments  by  them.  You  might  permit  the  national 
anks  to  do  it. 

Mr.  Woods.  Of  course,  they  would  be  nationalized  if  they  did  that. 

Mr.  Jones.  We  are  up  against  the  same  thing  now  in  admitting 
State  banks  as  members  of  the  Federal  reserve  banks.  I  do  not  think 
many  State  laws  will  permit  them  to  invest  in  the  capital  stock  of 
another  corporation.  We  might,  when  we  get  through  with  this, 
take  that  up,  if  you  would  like  to,  and  I  will  give  you  the  argument 
among  ourselves.  We  had  that  under  consideration  very  seriously 
as  an  alternative  proposition,  and  thought  of  incorporating  it  in  our 
report  at  one  time  as  an  alternative  proposition. 

Mr.  Woods.  I  thought  maybe  you  had  some  specific  objection  to 
it,  and  I  would  like  to  hear  it. 

Mr.  Jones.  Yes;  I  have.     I  believe  the  proposed  plan  better. 

Mr.  Platt.  There  is  one  question  I  would  like  to  ask  you  as  a 
banker.  Why  is  it  that  the  Scotch  banking  system  can  not  be  done 
here  in  localities?  Apparently  the  Scotch  banking  system  has  done 
away  with  any  demand  for  the  rural  credit  plan  in  the  sense  of  a 
demand.     I  understand  a  man  takes  a  mortgage  to  the  bank,  and 


RURAL  CREDITS.  635 

the  bank  gives  the  man  credit  up  to  the  limit  of  his  mortgage,  then 
he  borrows  on  that  when  he  pleases  and  does  not  begin  to  pay  interest 
until  he  has  borrowed  something,  but  then  he  pays  interest  on  what 
he  has  borrowed,  and  when  he  makes  deposits  they  automatically 
pay  off  his  loan,  so  that  his  debt  is  constantly  fluctuating  about. 
It  seems  to  me  that  has  some  advantages  over  any  system  which  has 
ever  been  proposed  here.     Why  has  it  not  been  done  or  tried  here? 

Mr.  Jones.  You  put  the  real  estate  security,  then,  in  a  bank.  I 
do  not  believe  the  present  banks  are  large  enough  to  meet  this  addi- 
tional demand  even  if  desired. 

Mr.  Platt.  There  is  nothing  to  prevent  State  banks  from  doing 
that,  is  there,  now  ?  In  fact,  I  have  been  told  that  some  State  banks 
do  that;  that  they  give  a  man  a  line  of  credit  on  a  mortgage,  but  I 
do  not  know  how  they  carry  out  the  Scotch  plan,  but  I  do  not  sup- 
pose deposits  automatically  pay  off  the  debt. 

Mr.  Jones.  I  do  not  think  there  is  any  prohibition. 

Mr.  Platt.  What  disadvantages  are  there,  if  any,  that  prevent  it 
from  being  adopted? 

Mr.  Jones.  I  have  not  had  occasion  to  look  into  that. 

Mr.  Platt.  It  would  require  some  extra  bookkeeping,  I  should 
think,  perhaps,  but  that  does  not  seem  to  me  to  present  any  serious 
objection. 

Mr.  Jones.  Do  you  mean  to  permit  the  borrower  just  to  draw  on 
his  account  in  excess  of  what  he  may  have  on  deposit,  and  leave  the 
mortgage  as  security? 

Mr.  Platt.  As  I  understand  it  he  leaves  the  mortgage.  The 
borrower  has  property  appraised  at  $2,000,  and  he  puts  a  mortgage 
in  the  bank  for  $2,000,  and  he  may  not  draw  more  than  .$400  or  $500, 
and  he  draws  a  check,  and  that  check  goes  into  the  bank  and  imme- 
diately becomes  a  note,  and  he  owes  so  much  money,  for  which  this 
mortgage  is  security,  and  when  he  makes  a  deposit  that  automatically 
pays  off  some  of  it. 

Mr.  Jones.  I  noticed  that  was  mentioned  in  some  previous  hearing. 
I  did  not  notice  any  conclusion  had  been  reached. 

Mr.  Platt.  It  is  a  strange  thing  in  a  big  country  like  this,  where 
most  everything  has  been  tried,  that  that  scheme  has  not  been  tried 
here,  and  if  it  has  not  been  tried  here,  why  it  has  not  ?  That  is  what 
I  do  not  understand. 

Mr.  Jones.  I  do  not  think  the  banks  would  very  strongly  favor 
that.  You  want  me  to  answer  from  a  banker's  standpoint,  do  you 
not? 

Mr.  Platt.  Yes;  I  want  to  know  at  what  disadvantage  you  would 
be.  Would  it  be  simply  increasing  the  bookkeeping  charges,  or  what 
disadvantage  would  it  be  from  a  banker's  standpoint  ? 

Mr.  Jones.  The  way  I  look  upon  that,  it  would  be  merely  per- 
mitting our  customers  to  overdraw  their  accounts,  leaving  collateral. 
It  would  be  an  overdraft  secured. 

Mr.  Platt.  That  is  practically  what  it  would  be. 

Mr.  Jones.  The  banks  do  not  like  overdrafts,  and  the  Comptroller 
of  the  Currency  is  constantly  criticizing  the  banks  that  permit  over- 
drafts, even  though  they  are  secured. 

Mr.  Platt.  That  is  a  legal  objection,  and  not  a  banker's  ob- 
jection. 


636  RURAL   CREDITS. 

Mr.  Jones.  Some  State  legislatures,  I  think,  particularly  have 
enacted  laws  making  the  cashier  personally  liable  in  paying  over- 
drafts. That  is,  where  the  customer  has  not  money  on  deposit,  and 
he  pays  a  check  when  such  customer  has  not  sufficient  funds  on  de- 
posit with  which  to  meet  the  check,  he  is  personally  liable,  he  and  his 
bondsman. 

Mr.  Platt.  I  know  in  my  own  State  it  works  the  same  way  to  a 
certain  extent.  If  1  take  a  bond  to  the  bank,  worth  a  little  over  par, 
a  $1,000  bond  worth  ?1,200,  and  borrow  $1,000  on  it,  whenever  I 
want  to  pay  1  can  pay.  It  is  to  my  advantage  as  a  borrower,  and  I 
can  pay  whatever  I  want  to,  and  1  can  increase  my  loan,  not  quite 
so  easily  and  automatically  as  the  Scotch  system,  but  it  is  prac- 
tically the  same  thing.     It  is  not  considered  an  overdraft. 

Mr.  Woods.  I  believe  they  keep  a  different  set  of  books  in  Scotland 
and  in  England,  and  it  is  called  a  book  credit.  It  is  kept  separate 
from  the  regular  banking  business. 

Mr.  Jones.  I  can  only  give  you  my  opinion  from  a  banker's  stand- 
point. 

Mr.  Platt.  That  is  what  I  want  to  get  at.  We  can  see  the  legal 
conditions  and  machinery  of  the  thing,  and  whether  it  would  conflict 
with  our'  laws,  perhaps. 

Mr.  Jones.  You  are  speaking  of  changing  the  customs  of  commer- 
cial banking.  Commercial  banks  have  built  up  their  lines  of  credit 
based  upon  deposits.  A  man  does  business  with  the  bank,  carrying 
a  satisfactory  balance,  and  that  bank  will  loan  him  in  proportion  to 
his  balance  what  it  is  worth  to  it.  You  propose  that  a  borrower  shall 
be  a  borrower  only  and  keep  no  deposit. 

Mr.  Platt.  I  am  not  fully  familiar  with  the  Scotch  system  enough 
to  know  what  that  is. 

Mr.  Jones.  I  have  answered  from  a  banker's  standpoint.  He 
wants  deposits  to  do  business  on. 

Mr.  Platt.  Somebody,  of  course,  must  at  the  same  time  make 
deposits,  otherwise  the  bank  would  not  have  the  money  to  loan. 

Mr.  Jones.  Yes,  sir.  A  large  number  never  borrow  at  all.  That 
furnishes  the  balance  we  need  for  the  man  who  needs  to  borrow.  The 
bank  is  a  vehicle  between  the  depositor  and  the  borrower.  Let  me 
bring  in  here  the  exact  language  of  the  minority  report: 

The  central  should  have  sufficient  capital  to  give  it  strength  and  standing  in  the 
money  markets,  subscribed  and  paid  for  by  the  different  locals  in  proportion  to  their 
respective  capitals.  This  follows  the  precedent  established  in  our  own  country,  also 
in  the  new  Federal  reserve  act  (currency  bill)  just  passed,  which  act  requires  our  exist- 
ing national  banks  to  provide  the  capital  of  the  Federal  regional  banks — pay  for  same 
out  of  their  own  capital. 

While  the  system  created  by  the  enactment  of  the  currency  law  will  undoubtedly 
make  it  easier  for  the  farmers,  who  could  safely  be  loaned  under  any  system,  to  obtain 
short-time  credit,  it  will  place  him  at  a  still  greater  disadvantage  for  the  long-term 
mortgage  loans,  for  the  very  clear  reason  that  our  existing  banks  will  undertake  to 
restrict  their  loans  to  the  class  that  is  eligible  for  rediscount  under  the  new  system, 
and  real  estate  mortgage  loans  are  not  eligible. 

Therefore  the  greater  reason  why  our  existing  country  banks  will  feel  the  need  of 
cooperating  for  this  purpose. 

There  has  been  a  great  deal  of  argument,  that  because  of  the  Fed- 
eral reserve  banks  being  established,  lending  strength  to  the  different 
national  banks  of  the  country,  that  the  national  banks — all  commer- 
cial banks — can  be  more  liberal  and  loan  more  money  to  the  farmer. 
That  will  be  true  of  the  kind  of  loans  that  the  Federal  reserve  banks 


RURAL   CREDITS.  637 

will  accept  from  the  member  banks.  You  will  already  find  that 
bankers  are  beginning  to  hedge  about,  instead  of  taking  advantage 
of  this  new  provision  permitting  them  to  loan  on  farm  lands;  that 
few  of  them  are  even  considering  it.  They  find  now  that  they 
have  assets  they  can  not  use  with  the  new  system.  They  are  try- 
ing to  eliminate  the  kind  of  assets  that  the  Federal  reserve  banks 
will  not  accept.  You  can  see  it  is  reasonable.  They  will  loan  to 
the  farmer  for  making  his  crop  if  he  has  a  good  maturing  crop  with 
which  to  repay,  or  they  wall  loan  to  the  farmer  for  the  purchase  of 
live  stock  or  other  active  purposes,  such  as  will  be  accepted  by  the 
Federal  reserve  banks,  but  I  do  not  believe  that  the  farmer  is  going 
to  find  much  relief  for  his  real-estate  mortgage  needs  under  this  new 
system  through  the  commercial  bank.  But  I  do  believe  he  could 
find  relief  through  properly  organized  land-mortgaged  banks. 

A  banker  always  wants  several  strings  to  his  bow.  He  will  want 
loans  that  are  quickly  convertible  through  the  Federal  reserve  bank; 
at  the  same  time  he  would  like  some  safe  investments  for  secondary 
reserve  purposes,  such  as  sound  bonds  and  other  marketable  securi- 
ties. Thus  he  would  have  two  strings  to  his  bow,  two  chances  to 
realize  upon  in  case  of  necessity.  Build  up  a  system  that  will  pro- 
vide a  recognized  land-mortgage  bond  with  a  ready  market  and  you 
will  find  they  will  soon  be  looked  upon  with  favor  by  the  commercial 
banks  for  secondary  reserve  purposes.  I  believe  this  can  be  accom- 
plished through  a  federation,  as  proposed. 

Senator  Hollis.  You  have  not  yet  indicated  how  big  you  will 
have  these  federated  districts.  I  am  afraid  you  are  going  to  overlook 
that. 

Mr.  Jones.  I  thought  I  mentioned  this  morning  that  it  might  be 
deemed  advisable  to  have  them  coterminous  with  State  fines.  I 
believe  you  had  not  come  in,  Senator  Hollis.  That  is  suggested 
because  the  State  laws  are  uniform.  In  the  case  of  a  small  State  it 
might  be  advisable  to  combine  several  States  in  order  to  get  the 
advantage  of  an  organization  of  that  kind. 

Senator  Hollis.  You  would  not  want  to  have  them  coterminous 
with  the  Federal  reserve  districts  ? 

Mr.  Jones.  I  see  no  reason  for  doing  it. 

Mr.  Platt.  If  you  combined  several  States,  then  you  would  run 
up  against  the  different  State  laws,  which  would  affect  the  value  of 
the  bonds  somewhat. 

Mr.  Seldomridge.  Is  not  there  a  certain  characteristic  in  the 
quality  of  soil  or  character  of  land  that  applies  to  each  State  1  People 
get  their  idea  of  land  located  in  a  certain  State  from  the  production 
of  that  State. 

Senator  Hollis.  Moreover,  in  a  small  district,  whether  it  is  State 
or  otherwise,  you  are  more  likely  to  have  a  crop  failure  all  over  than 
you  are  in  a  larger  district.  Of  course,  it  is  an  open  secret  that  the 
Federal  reserve  districts  were  fixed  as  to  number  as  a  compromise 
between  people  who  thought  there  ought  to  be  a  great  many  and 
those  who  favored  one  central  bank.  It  was  a  sort  of  compromise, 
and  there  is  no  reason  why  we  should  be  governed  by  that  except 
there  mil  be  some  very  fine  advantages  in  every  district  that  we 
could  avail  ourselves  of,  and  some  officials  that  are  already  being 
paid  salaries  that  we  could  hook  onto. 


638  RURAL   CREDITS. 

Mr.  Jones.  I  have  thought  of  that  in  this  way,  Senator  Hollis,  if 
the  machinery  to  be  established  under  the  Federal  reserve  act  could 
be  made  available,  we  might  have  the  service  of  their  combined  boards 
in  assisting  in  passing  upon  the  securities  ultimately,  but  the  salaries 
of  the  directors  and  officials  of  the  Federal  regional  banks  are  to  be 
borne  by  the  member  banks;  so,  should  you  undertake  to  dovetail 
in  there  another  organization,  you  will  have  to  arrange  some  way  in 
which  it  can  bear  its  part  of  the  expense. 

Senator  Hollis.  It  could  be  left  to  the  Federal  Reserve  Board,  and 
let  them  put  a  fair  per  cent  on  these  other  banks.  In  that  way  you 
get  more  work  at  the  same  salary  and  spread  the  assessment  over  a 
wider  field.  1  am  wondering,  Mr.  Jones,  if  the  national  banks  have 
not  rather  an  instinctive  aversion  to  hooking  this  onto  the  system. 
I  am  wondering  if  you  do  not  feel  that. 

Mr.  Jones.  I  feel  that  it  is  so  separate  and  independent  a  plan  of 
extending  credit  that  it  is  going  to  be  very  difficult  to  get  the  same 
man  to  handle  one  that  would  be  qualified  to  handle  the  other.  If  a 
man  gets  his  education  along  the  line  of  commercial  loaning  and 
liquid  commodities  as  a  basis  of  loaning,  it  might  be  difficult  for  him 
to  get  into  another  rut  at  the  same  time. 

Mr.  Platt.  Section  43  of  the  Fletcher-Moss  bill  provides : 

That  no  national  farm-land  bank  shall  be  authorized  to  operate  branches,  but  each 
said  institution  may,  with  the  approval  of  the  commissioner  of  farm-land  banks,  em- 
ploy and  maintain  loan  agencies  throughout  the  State  in  which  it  is  operated. 

Does  not  that  mean  to  touch  the  same  thing  that  you  have  been 
advocating,  with  a  large  bank  organized  in  the  State,  and  it  has  its 
loan  agencies,  which  will  approximate  the  same  thing  as  small  local 
institutions  ? 

Mr.  Jones.  No,  sir;  not  at  all. 

Mr.  Platt.  What  do  you  think  the  result  of  that  will  be? 

Mr.  Jones.  You  would  still  have  the  unit  bank,  each  bank  with  its 
own  bonds. 

Mr.  Platt.  You  said  that  under  this  bill  as  it  stands,  if  we  should 
enact  it,  there  would  probably  be  very  few  small  banks  organized, 
but  a  number  of  large  ones  with  large  capital.  If  $1,000,000  banks 
were  organized,  they  would  naturally  have  loan  agencies,  would  they 
not,  in  various  parte  of  the  State? 

Mr.  Jones.  They  might  do  like  they  do  in  Europe.  I  do  not  think 
they  have  loan  agencies,  but  affiliate  with  large  commercial  banks, 
such  as  I  described  this  morning.  They  go  to  these  commercial  banks 
and  sell  their  bonds.  When  they  put  out  an  issue,  the  commercial 
hanks  take  them  and  immediately  find  a  market  for  them  among 
their  savings  depositors  or  advertise  them.  I  do  not  think,  answer- 
ing your  question,  that  the  selling  agencies,  with  due  respect  to  those 
who  have  conceived  the  plan,  will  work  out  anyway  near  as  satis- 
factorily as  the  federation  into  a  central. 

Now,  I  will  give  you  another  reason. 

Under  the  federated  plan  we  would  have  a  rechecking  of  the  secur- 
ities of  each  local.  I  noticed  Mr.  von  Engelken  brought  out  a  point 
that  we  had  not  dwelt  upon  very  much  in  the  preparation  oi  our 
report  and  it  struck  me  as  being  a  splendid  idea.  He  criticizes  the 
fiduciary  agent  plan.  In  little  banks  that  probably  would  have 
trouble  in  paying  overhead  charges.     What  kind  of  a  man  can  you 


KURAL  CREDITS.  639 

get  to  serve  ?  Will  he  be  present  when  you  want  him  to  certify  to  a 
loan  ?  Is  he  always  available  for  making  a  $500  loan  with  a  nominal 
fee  to  him  ?  Will  it  pay  to  have  that  man  there  ?  Furthermore,  he 
is  a  man  that  is  influenced  by  local  environment  and  local  conditions, 
and  he  is  interested  himself  in  the  community.  Why  not  have  one 
fiduciary  agent  at  the  central?  He  would  be  a  man  worth  while. 
Now,  when  loans  are  sent  to  the  central  from  each  section,  $5,000 
from  county  A,  $10,000  from  county  B,  $10,000  from  county  C,  etc., 
under  our  proposed  plan,  notice  is  served  that  the  central  wants  to 
issue  a  series  of  bonds  secured  by  these  collective  securities.  Then 
your  fiduciary  agent  comes  in,  checks  over  the  local  appraisements 
and  the  independent  reappraisements,  and  in  all  respects  sees  that 
proper  precaution  has  been  used,  and  that  the  titles  are  passed,  etc., 
before  the  bonds  can  be  marketed. 

I  will  say,  gentlemen,  that  I  want  to  emphasize  the  fact  that  it  is 
necessary  to  be  exceedingly  cautious  in  enacting  a  measure  of  this 
kind.  Someone  asked  the  question  of  a  former  witness  why  there 
was  a  great  disaster  some  years  ago  with  farm  mortgage  associations 
in  this  country.  I  followed  right  in  the  trend  of  that  disaster  as 
bank  examiner,  and  I  can  give  some  reasons  why  some  of  them  went 
down.  One  of  the  reasons  that  caused  trouble  was  they  were  doing 
business  on  deposits — though  not  all  of  them  were. 

Mr.  Bulkley.  Upon  demand  deposits  ? 

Mr.  Jones.  Yes;  both  time  and  demand.  Another  reason  was, 
as  very  clearly  stated  in  the  record,  that  conditions  were  not  as  stable 
then  as  they  are  now. 

Senator  Hollis.  You  are  referring  to  1893  ? 

Mr.  Jones.  Yes.     I  was  appointed  bank  examiner  in  1894. 

Mr.  Bulkley.  Do  you  have  special  reference  to  the  land  values 
when  you  say  conditions  were  not  as  stable  ? 

Mr.  Jones.  Yes. 

Senator  Hollis.  In  what  State,  Mr.  Jones? 

Mr.  Jones.  In  Missouri.  We  were  going  to  close  several  of  them 
before  they  closed  themselves.  They  came  under  the  inspection, 
because  they  received  deposits.  When  they  saw  we  were  going  to 
close  them  they  made  arrangements  for  a  sufficient  amount  of  money 
and  paid  off  their  deposits,  so  got  our  from  under  our  jurisdiction. 
The  law  was  not  enacted  to  protect  the  bond  or  debenture  holder, 
only  the  depositor. 

Mr.  Platt.  They  received  deposits  as  private  bankers  ? 

Mr.  Jones.  They  were  incorporated.  At  that  time  there  had  been 
no  State  regulation.  I  was  one  of  the  first  examiners  in  Missouri. 
Before  that  we  had  no  bank  inspection  at  all. 

Senator  Hollis.  Mr.  Jones,  have  you  not  overlooked  the  fact  that 
crop  failures  were  responsible  for  foreclosures  in  certain  parts  of  the 
West  ? 

Mr.  Jones.  Yes;  a  great  many  loans  on  uncertain  producing  lands. 
When  I  was  quite  a  young  man  in  a  small  country  bank  in  Missouri, 
I  remember  raising  a  subscription  to  send  corn  to  a  certain  section  of 
Nebraska  that  is  now  in  the  corn  belt.  They  had  not  cultivated  there 
sufficiently  to  bring  about  the  necessary  rainfall,  and  it  was  yery  un- 
certain. If  you  cultivate  the  soil  a  certain  length  of  time  you 
gradually  begin  to  get  more  rain. 


640  KURAL   CREDITS. 

Senator  Hollis.  That  is  very  interesting.  I  suppose  it  was  be- 
cause you  were  cultivating  the  soil  that  the  water  stayed  on  it,  and  it 
did  not  assist  the  rainfall.  I  did  not  suppose  you  really  got  more 
water.     Is  that  well  determined? 

Mr.  Jones.  Both.     That  is  true,  is  it  not,  Mr.  Seldomridge  ? 

Mr.  Seldomridge.  Yes,  sir. 

Senator  Hollis.  It  is  well  determined  that  it  does  rain  more  where 
you  cultivate  ? 

Mr.  Jones.  Yes;  cultivation  brings  more  precipitation. 

Senator  Hollis.  I  have  been  misinformed  on  that.  I  was  told 
that  the  rainfall  was  not  any  more,  but  on  account  of  cultivation  the 
water  was  held  in  the  soil  and  was  not  allowed  to  run.  off. 

Mr.  Jones.  There  has  been  a  big  change  within  the  last  few  years 
in  the  rainfall  in  certain  sections  of  the  West  that  have  been  put  under 
cultivation. 

I  want  to  emphasize  a  point  that  I  do  not  see  has  been  brought  out, 
of  the  great  value  of  supervising  the  borrower  under  the  system  pro- 
posed by  the  minority.  This  was  brought  to  my  mind  by  a  letter 
which  1-h.ave  before  me,  written  by  Mr.  Lou  D.  Sweet,  vice  president 
of  the  Colorado  Farmers'  Congress,  who  is  looked  upon  as  an  expert. 
A  certain  man  in  the  Agricultural  Department  told  me  that  Mr. 
Sweet  was  now  considered  an  authority  when  it  comes  to  handling 
farm  land,  and  particularly  the  growing  of  potatoes.  He  is  a  success- 
ful and  scientific  farmer.  Mr.  Sweet  is  very  much  interested  in  this 
measure.  He  was  largely  responsible  for  the  passing  of  the  resolu- 
tion by  the  Colorado  farmers  which  was  referred  to  this  morning  and 
has  twice  been  put  in  these  records.  Mr.  Sweet  wrote  me  this  when 
he  heard  I  was  coming  down  here: 

Relative  to  our  recent  talk  on  the  subject  of  farm  loans  proposed  to  be  made  to 
farmers  through  rural  banks,  supervised  by  our  Government,  and  through  other 
channels,  there  is  one  very  essential  point  which  it  seems  to  me  has  been  somewhat 
overlooked,  and  that  is  the  necessity  for  providing  some  means  by  which  the  methods 
and  practices  of  the  farmers  to  whom  loans  are  made  may  be  controlled  or  supervised, 
to  the  end  that  the  fertility  of  the  land  may  be  fully  maintained  and  the  volume  and 
quality  of  its  crops  be  kept  up  or  improved,  and  the  value  of  the  land  be  consequently 
maintained  or  increased . 

To  accomplish  this  result  it  is  necessary  that  the  farmer  follow  the  best  approved 
practices  of  farm  management,  including  a  rotation  of  crops,  which  will  not  impover- 
ish his  soil;  that  he  feed  his  hay  and  roughage  to  live  stock  on  the  place,  as  far  as 
practicable,  using  the  manure  so  as  to  get  all  of  the  manure  back  on  the  land;  and  that 
he  use  only  good  feed,  without  which  best  results  can  not  be  obtained. 

Before  such  farms  loans  can  be  safely  made,  some  arrangement  must  be  made  by 
which  the  farmer  agrees  to  carry  out  such  good  and  practical  agricultural  methods  and 
practices,  subject  to  the  approval  of  a  competent  agriculturalist  representing  the  bank 
or  loaning  agency.  Unless  this  is  done  and  the  value  and  fertility  of  the  land  is  fully 
maintained,  a  careless  farmer,  by  haphazard  measures  ami  bad  practices,  may  easily, 
within  a  few  years,  largely  exhaust  the  fertility  of  the  land  and  seriously  impair  its 
value  as  security. 

Gentlemen,  we  believe  in  our  federation  of  banks  we  cover  that 
'danger  as  far  as  possible.  We  have  in  the  centralized  institution  a 
separate  and  independent  examiner  who  is  to  keep  in  personal  touch 
with  the  different  sections  and  see  that  the  fertility  of  the  soil  is 
kept  ii])  through  and  with  the  aid  of  the  local  bank  itself.  A  farmer 
will  hesitate  to  tell  his  neighbor  that  he  must  improve  his  methods 
because  he  is  running    down  his  place.     If  the  local  bank  officers  or 


EUEAL   CREDITS.  641 


directors  hesitate  to  do  so,  or  should  the  farmer  disregard  the  sugges- 
tions, a  strong  demand  from  the  central  would  undoubtedly  accom- 
plish the  desired  result  before  it  is  too  late. 

Mr.  Platt.  Do  you  think  that  could  be  done  except  through  a 
cooperative  institution  ?  Would  it  be  practical  to  dictate  to  farmers 
what  they  should  do  with  their  money  unless  there  is  cooperation? 

Mr.  Jones.  Answering  you,  Mr.  Woodruff,  of  Joliet,  tells  me  that 
he  has  in  his  mortgage  a  provision  that  the  fertility  of  the  soil  must 
be  maintained,  and  he  sa,js  the  laws  uphold  him  in  it.  He  can 
call  in  a  loan  and  foreclose  if  it  is  not  satisfactorily  kept  up.  It  is  a 
very  difficult  matter  for  a  country  bank  to  foreclose  a  neighbor 
because  he  does  not  do  what  they  want  him  to  do.  Certain  local 
conditions  will  prevent  that  bank  from  using  those  measures  the 
directors  know  ought  to  be  used.  But  with  the  power  behind  a 
federation  based  upon  the  report  that  the  locals  make,  the  Central 
could  and  would  say,  "We  know  this  ought  and  must  be  done." 
The  power  behind  the  order  can  force  it  to  be  done.  Such  is  not  only 
essential  in  order  to  maintain  the  value  of  the  security  but  necessary 
to  preserve  the  fertility  of  the  soil,  which  is  an  important  thing  to  any 
State.  No  man  has  a  moral  right  to  take  out  of  the  soil  more  than 
he  puts  back. 

Mr.  Seldomridge.  In  that  respect  it  would  be  necessary  to  inform 
itself  as  to  the  intelligence  and  habit  and  industry  of  the  farmer,  would 
it  not  ? 

Mr.  Jones.  Yes,  sir. 

Mr.  Seldomridge.  Which  would  naturally  tend  to  weed  out  the 
inefficient  and  indolent  ? 

Mr.  Jones.  Undoubtedly. 

Mr.  Seldomridge.  It  would  be  a  sort  of  survival  of  the  agricultur- 
ally fittest,  would  it  not  ? 

Mr.  Jones.  I  think  so. 

Mr.  Platt.  Under  the  cooperative  plan  that  would  work  probably 
automatically,  but  whether  without  cooperation,  in  a  joint-stock 
bank,  it  would  be  possible,  it  is  not  so  certain,  possibly  the  federated 
central  would  be  necessary,  because  the  local  man  would  hate  to 
point  out  those  reasons  to  his  neighbor,  when  he  would  be  willing 
to  call  attention  to  the  examiner  of  the  district  bank  to  come  down 
and  look  after  him. 

Mr.  Jones.  Are  you  seriously  considering  any  cooperative  methods 
of  land-mortgage  banks  % 

Mr.  Platt.  It  is  provided  for  in  the  bill. 

Mr.  Jones.  Only  cooperation  as  affecting  profits. 

Mr.  Platt.  Of  course,  I  am  not  speaking  of 

Mr.  Jones  (interposing).  There  would  be  no  difference  between 
the  cooperative  and  non-cooperative  banks  as  far  as  forcing  securities 
to  be  kept  up  is  concerned,  because  in  each  case  the  money  is  invested 
by  the  stockholder  in  the  two  plans  proposed  by  the  United  States 
commission.     I  am  right,  am  I  not,  Dr.  Coulter? 

Air.  Coulter.  Yes. 

Mr.  Platt.  It  seems  to  me  there  is  a  little  difference  in  the  two.  The 
cooperation  is  all  in  the  profit,  but  the  borrowers  would  have  more 
incentive  to  watch  each  other  in  the  cooperative  plan  than  under  the 
joint-stock  plan,  because  part  of  the  profits  come  to  the  borrowers. 
Is  not  that  right  ? 

37031—14 41 


642  RURAL  CREDITS. 

Mr.  Jones.  In  that  I  think  you  arc  right;  yes,  sir. 

Mr.  Platt.  I  do  not  know  that  it  would  amount  to  a  great  deal, 
but  it  seems  to  me  that  if  two  farmers  were  living  side  by  side,  and 
one  knew  that  the  other  one  was  drinking  his  money  up,  and  not 
spending  it  on  his  farm,  he  would  have  some  inducements  to  report 
it  to  the  bank. 

Mr.  Jones.  Yes;  that  is  true  and  an  argument  in  favor  of  cooper- 
ative banks  is  that  each  borrower  has  a  great  many  people  to  watch 
him,  and  to  watch  the  security,  because  each  man  would  stand  his 
part  of  the  loss  or  stand  his  part  of  the  profits,  as  the  case  may  be, 
and  in  the  ease  of  incompetent  farming  or  drinking  up  a  farm,  as  you 
say,  they  would  report  it. 

Mr.  Ady.  May  I  ask  a  question,  Mr.  Chairman? 

Mr.  Bulkley.  Yes;  if  Mr.  Jones  does  not  object. 

Mr.  Jones.  Certainly  not. 

Mr.  Ady.  I  would  like  to  ask  if  you  consider  it  advisable  to  have  the 
local  banks  guarantee  all  the  mortgages  behind  the  bonds,  under  the 
plan  as  suggested — all  the  mortgages  that  they  issued  '. 

Mr.  Jones.  Yes,  sir;  we  propose  that  the  small  unit  banks  shall  not 
issue  bonds  against  their  loans,  but  shall  guarantee  every  loan  and 
send  them  to  the  central,  and  shall  collect  the  interest  and  amortiza- 
tion amounts  and  remit  without  charge. 

Senator  Hollis.  That  is,  like  we  have  provided  for  rediscount  under 
the  Federal  reserve,  and  that  would  have  to  be  done  by  the  member 
I  >anks.     It  is  the  same  idea. 

Mr.  Jones.  Yes.  We  have  taken  the  Federal  reserve  act;  wo  have 
taken  the  Landschaft  system  in  Germany;  we  have  taken  from  the 
federation  of  the  short-term  credit  societies  throughout  Europe.  We 
have  taken  the  best  parts  of  these  different  systems  and  applied  them 
to  American  customs  and  usages. 

Mr.  Woods.  Of  course,  if  they  guaranteed  those  loans  they  could 
not  do  a  commercial  bank  business. 

Mr.  Jones.  No,  sir.  Receiving  deposits  will  weaken  them.  I 
would  not  buy  a  land-mortgage  bond  of  an  institution  that  was 
receiving  deposits.  I  do  not  believe  the  two  systems  are  going  to 
work  together  at  all,  as  I  before  stated,  anymore  than  I  believe  short- 
term  credit  and  long-term  credit  will  work  together. 

Mr.  Ady.  Would  you  limit  deposits  in  the  local  banks? 

Mr.  Jones.  In  order  to  fall  in  line  with  the  United  States  commis- 
sion report  and  not  antagonize  them  in  that,  we  have  suggested  that 
they  be  allowed  to  receive  savings  deposits  up  to  50  per  cent  of  the 
amount  of  capital  and  surplus,  but  as  stated  before  I  would  rather 
eliminate  that. 

Mr.  Ady.  As  to  the  local  farmers'  banks? 

Mr.  Jones.  Yes,  sir;  I  would  rather  eliminate  that  entirely.  Allow 
me  to  again  read  from  the  minorit}'  report: 

The  local  should  not  be  permitted  to  issue  bonds  running  for  a  long  time,  for  several 
reasons. 

Its  capital  would  be  small  and  its  market  necessarily  restricted.  European  investi- 
gation revealed  no  small  associations  or  societies  doing  this  class  of  business. 

Mr.  Moss.  Would  you  permit  me  to  ask  you  a  question,  Mr.  Jones, 
viili  the  consent  of  the  committee,  of  course? 
Mr.  Jones.  Yes,  sir. 
Mr.  Moss.  Are  you  familiar  with  the  conditions  in  Hungary? 


RURAL   CREDITS.  643 

Mr.  Jones.  Somewhat. 

Mr.  Moss.  Now,  there  are  i  ,850  banks  in  Hungary  that  have  the 
right  to  and  are  issuing  land  mortgage  bonds,  and  they  are  inde* 
pendent  banks  and  joint-stock  banks.  Would  you  say  that  your 
statement  would  be  borne  out  in  view  of  the  statement  I  have  just 
made? 

Mr.  Jones.  I  surmise  that  the  smallest  bank  that  you  will  find  in 
that  country  would  probably  be  larger  than  some  of  our  proposed 
State  central  banks  would  be. 

Mi-.  Moss.  Well.  I  just  called  your  attention  to  the  fact  that  there 
are  1 .850  mortgage  banks  in  the  Kingdom  of  Hungary  issuing  bonds- 
Mr.  Jones.  Do  you  know  the  smallest  capital  of  any  of  them? 

Mr.  Moss.  Xo.  1  cannot  answer  that.  I  just  called  your  attention 
to  that.  Hungary  is  comparatively  a  small  country  and  compara- 
tively thinly  populated  as  compared  with  some  of  the  other  countries. 

Mr.  Jones.  I  think  we  can  safely  assume  that  it  is  impossible  iot 
those  banks  to  do  business  on  the  fractional  per  cent  that  they  are 
doing  business  on  unless  they  have  a  large  volume  of  business — far 
larger  than  any  proposed  $10,000  unit  banks  under  the  Fletcher-Moss 
bill  could  have. 

Mi'.  Seldomridge.  Mi'.  Jones.  I  have  to  leave  here  in  a  very  few 
moments,  and  I  would  like  to  ask  a  question  as  to  the  agencies  of 
help  in  the  way  of  aid  by  the  Government  to  establish  the  land-moH- 
sage  banks,  or  locals,  as  you  call  them. 

Mr.  Jones.  I  think  the  bill  before  you  provides- some  most  excel- 
lent help. 

Mr.  Seldomridge.  That  is  the  deposit  of  postal  savings? 

Mr.  Jones.  Yes,  sir;  the  deposit  of  postal  savings,  and  particu- 
larly providing  that  trust  funds  may  be  invested  in  the  bonds.  I  do 
not  recall  whether  it  says  court  funds  or  not. 

Mr.  Coulter.  United  States  courts  ? 

Mr.  Jones.  United  States  courts.  Yes,  court  funds  and  funds  of 
insurance  companies,  funds  that  are  available  for  certain  other  pur- 
poses. I  think  the  bill  has  provided  a  fair  market,  and  a  way  by 
which  the  bonds  will  be  given  some  stability  and  standing. 

Mr.  Seldomrddge.  You  think  that  the  Government  help,  as  pro- 
vided for  in  the  bill,  together  with  the  indorsement  of  the  local  bank* 
coupled  with  the  approval  of  the  central  organization  as  you  have  it 
here,  will  establish  the  value  of  the  bonds  issued  to  the  satisfaction 
of  the  investing  public  ? 

Mr.  Jones.  I  think  there  is  no  doubt  of  it.  I  believe  it  should  be 
further  provided  that  these  bonds  may  be  accepted  by  the  Secretary 
of  the  Treasury  as  security  for  Government  deposits  in  Government 
depositories.  Of  course,  my  remarks  are  based  upon  the  assumption 
that  the  bonds  will  be  better  protected  than  provided  for  in  the 
Fletcher-Moss  bill. 

Mr.  Seldomridge.  Let  me  ask  you  another  question,  if  I  may. 
Do  you  anticipate  that  the  passage  of  this  legislation  will  operate 
to  lower  interest  rates  ? 

Mr.  Jones.  Undoubtedly. 

Mr.  Seldomrddge.  To  what  extent  ? 

Mr.  Jones.  In  some  sections 

Mr.  Seldomridge  (interposing).  Well,  would  there  be  a  general 
lowering  or  equalization  of  interest  rates  ? 


644  RURAL  CREDITS. 

Mr.  Jones.  There  would  be  more  of  an  equalization. 

Mr.  Seldomridge.  To  what  extent  ? 

Mr.  Jones.  That  is  problematical;  conjectural. 

Mr.  Seldomridge.  What  is  the  average  rate  of  interest  now  paid, 
in  our  State  of  Colorado  on  farm  loans  ? 

Mr.  Jones.  I  can  not  state  the  average;  I  should  say  from  7  to  10 
per  cent  is  charged  on  real  estate  loans. 

Mr.  Seldomridge.  Under  the  operation  of  this  law,  as  you  have 
outlined,  do  you  anticipate  that  there  would  be  a  lowering  of  the 
interest  there  ? 

Mr.  Jones.  Indeed  I  do. 

Mr.  Seldomridge.  To  what  extent  ? 

Mr.  Jones.  Well,  I  think  that  will  have  to  come  down  gradually. 
We  have  got  to  market  the  bonds  with  a  wise  provision  in  this  bill, 
permitting  the  calling  in  of  bonds  at  any  time  so  that  if  we  find  that 
interest  rates  are  lowering,  we  can  call  in  an  issue  bearing  a  high  rate 
and  refund  as  it  were  with  a  new  issue  bearing  a  lower  rate. 

I  was  talking  with  a  country  banker,  referring  to  your  question, 
who  is  very  successful,  and  I  know  he  is  charging  pretty  high  rates 
of  interest — nearly  everything  is  10  per  cent.  He  is  making  all 
kinds  of  money  in  proportion  to  his  capital.  I  said  to  him,  "Are  you 
not  ashamed  of  jourself  keeping  up  interest  rates?"  He  said, 
"You  know,  I  have  been  thinking  that  we  bankers  ought  to  reduce 
interest  rates.  We  have  not  been  looking  far  enough  ahead.  If  we 
would  look  far  enough  ahead  and  realize  that  as  our  farmers  com- 
mence to  accumulate  and  get  ahead,  that  they  would  make  more 
desirable  borrowers  and  better  depositors,  and  we  would  be  bettering 
our  own  condition,  I  think,  more  in  the  long  run,  than  if  we  continue 
to  charge  a  higher  rate  of  interest." 

Mr.  Seldomridge.  Do  you  not  think  that  your  high  rate  of 
interest  is  largely  caused  by  the  fact  that  the  bank  must  meet  the 
varying  expenses  of  making  loans,  and  they  equalize  the  interest 
rate,  and  in  order  to  guard  himself  against  loss  he  has  to  collect  a  high 
rate  of  interest  to  provide  for  that  possible  loss  ? 

Mr.  Jones.  In  a  measure,  I  do.  One  thing  that  keeps  up  the  total 
cost  of  real-estate  money  is  the  necessity  of  renewing  the  loan  every 
three  to  five  years  wTith  attendant  costs. 

Mr.  Seldomridge.  We  have  something  in  this  bill  about  the 
Torrens  land  system,  some  provision  here  as  to  clearing  up  the  details, 
haven't  we  ?  That  is,  it  is  a  fact  it  is  very  largely  a  matter  of  ex- 
pense, or  the  removal  of  it.  I  do  not  know  what  the  provision  is, 
but  it  has  been  referred  to  by  several  witnesses. 

Mr.  Jones.  You  will  find  that  the  bankers  are  getting  to  realize 
that  they  must  reduce  interest  rates,  especially  in  certain  sections. 
I  have  talked  with  them  in  a  great  many  States. 

Mr.  Seldombtdge.  Is  there  anything  in  the  bill  that  would  pro- 
vide for  lowering  the  rate  on  a  mortgage  when  once  issued?  For 
instance,  suppose  under  this  system  a  man  should  take  out  a  loan 
on  a  30-year  mortgage  at  8  per  cent,  and  it  happen-  d  that  there 
should  be  a  general  lowering  ot  interest  rates,  is  there  anything  in  the 
bill  that  would  enable  that  man  to  take  advantage  of  the  difference  ? 

Mr.  Jones.  He  has  the  right  to  retire  his  loan  at  any  time.  If  the 
rates  of  interest  went  down,  that  automatically  would  take  care  of 
itself. 


EUEAL   CKEDITS.  645 

Mr.  Seldomridge.  You  think  it  would  ? 

Mr.  Jones.  Under  the  Fletcher-Moss  bill  the  banks  can  not  charge 
higher  rate  than  1  per  cent  more  than  for  which  it  is  floating  its  own 
bonds;  therefore,  if  they  are  floating  bonds  to-day  on  a  6  per  cent 
basis  and  they  had  floated  several  years  ago  on  a  7  per  cent  basis, 
that  borrower  will  come  in  and  make  a  claim  through  his  unit  bank 
that  he  wants  to  refund  his  loan.  It  is  just  the  same  to  the  bank 
whether  it  gets  a  6  per  cent  rate  or  a  10  per  cent  rate,  because  his 
profits  are  going  to  be  exactly  the  same,  as  he  is  allowed  only  1  per 
cent  margin. 

Mr.  Platt.  You  have  got  to  come  to  the  bank  with  the  money  in 
order  to  retire  the  loan.  There  is  no  provision  by  which  he  can 
insist  upon  having  the  rate  on  his  loan  lowered,  but  he  could  pay  off 
the  loan  and  reborrow. 

Mr.  Jones.  I  would  rather  the  authors  of  the  bill  would  answer 
your  direct  questions  regarding  the  workings  of  their  own  measure. 

Mr.  Platt.  I  made  that  statement  for  the  record  as  to  what  is  in 
the  bill.*  I  think  I  am  right  in  it.  That  is  in  the  bill,  of  course,  is  it 
not,  Mr.  Moss  ? 

Mr.  Jones.  You  have  undoubtedly  grasped  the  point.  The  mi- 
nority is  not  positive  that  there  should  be  additional  capital  in  the 
way  of  a  founders'  capital.  Personally,  I  strongly  favor  it.  As 
you  note,  we  said  that  it  might  be  found  advisable.  I  am  inclined  to 
think  it  would  be  an  exceedingly  valuable  thing  to  have.  And  our 
argument  along  that  line  is  this: 

It  might  be  found  advisable  to  even  provide  the  central  with  a  larger  capitaliza- 
tion than  the  aggregate  amount  to  be  taken  by  the  different  locals.  In  that  case  pro- 
vision could  be  made  for  selling  founders'  shares,  similar  to  the  plan  working  most 
excellently  in  Hungary — 

By  founders  shares  we  merely  mean  the  amount  supplied  by  public- 
spirited  citizens  who  desire  to  encourage  or  "father"  the  organiza- 
tion. We  do  not  use  the  term  in  its  recognized  technical  sense 
among  financiers. 

Such  shares  could  be  made  preferred,  if  deemed  advisable,  or  could  be  placed  upon 
an  equality  with  the  shares  owned  by  the  locals.  This  might  be  found  necessary  in 
order  that  the  country  bankers  and  farmers  might  have  desirable  financial  assistance 
and  strong  connections  in  the  recognized  financial  center  of  their  State  in  assisting 
to  establish  a  market  for  the  securities.-  The  names  of  the  financiers  in  such  local 
commercial  center  would  be  more  widely  known,  added  to  the  names  of  those  local 
persons  elected  from  the  farmers  from  their  respective  communities,  upon  the  board 
of  the  directors  of  the  central,  would  undoubtedly  assist  materially  in  finding  a  favor- 
able rate  of  interest. 

I  think  that  is  well  worthy  of  careful  consideration. 

Now,  by  building  up  a  federation  as  proposed  by  the  minority  we 
would  have  the  following  security  behind  the  bonds.  I  will  read 
from  the  minority  report: 

First.  The  signer  of  the  original  loan. 

Second.  The  combined  judgment  of  the  local  banker  and  his  farmer  associates  as  to 
the  desirability  of  the  signer  as  a  borrower  and  as  to  the  vame  of  his  security. 

Third.  The  land  itself,  upon  which  not  exceeding  50  per  cent  of  its  value  would  be 
loaned. 

Fourth.  The  indorsement  of  the  local  and  the  moral  obligation  of  the  bank  with 
which  such  local  is  affiliated. 

Fifth.  The  double  liability  of  the  holders  of  the  capital  of  the  locals,  protecting  all 
loans  indorsed  to  the  central  by  the  locals. 


646  RURAL  CREDITS. 

Sixth.  The  judgmenl  of  the  officials  and  executive  committee  oi  the  central  and 
its  rechecking  of  the  securities  as  hereinafter  provided. 
Seventh.  The  added  assurance  of  the  Governmenl  representative  in  its  approval 

Of  tile  issue. 

Eighth.  The  capital  of  the  central. 

I  have  no  doubt  whatever,  gentlemen  of  the  committee,  from  my 
knowledge  of  promoters,  but  what  there  would  be  a  great  many 
small  unit  banks  organized  under  the  Fletcher-Moss  bill  for  the 
express  purpose  of  floating  a  lot  of  bonds  and  then  getting  out  from 
Under.  We  bad  that  thing  to  contend  with  under  our  irrigation 
laws,  that  provide  that  districts  may  organize  in  our  State.  Mr. 
Seldomridge  will  verify  what  1  say.  There  has  been  much  wild- 
catting.  The  promoter  organized  districts  and  floated  bonds,  and 
the  innocent  bondholders  are  writing  to  us  to  know  what  about 
those  districts  as  some  of  them  are  not  able  to  pay  interest  on  their 
bonds.     In  some  cases  the  bondholders  will  own  the  districts. 

Practically  the  same  thing  has  occurred  in  Louisiana  under  its 
drainage  district  law,  so  I  am  informed.  I  hold  if  you  do  not  throw 
all  safeguards  around  the  land-mortgage  plan,  we  will  experience 
wildcatting  such  as  never  has  been  known  in  this  country  before. 

Mr.  Seldomridge.  I  suggest,  Mr.  Chairman,  that  Mr.  Jones  be 
given  an  opportunity,  if  he  desires,  to  file  with  the  committee  any 
brief  or  further  extension  of  his  testimony,  and  that  it  may  be  inserted 
in  the  record,  if  anything  should  occur  to  him  in  this  hearing. 

Mr.  Bulkley.  Without  objection  that  will  be  done. 

Mr.  Jones.  There  is  one  matter  I  would  like  to  bring  up,  and  it  will 
not  take  me  more  than  two  or  three  minutes. 

Dr.  Coulter  brings  out  a  strong  point  in  part  4,  page  52,  in  talking 
on  the  building  and  loan  association  plan.  He  spoke  about  the 
necessity  for  outside  funds  and  referred  to  his  conversation  with  a 
building  and  loan  man.     He  says: 

I  said  that  the  difficulty  there  was  merely  that  there  was  not  a  system  of  inter- 
change between  the  cities  by  issuing  bonds  and  letting  them  be  sold  in  outside  dis- 
tricts— of  getting  money  in  or  getting  it  out. 

Then  in  another  place  or  two  there  has  been  reference  made  to  the 
interdependence  between  the  city  and  the  country.  They  are  very 
dependent  upon  one  another,  the  city  more  dependent  upon  the 
country  than  the  country  upon  the  city.  I  have  often  used  the  illus- 
tration that  you  may  destroy  the  city,  but  the  country  surrounding 
will  rebuild  that  city;  but  you  destroy  the  country  and  the  city  can 
not  rebuild  the  country,  and  of  itself  could  not  long  survive.  Thus, 
our  keen  interest  for  the  agricultural  interests.  There  is  cooperation 
in  the  truest  sense  needed  between  the  cities  and  the  rural  commu- 
nities. Our  federation  brings  them  into  close  relationship,  especially 
hy  the  addition  of  the  founders'  shares,  to  be  placed  in  the  city. 

Senator  Hollis.  What  do  you  think  of  the  suggestion  that  if  we 
have  the  founders'  shares  that  they  shall  not  have  a  vote? 

Mr.  Jones.  We  do  not  suggest  that.  I  would  not  suggest  that 
in  this  case,  because  if  you  want  the  founders'  shares  I  would  give 
them  the  right  to  be  represented.  I  doubt  if  yon  would  find  many 
city  investors  who  would  be  willing  to  take  stock  otherwise.  We 
would  be  met  with  this  sort  of  argument:  "If  these  country  bankers 
and  farmers  are  going  to  come  in  here  and  handle  things  without 


BUBAL  CBEDITS.  647 

my  having  even  a  voice,  I  do  not  want  any  stock."  I  would  restrict 
the  issue,  so  that  the  control  could  not  be  corralled. 

Mr.  Moss.  Would  you  have  any  objection  to  this  suggestion,  Mr. 
Jones,  that  instead  of  saying  that  every  bank  shall  have  a  right  to 
issue  15  times  the  bonds,  the  amount  of  its  capital,  that  it  shall  not 
issue  more  than  that,  and  the  discretion  shall  rest  with  the  commis- 
sioner of  land  banks,  so  that  in  certain  undeveloped  sections  of  the 
country  the  commissioner  of  land  banks  may  say  that  a  bank  shall 
not  issue  the  full  15  times  its  capital?  Would  not  that  be  a  greater 
protection  to  its  issue?  In  other  words,  under  that  suggestion  it 
would  bo  possible  in  some  States  to  issue  15  times  the  capital  and  in  the 
others  only  12  or  10.  I  say  would  you  have  any  objection  to  that 
in  the  federated  banks  ? 

Mr.  Jones.  It  would  be  looked  upon  by  proposed  organizers  that 
merely  by  a  ruling  of  the  commissioner  of  land  banks  they  might  be 
restricted  in  the  volume  of  business  allowed.  That  would  retard  the 
development  and  even  retard  the  organization  of  land  mortgage 
banks.  A  ruling  might  be  made  overnight  restricting  them,  after 
a  bank  had  been  organized,  in  the  belief  that  they  could  do  a  certain 
volume  of  business  on  which  they  had  figured  out  that  they  could 
afford  to  organize.  So  a  ruling  might  be  made  after  they  had  organ- 
ized cutting  down  the  volume  of  business  they  would  be  allowed  to  do 
and  which  they  felt  necessary  to  justify  their  organization. 

Mr.  Ady.  Mr.  Jones,  in  case  you  should  limit  the  deposits  that 
might  be  made  in  the  local  bank  so  that  the  farmer  could  not  deposit 
in  his  own  bank,  where  woidd  he  deposit  ? 

Mr.  Jones.  It  is  my  opinion  that  the  country  banks  are  sufficient 
to  take  care  of  his  deposit. 

Mr.  Ady.  That  is,  he  could  deposit  them  in  the  existing  banks, 
from  which  they  would  be  used  to  purchase  bonds,  using  the  farm- 
ers' money  to  purchase  bonds  with. 

Mr.  Jones.  The  farmer  can  withdraw  his  deposit  and  purchase 
bonds  himself  if  he  desires.  By  close  affiliation  with  the  existing 
country  banks  we  would  put  behind  these  bonds  an  element  of 
strength  that  is  not  realized  upon  the  surface.  To  illustrate:  A 
farmer  has  a  mortgage  upon  his  land  for  only  50  per  cent  of  its 
value,  the  country  bank  considers  him  a  pretty  fair  temporary  risk 
for  credit.  He  has  a  crop  failure,  even  after  the  country  bank  has 
made  him  a  loan;  it  is  necessary  to  pay  the  amortization  amount 
and  the  interest.  The  farmer  comes  to  the  country  bank  and  ex- 
plains his  predicament.  That  bank  is  already  "in,"  and  adds  to 
what  the  farmer  already  owes  it  enough  to  remit  and  take  care  of 
his  amortization  and  interest.  Possibly  the  country  bank  taking  a 
second  mortgage  upon  that  property  to  protect  itself,  and  then  we 
have  the  country  bank  behind  the  loan  of  the  land-mortgage  bank. 
It  is  almost  invariably  the  case  that  when  a  farmer  fails  a  local  bank 
is  found  carrying  his  note  with  or  without  a  second  mortgage.  There- 
fore we  are  going  to  get,  in  every  such  case  where  there  is  a  country 
bank  involved,  that  element  of  additional  protection  to  every  mort- 
gage loan  that  has  been  floated  from  that  community  into  the 
federation. 

Mr.  Platt.  Suppose  you  should  remove  the  restriction  against 
branch  banks;  what  would  be  your  objection  to  that  centralized 


648  RURAL  CREDITS. 

authority   organizing  first,    perhaps,    and   then   organize   the   other 
banks     would  that  work? 

Mr.  Jones.  Would  you  get  that  seriously  entertained  at  the  present 
time? 

Mr.  Platt.  I  am  not  talking  about  the  political  side  of  it;  I  mean 
as  a  practical  matter. 

Mr.  Jones.  Yes;  that  would  work. 

Mr.  Platt.  The  Federal  reserve  system  allows  branch  Federal 
reserve  banks. 

Mr.  Jones.  That  is  exactly  the  opposite  to  the  plan  we  propose. 
It  is  practically  the  opposite  of  the  Canadian  system  of  branch 
banking,  you  know,  where  the  parent  controls  the  branches. 

Mr.  Platt.  What  is  the  trouble  with  adopting  that  proposition? 

Mr.  Jones.  It  is  not  our  idea.  We  also  propose  that  these  feder- 
ated banks  shall  have  the  election  of  an  independent  auditor,  who 
audits  the  central,  and  then  the  central  directors  appoint  their  inde- 
pendent auditors,  who  go  out  and  audit  each  one  of  the  units.  Thus 
we  provide  a  double  checking — one  against  the  other. 

Now,  your  idea  is  a  central  bank.  I  fear  the  possibility  of  wild- 
catting  in  that.  I  can  not  conceive,  throughout  a  State,  a  lot  of 
banks  organizing  along  the  line  of  our  federated  plan  and  getting  into 
a  business  expressly  for  wildcatting.  But  I  can  conceive  of  a  single 
bank  doing  it. 

Mr.  Platt.  Would  the  State  bank,  covering  the  whole  State,  lend 
itself  to  organizing  banks  for  the  purpose  of  wildcatting? 

Mr.  Jones.  I  would  not  say  that  there  is  any  danger  of  that;  no,  sir. 

Mr.  Platt.  That  would  be  the  local  only. 

Mr.  Jones.  Yes ;  my  real  fear  is  in  the  organization  of  the  unit  bank 
not  properly  safeguarded. 

Mr.  Ady.  I  fail  to  understand  how  the  farmer  will  be  benefited 
by  putting  money  into  the  private  banks,  while  the  private  banks 
might  invest  in  bonds,  instead  of  depositing  it  in  his  own  bank  and 
buying  his  own  bonds. 

Mr.  Jones.  He  can  personally  buy  a  bond  whenever  he  gets  ready, 
the  same  as  can  the  banks.  He  can  accumulate  funds  in  any  bank, 
and  when  he  gets  $100  there  is  nothing  to  hinder  him  from  buying  a 
bond. 

Mr.  Seldomridge.  He  can  check  it  out  of  the  country  bank  and 
buy  a  bond  with  it. 

Mr.  Ady.  Yes,  but  the  bankers  do  the  business  of  buying  the  bonds, 
and  buying  the  bonds  with  the  money  deposited  by  the  farmer.  If  it 
is  deposited  in  the  farmer's  bank  the  farmer  would  have  the  benefit 
of  it  instead  of  having  it  in  the  private  bank. 

Mr.  Jones.  The  profit  that  would  accrue  to  him  from  the  amount 
of  his  deposit  would  be  so  slight  as  to  be  practically  nil — he  had  bet- 
ber  buy  a  bond. 

Mr.  Platt.  Mr.  Jones,  would  you  think  that  a  central  bank  would 
be  a  State  central  necessarily,  or  would  you  allow  more  than  one 
central  bank  in  a  State ?     Allow  a  number  of  banks,  of  centrals ? _ 

Mr.  Joxes.  I  am  glad  you  brought  that  out.  It  is  not  our  idea 
that  there  would  be  a  single  system  of  federated  banks.  I  doubt  not 
but  what  there  would  be  several  in  each  State.  You  form  a  number 
of  banks  and  federate  or  induce  a  number  of  banks  to  join  your 


RURAL   CREDITS.  649 

federation.  You  don't  care  for  two  in  the  same  town  or  maybe  not 
two  in  the  same  county.  Don't  you  see  it  would  be  just  as  natural 
for  several  systems  to  build  up  as  it  has  been  for  different  systems  of 
federated  credit  societies  to  organize  all  over  Europe  ?  Then  we  would 
get  real  competition  and  in  consequence  a  satisfactory  interest  rate. 

Mr.  Platt.  Would  you  fix  the  number  of  central  banks  that  would 
be  allowed  to  federate  ? 

Mr.  Jones.  No,  sir. 

Mr.  Moss.  Then  your  idea  is  to  provide  for  voluntary  federation? 

Mr.  Jones.  So  far  as  I  am  personally  concerned;  yes.  I  will  say 
now  that  I  do  not  believe  you  will  ever  have  your  little  banks  run- 
ning for  legitimate  purposes  without  federating,  because  they  can 
not  possibly  compete  with  the  federation. 

Mr.  Moss.  That  brings  the  difference  down  clearly,  then,  between 
the  two  bills. 

Mr.  Jones.  Certainly. 

Mr.  Moss.  Would  you  permit  me  to  point  out  to  you  just  what  is 
the  difference  between  the  two  bills  here  ?  Probably  we  had  better 
let  it  go. 

Mr.  Jones.  No;  please  continue. 

Mr.  Moss.  You  want  me  to  do  it? 

Mr.  Jones.  I  will  be  glad  to  have  you  do  so. 

Mr.  Moss.  The  real  difference  is  this:  There  are  just  two  differ- 
ences between  the  two  bills.  One  is  the  way  that  this  federation  will 
be  brought  about.  Under  the  commission  bill  you  could  have  a  large 
central  bank  and  they  could  locate  their  sales  agencies.  But  take 
your  proposition,  you  would  first  locate  the  smaller  banks,  and  then 
federate  them  into  the  central.  That  is  the  first  difference  between  the 
two.  The  next  difference  between  the  two  bills  is  that  you  would 
have  one  uniform  type  of  local  banks,  whereas  the  commission  recog- 
nizes the  fact  that  they  can  have  either  the  joint-stock  banks  or  coop- 
erative.    Those  are  the  two  main  differences. 

Mr.  Jones.  Let  me  correct  you  there,  Mr.  Moss.  We  suggest 
right  at  the  outset  that  they  may  be  either  cooperative  or  noncoop- 
erative  as  to  profits.  As  you  saw  in  European  countries,  there  were 
cooperative  and  noncooperative  short-term  credit  societies  in  the  same 
federation. 

Mr.  Moss.  Very  well,  I  will  take  it  back  and  leave  just  one  differ- 
ence. That  is  a  thing  that  as  far  as  I  am  concerned  I  do  not  contend 
for.  There  is  not  much  difference  between  the  two  types.  They  are 
both  voluntary  federations.  I  recognize  the  fact  in  all  the  studies 
that  I  have  made,  that  there  is  an  honest  difference  of  opinion  on 
this  question,  and  if  the  question  were  a  question  of  voluntary  asso- 
ciation, I  would  say  myself,  speaking  now  not  as  a  member  of  the 
commission  but  as  a  student,  I  would  not  contend  for  a  moment 
against  the  limitation  of  that  bill  to  that  extent.  I  so  said  to  Mr. 
Platt  some  days  ago,  that  that  would  have  been  entirely  agreeable, 
so  far  as  I  am  concerned,  and  I  would  have  suggested  it  at  the  right 
time  to  the  committee  myself. 

Mr.  Platt.  I  can  confirm  what  you  said. 

Mr.  Jones.  How  do  you  feel,  Dr.  Coulter? 

Dr.  Coulter.  I  suggested  to  Mr.  Platt  that  he  ask  that  question 
so  as  to  bring  it  out. 


650  RUKAL  CREDITS. 

Mr.  Moss.  I  do  want  to  go  into  the  record  as  saying  that  I  never 
saw  the  minority  report  at  any  time  until  it  was  presented  here  on  the 
table,  whereas  the  majority  report  was  printed  in  a  confidential  way 
to  the  Members  that  were  preparing  upon  this  proposition,  so  that 
they  were  preparing,  of  course,  criticisms  of  the  print  bill,  whereas 
the  United  States  Commission  had  no  opportunity  or  chance  what- 
ever to  profit  by  their  own  criticisms  of  that.  I  want  that  to  go  into 
the  record  in  Mr.  Jones's  presence. 

(Additional  testimony  of  Mr.  Gordon  Jones  follows  the  testimony 
of  Mr.  T.  S.  Southgate  at  page  682.) 

The  minority  report  of  the  American  commission  advocated  by 
Mr.  Jones  throughout  his  testimony  is  part  2,  S.  Doc.  No.  261. 

Whereupon  the  committee  adjourned  until  10.30  o'clock  a.  m., 
Wednesday,  March  11,  1914. 


WEDNESDAY,   MARCH   11,    1914. 

House  of  Representatives, 

Washington,  D.  C. 

The  subcommittee  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Robert  J.  Bulkley  presiding. 

Present:  Senator  Hollis  and  Representatives  Stone,  Seldomridge, 
Woods,  and  Piatt. 

STATEMENT  OF  THOMAS  S.  SOUTHGATE,  OF  NORFOLK,  VA. 

Mr.  Bulkley.  Will  you  please  state  your  name  and  occupation 
and  your  connection  with  this  subject  which  we  have  under  discus- 
sion ? 

Mr.  Southgate.  Thomas  S.  Southgate,  merchant.  Do  you  wish 
my  banking  connection? 

Mr.  Bulkley.  Yes,  sir ;  if  you  please. 

Mr.  Southgate.  I  am  one  of  the  members  of  the  American  com- 
mission for  the  study  of  this  subject  in  foreign  countries;  chairman 
of  the  executive  committee  of  the  Fidelity  Corporation  of  Industrial 
Banks;  member  of  the  executive  committee  of  the  National  Bank  of 
Commerce  of  Norfolk,  Va. ;  director  of  the  Virginia  National  Bank 
of  Norfolk;  and  member  of  the  board  of  directors  of  the  Industrial 
Finance  Corporation  of  New  York. 

Mr.  Bulkley.  Mr.  Southgate,  you  went  abroad  with  the  American 
commission,  did  you? 

Mr.  Southgate.  I  am  also  owner  and  operator  of  three  farms 
aggregating  1,000  acres. 

Senator  Hollis.  I  would  like  to  have  you  say  where  those  farms 
are  situated. 

Mr.  Southgate.  Two  on  the  Elizabeth  River  in  Virginia  and  one 
in  North  Carolina. 

Mr.  Bulkley.  Did  you  go  abroad  with  the  commission? 

Mr.  Southgate.  I  did. 

Mr.  Bulkley.  Now,  if  you  will,  proceed  in  your  own  way. 

Mr.  Southgate.  Mr.  Chairman,  I  have  been  for  five  years  inti- 
mately connected  with  the  rural  life  in  my  State  in  philanthropic 
and  Christian  work,  carrying  me  two  days  of  each  week  for  five  years 
in  every  hamlet  and  section  of  Virginia.  I  judge  it  was  in  view  of 
this  close  association  that  I  was  appointed  on  this  commission  by  the 
governor.  I  went  to  Europe  with  the  commission  and  found  a  great 
deal  of  interesting  information  on  this  vital  subject,  because  of  the 
tremendous  extent  to  which  it  had  been  developed  there.  I  partici- 
pated in  many  of  the  meetings  of  the  commission  since  its  return, 
and  helped  to  formulate  its  report  with  the  hope  that  good  results 
might  be  had  as  the  result  of  that  work.     Of  course  it  is  not  neces- 

651 


652  RURAL   CREDITS. 

sary  that  I  should  discuss  with  you  gentlemen  the  relation  of  the 
Federal  commission  with  the  American  commission.  You  are 
already  thoroughly  familiar  with  that.  In  offering  several  criticisms 
to  the  bill  as  finally  brought  out,  I  do  so  with  a  full  realization  and 
appreciation  of  the  fact  that  it  is  very  difficult  to  construct  legisla- 
tion along  this  line.  I  regard  this  document  before  you  as  a  very 
able  paper,  and  it  is  only  to  refer  to  several  matters  in  the  bill  that 
I  am  here  to-day.  Indeed,  I  would  not  take  it  upon  myself,  except 
by  the  request  of  Senator  Fletcher,  in  view  of  my  close  interest  in 
the  work  of  the  commission. 

The  first  and  most  specific  point  that  I  have  to  bring  before  you 
in  asking  that  proper  final  legislation  be  provided  for  land-mort- 
gage banks  is  in  regard  to  the  capitalization  of  banks  on  so  low  a 
basis  as  $10,000.  I  am  fully  aware  of  the  reason  why  it  is  desirable 
to  have  small  units,  in  order  to  enable  counties  and  sections  to  be 
able  to  surround  themselves  with  the  facilities  readily  of  their  own 
making,  of  a  small  creation ;  and  yet,  gentlemen,  a  very  brief  15  or 
20  years'  experience  in  financial  matters  leads  me  to  say  that  this 
whole  system  hangs  upon  one  thing,  and  that  is  the  liquidity  of  these 
securities  and  their  digestion  after  they  are  issued.  They  will  not 
be  liquid  unless  they  are  backed  and  indorsed  and  stood  for  by  some 
form  of  Government  sanction  through  the  issuance  of  national 
charters,  supervision,  and  perhaps  O.  K.  after  they  are  issued. 
They  will  never  become  liquid  until  they  are  readily  available  for 
fiduciary  funds,  and  available  for  the  digestion  of  these  securities 
representing,  as  perhaps  they  will,  a  portion  of  $40,000,000,000  of 
farm  value  that  is  deposited  to  offer  as  security  for  bonds  to  be 
issued.  I  submit,  sirs,  as  a  practical  matter,  when  I  regard  the  de- 
gree of  care  with  which  a  city  bond  is  censured  by  the  purchaser  of 
it,  and  the  million  questions  that  are  asked,  and  the  legislation  that 
they  require  before  they  will  touch  them,  that  to  say  that  bonds 
emanating  from  institutions  of  $10,000  capital,  which  can  not  fur- 
nish a  sufficient  amount  to  pay  an  overhead  charge  sufficient  to  intel- 
ligently and  properly  manage  an  institution  for  a  period  of  50  years' 
continuity,  perhaps,  as  provided  in  this  bill.  I  will  say  this  is  all 
wrong.  I  go  further  and  say  I  think  the  minds  of  the  men  are  con- 
fused to  some  extent  by  the  injection,  the  constant  injection  in 
Europe,  of  the  personal  credit  societies,  which  are  as  different  a 
proposition  as  one  side  of  the  pole  is  from  the  other.  It  seems  to 
me  that  the  only  point  of  similarity  is  that  they  start  both  with  the 
farmer,  but  their  relations  with  the  commercial  world  and  to  those 
who  are  to  handle  the  securities  are  absolutely  widely  divergent  and 
apart. 

It  is  entirely  natural  that  it.  should  be  in  the  minds  of  the  men 
who  constructed  the  bill  that  these  small  units  are  possible,  because 
we  all  had  the  opportunity  of  seeing  the  wonderful  work  done 
through  the  existence  of  personal  credit  societies,  raised  by  10,  20, 
or  30  men  pledging  their  individual  support  to  any  measure  on 
which  they  wished  to  raise  money,  and  the  matter  resolved  itself  into 
a  borrowing  of  money.  Two  men,  4  men,  6  men.  10  men,  or  20  men 
can  borrow  money:  but  not  5  men  nor  10  men  can  attempt  to  create 
securities  and  get  the  great  insurance  companies  to  invest  the  funds 
or  widows  and  orphans  in  them.     It  is  an  absolute  impossibility, 


RURAL   CREDITS.  653 

and  I  submit,  sirs,  that  the  Congress  of  the  United  States  should  not 
under  any  circumstances  give  their  sanction  to  any  system  of  cur- 
rency or  any  financial  system  that  started  off  with  the  absolute 
handicap  in  the  beginning  and  was  of  a  nature  that  it  could  not  do 
the  things  that  it  purported  to  do,  physically,  tangibly,  in  a  practi- 
cal way. 

I  have  said  that  I  regarded  the  bill  as  an  able  one,  and  I  do.  It 
has  some  original  and  unique  features  that  are  very  commendable. 
It  is  not,  however,  exactly  the  idea  that  I  have  held.  Following 
carefully  the  action  of  your  great  and  honorable  committee  in  the 
matter  of  the  new  currency  bill  that  you  have  given  to  the  country, 
creating  your  Federal  reserve  board  and  your  regional  banks,  I  had 
hoped  that  this  subject  was  so  great  that  it  would  commend  itself 
to  you  along  those  lines,  for,  while  I  am  not  an  advocate  of  Federal 
aid,  per  se,  and  with  dollars  and  cents ;  but  mark  my  prediction  here 
to-day,  these  bonds  will  never  be  sold  in  the  markets  of  the  world 
unless  they  are  censored  or  O.  K.'d  or  passed  in  some  form  by  the 
Government  of  the  United  States. 

You  are  never  going  to  market  them  otherwise,  for  they  start  out 
in  life  handicapped  as  a  result  of  coming  from  the  farmer,  who  does 
not  do  things  in  as  businesslike  and  clean-cut  or  drastic  a  way  as  the 
man  trained  to  a  life  calling  for  a  knowledge  of  finance  and  things 
pertaining  thereto.  It  is  going  to  take  something  more  to  market 
these  bonds  in  our  country  than  it  does  in  Europe,  where  they  are 
better  than  Government  bonds,  strange  to  say.  We  found  that  to 
be  true  in  certain  foreign  countries.  I  had  hoped  that  this  thing 
would  be  put  on  a  proper  scale  worthy  of  the  subject  that  it  rep- 
resents, and  that  there  might  be  a  Federal  board  along  the  line 
as  provided  and  adopted  in  the  Federal  reserve  act,  consisting  of 
the  Secretary  of  Agriculture,  the  fiduciary  agent  referred  to — which 
is  an  excellent  suggestion — the  Secretary  of  the  Treasury,  the  Comp- 
troller of  the  Currency,  making  a  board  of  five,  and  that  12  or 
14  sections  might  be  designated  as  regional  sections,  we  call  them, 
or  you  might  call  them  by  some  other  name — it  is  only  an  idea  that 
T  am  following — and  those  banks,  four  or  five,  perhaps,  in  each 
State,  as  the  State's  needs  require — that  the  capital  be  not  less  than 
$50,000  as  a  minimum  and  preferably  $100,000  and  over — might 
dear  through  and  report  to  and  affiliate  with  the  regional  bank  of 
its  peculiar  section.  That  is  not  a  complicated  piece  of  machinery. 
It  does  not  need  all  the  wonderful  ramifications  of  a  currency  sys- 
tem at  all,  because  it  is  following  along  one  specific  line,  and  then 
every  issue  of  every  bond  that  is  expected  to  be  bought  by  these 
fiduciary  agents  all  over  the  world  should  emanate  or  clear  through 
and  bear  the  O.  K.  of  the  Federal  reserve  board,  and  it  should  be, 
if  necessary,  guaranteed  by  that  board  by  following  your  system 
of  an  assessment  of  10  per  cent  upon  the  capital  of  these  affiliated 
banks,  giving  a  capital  of  $3,000,000  or  $4,000,000  or  $5,000,000  to 
an  institution  here  in  Washington  to  be  used  as  a  fund  to  guarantee 
the  bonds,  that  assessment  to  be  made  against  the  affiliated  land- 
mortgage  banks  simply  to  act  as  a  reserve  fund  in  the  hands  of 
this  Federal  board  in'  Washington — a  simple  board  inexpensively 
handled  by  officials  of  the  Government,  because  agriculture  is  differ- 
ent from  'commercial  business.     It  is  different  from  anything  else, 


654  RURAL    CREDITS. 

and  it  is  worthy  of  the  support  of  the  Government  as  no  other 
subject  is. 

P>ut,  gentlemen,  whether  that  thought  or  system  is  worthy  of 
your  consideration  or  not,  do  not,  for  heaven's  sake,  let  any  system 
go  before  the  world  that  is  unworthy  of  the  great  subject  it  rep- 
resents simply  because  you  may  have  in  mind  a  desire  to  put  it 
within  the  reach  of  all  the  people  and  yet  kill  it  by  the  overestima- 
tion  of  what  those  little  institutions  can  possibly  do  in  the  eyes  of 
the  farmers. 

Senator  Hollis.  Mr.  Southgate,  I  think  you  have  a  little  mistaken 
impression  there.  These  two  subcommittees  conducting  this  hear- 
ing are  not  committed  to  any  particular  bill.  There  are  certain 
bills  which  have  been  introduced  that  we  are  considering,  and  we 
have  invited  you,  as  we  have  other  witnesses,  to  get  your  personal 
point  of  view,  and  we  want  you  to  help  us  all  you  can. 

Mr.  Southgate.  I  know  that,  sir. 

Senator  Hollis.  I  would  like  to  direct  your  attention  to  a  specific 
line  of  testimony  which  we  have  had  which  is  that  some  central 
board,  either  the  Federal  reserve  board  or  a  similar  one,  is  to  super- 
vise the  entire  system  and  see  that  the  bonds  are  carefully  and 
properly  issued,  so  that  the}'  will  have  a  standing;  that  the  local 
banks  are  to  have  part  of  their  capital  in  some  sort  of  central  insti- 
tution so  that  the  central  institution  will  have  a  financial  interest 
in  them  and  in  the  loans  that  they  make,  and  will  pass  upon  the 
loans  before  they  are  made  the  basis  for  bonds.  We  have  had  some 
very  intelligent  discussions  along  that  line,  and  we  want  all  the 
suggestions  you  can  give  that  will  help  us  to  perfect  such  a  system, 
if  we  conclude  to  adopt  it. 

Mr.  Southgate.  I  am  delighted  that  you  have  told  me  this.  To 
show  you  how  little  I  know  and.  perhaps,  how  unprepared  is  my 
testimony  here  to-day.  I  never  heard  of  that  suggestion  before :  and 
it  strengthens  my  thought  in  the  matter  tremendously  to  know  that 
others  had  thought  it  out  also.  I  have  never  exchanged  a  word 
with  anyone  along  that  line,  and  I  would  never  have  had  construc- 
tive intelligence  enough  to  have  known  it  had  it  not  been  brought 
down  to  me  through  the  system  you  have  worked  out  in  the  Federal 
reserve  act  and  which  I  had  not  thought  of  before. 

Senator  Hollis.  If  you  will,  continue  to  make  us  any  suggestions 
that  von  think  are  wise  or  will  help  us  to  perfect  such  a  system  as 
that.    The  entire  field  is  open,  Mr.  Southgate.    That  is  the  point. 

Mr.  Southgate.  I  think  I  realize  that.  sir.  I  know  that  this  is 
onlv  submitted  to  you  as  their  report  as  a  basis  for  some  bill.  As  I 
stated  in  the  beginning,  it  is  an  ably  drawn  paper  for  the  most  part. 
1  want  to  see  this  thing  done.  Senator  Hollis.  so  that  it  will  succeed — 
so  that  it  will  do  the  very  things  that  we  all  hove  in  mind  or  desire 
to  be  done — but  I  do  not  believe  we  ought  to  be  misguided  by  a  de- 
sire to  minimize  the  thing  or  undignify  it,  and  thereby  destroy  the 
very  efficacy  of  that  which  you  have  in  mind  to  do.  I  think  they 
should  be  dignified  institutions  in  every  case. 

I  had  worked  out  a  system  for  our 'own  State,  starting  with  one 
institution — a  parent  institution  of  the  State-  -with  a  capital  of  not 
than  $500,000,  with  its  loan-agency  features  ramifying  through- 
out the  State,  which  would  be  a  land-mortgage  bank  for  the  interest 


RURAL   CREDITS.  655 

of  the  State  and  thus  find  its  own  avenue  for  the  sale  of  its  securi- 
ties; and  knowing  that  the  Fletcher-Moss  bill  was  being  prepared 
to  be  introduced  in  Congress,  had  no  doubt  it  would  provide  for 
some  central  reserve  feature  that  would  take  care  of  these  State 
securities.  I  have  been  studying  this  question  from  the  time  that  I 
got  this  testimony  in  my  mind,  from  the  time  I  came  back  from 
Europe,  yet  up  to  the  present  moment  I  have  not  had  any  occasion 
to  change  my  mind  in  the  matter  of  the  size  of  these  banks. 

Mr.  Jones.  May  I  ask  a  question? 

Mr.  Bulkley.  If  it  is  agreeable  to  Mr.  Southgate. 

Mr.  Southgate.  It  is  entirely  so.  I  will  be  glad  to  have  anybody 
make  any  suggestion  at  any  time,  and  to  ask  me  any  question,  and  I 
will  answer  it  if  I  can. 

Mr.  Jones.  I  regret  that  Mr.  Southgate  was  not  here  yesterday 
or  he  would  have  heard  when  I  undertook  to  explain  fully  what  the 
minority  is  recommending.  I  would  like  to  say  for  your  enlighten- 
ment, Mr.  Southgate  was  invited  to  join  the  minority  without  seeing 
the  minority's  position,  but  he  withdrew  from  the  majority. 

Mr.  Southgate.  I  was  never  there.  I  was  never  with  the  majority, 
but  I  was  certainly  strengthened  in  my  view 

Mr.  Jones  (interposing).  You  left  before  they  voted,  and  there 
never  was  a  majority  that  voted  at  all.  While  we  dignify  it  by  call- 
ing it  a  majority,  there  was  never  a  majority  that  voted  upon  it. 
There  were  only*29  out  of  68  voted.  Had  the  minority  been  able  to 
come  before  that  commission,  as  the  majority  was,  with  its  report 
there  would  have  been  a  different  decision,  undoubtedly. 

Mr.  Southgate  took  the  position,  in  correspondence  with  me  re- 
garding our  positions,  that  he  had  just  taken  and  explained  here.  I 
am  confident  he  has  not  seen  through  what  the  minority's  report  is 
recommending,  for  it  is  identically  what  he  is  bringing  out  now,  as 
I  think  you  gentlemen  here  will  bear  me  out.  I  only  wish  I  could 
have  had  an"  opportunity  to  have  gone  over  this  with  Mr.  South- 
gate,  and  he  would  have  fallen  in  line  with  the  minority,  I  am 
confident. 

Mr.  Southgate.  I  am  only  giving  these  suggestions  from  the  stand- 
point of  my  own  personal  experience  as  a  business  man  and  bank 
officer.  There  seems  to  be  an  idea  abroad  that  anybody  that  is  a  bank 
officcer,  perhaps,  is  opposed  to  anything  of  this  nature  that  might 
have  in  it  a  little  element  of  competition  of  existing  banks.  I  do  not 
think  that.  This  is  a  new  subject  and  is  as  broad  as  the  universe, 
and  I  do  not  think  it  will  have  any  effect  upon  existing  institutions 
in  any  sense;  and  if  it  did,  if  it  is  right  it  ought  to  obtain. 

The  next  point  I  feel  I  might  speak  of  in  connection,  in  just  a 
passing  way,  reading  the  bill,  I  think  a  great  deal  of  care  should 
be  given — I  will  put  it  in  another  way.  The  system  can  only  be 
established  through  the  issuance  of  national  charters  and  under 
national  supervision  of  some  form,  because  you  would  never,  as  the 
bill  very  clearly  states,  reconcile  the  various  provisions  found  in 
the  laws  of  the  different  States,  divergent  in  every  respect  all  over 
the  land.     Therefore  it  must  be  a  national  charter. 

This  bill  further  provides  that  these  banks,  to  the  extent,  at  least, 
of  50  per  cent  of  their  resources,  can  do  a  commercial  banking  busi- 
ness, and  I  do  not  think  they  should  do  so.     I  do  not  believe  it  is 


656  RURAL   CREDITS. 

right  that  they  should.  I  do  not  believe  there  are  adequate  pro- 
visions in  the  bill  that  would  take  care  of  a  general  banking  business 
under  any  such  possibility  as  one-half  of  1  per  cent  or  of  1  per  cent 
for  expenses  of  handling  and  organization. 

Senator  Hollis.  Mr.  Southgate,  you  have  had  experience  in  Nor- 
folk, Va.,  in  banking.  How  far  away  are  the  customers  living  who 
do  a  deposit  business  with  you  and  check  with  you  ? 

Mr.  Southgate.  Certainly  not  more  than  within  a  radius  of  200 
miles ;  that  is,  except  in  rare  instances. 

Senator  Hollis.  What  I  am  getting  at  is  this:  Farmers  will  want 
to  know  what  has  been  done  for  them  in  the  way  of  making  deposits 
and  checking  more  easy,  and  I  happen  to  know  that  a  great  many 
men  deposit  and  check  at  a  distance,  and  I  would  like  to  know  if  ft 
is  customary  in  your  vicinity  to  have  farmers  as  far  away  as  15  or 
20  miles  to  do  business  with  your  bank. 

Mr.  Southgate.  Not  more  than  that,  because  there  is  a  local  State 
bank  everywhere  in  every  county  and  a  half  dozen  in  some. 

Senator  Hollis.  Do  you  believe  that  the  country,  as  far  as  deposits 
and  checking  is  concerned,  is  already  taken  care  of  ? 

Mr.  Southgate.  Absolutely. 

Senator  Hollis.  That  is  what  I  wanted  to  bring  out. 

Mr.  Southgate.  I  do  not  believe  it  is  necessary  to  provide  further 
simple  commercial  facilities.  The  moment  you  do  that  and  compete 
with  the  State  banks  and  national  banks,  with  their  expenses  of 
transacting  business,  and  considering  their  taxes  which  are  simply 
enormous,  your  create  a  discrimination  that  ought  not  to  be  done, 
even  for  agriculture,  because  that  is  un-American. 

Senator  Hollis.  Kindly  tell  us  right  here  how  the  national  banks 
in  Virginia  are  taxed.     What  is  the  method  ? 

Mr.  Southgate.  They  are  taxed  upon  the  market  value  of  their 
stock,  and  that  is  determined  by  local  sales  bonafidely  made  within 
a  period  of  three  months  prior  to  the  assessment  for  taxation. 

Senator  Hollis.  That  is  so  clear  to  you  that  you  do  not  give  us 
quite  as  much  information  as  we  ought  to  have.  Your  local  assessors 
find  out  what  the  selling  value  of  3rour  bank  stock  is  and  assess  you 
on  that  market  value,  do  they? 

Mr.  Southgate.  Yes.  sir. 

Senator  Hollis.  So  that  you  are  paying  very  high  taxes? 

Mr.  Platt.  Is  that  personal  property? 

Mr.  Southgate.  Yes:  it  is  on  personal-property  rate. 

Mr.  Platt.  The  banks  do  not  pay  it. 

Mr.  Southgate.  The  banks  pay  it  under  the  present  plan  of  taxa- 
tion in  our  State,  and  the  rate  is  $1.15. 

Mr.  Platt.  That  is,  it  is  a  fixed  rate  in  the  State? 

Mr.  Southgate.  No.  That  is  the  State  and  city  added  together. 
It  makes  $1.15  that  it  costs  the  banks. 

Mr.  Platt.  Is  that  fixed? 

Mr.  Southgate.  Yes;  it  is  fixed. 

Mr.  Platt.  I  mean  the  local  assessors  do  not  assess  you  locally? 

Mr.  Southgate.  They  only  fix  the  value  to  be  assessed.  They  do 
not  fix  the  degree  of  tax — the  units  of  tax.  That  is  fixed  by  the 
State.  35  for  the  State  and  85  for  the  city,  making  $1.15  on  the 
market  value  of  the  stock. 


RURAL  CREDITS.  657 

Mr.  Platt.  The  bank  is  not  taxed  on  its  personal  property  ? 

Mr.  SouTHGATE.  The  shareholder  does  not  pay  the  tax,  but  it  is 
paid  by  the  institution  itself. 

Senator  Hollis.  Are  they  not  taxed  on  the  real  estate  in  addition, 
the  bank  building? 

Mr.  Southgate.  No. 

Mr.  Platt.  As  local  real  estates 

Senator  Hollis.  As  local  real  estate. 

Mr.  Southgate.  They  are  in  some  cases.  I  do  not  think  they  are 
in  our  State.  It  seems  to  me  that  there  is  a  provision  for  the  ex- 
emption of  that,  unless  it  be  an  office  building.  If  it  is  a  bank  build- 
ing it  is  deducted  from  the  gross  amount  to  be  taxed,  but  when  it 
bears  revenue  it  is  different. 

Senator  Hollis.  It  would  be  double  taxation  clearly  if  it  were 
taxed  in  the  market  value  of  the  stock  and  then  taxed  as  real  estate, 
so  they  deduct  whatever  the  assessment  is  on  the  real  estate  from  the 
entire  value  of  the  assets  of.  the  bank. 

Mr.  Southgate.  Yes,  sir. 

Senator  Hollis.  Now,  go  on,  please.  I  wanted  to  bring  that  out 
by  somebody. 

Mr.  Southgate.  Now,  Mr.  Chairman,  I  hope  the  committee  will 
have  wisdom  enough  to  draw  out  of  the  various  witnesses  that  they 
will  have  before  them  some  plan  for  limiting  the  expenses  of  the 
operation  of  these  banks  which  does  not  appear  in  this  bill. 

I  do  not  see  how  any  set  of  men  can  say  that  an  institution  in 
which  there  are  a  thousand  different  ramifying  conditions  as  exist 
in  the  United  States  shall  be  operated  on  a  sound  basis  for  one-half 
per  cent  or  1  per  cent.  It  is  very  hard  to  determine  this  in  advance 
by  an  inflexible  law.  We  all,  of  course,  want  to  do  everything  we 
can  in  order  to  keep  down  the  interest  charge  to  the  borrower  and  to 
be  sure  that  he  does  not  pay  anything  more  than  he  can  possibly 
help.  That  is  the  whole  object  of  the  bill.  Yet  how  can  Congress 
say  to  the  various  States  of  the  Union,  and  to  the  men  who  are  go- 
ing to  put  up  their  individual  money  to  run  an  enterprise  and  to 
elect  their  own  officers  and  conduct  their  own  business  under  general 
law,  that  it  shall  be  done  for  one-half  per  cent  or  1  per  cent?  If 
there  is  a  bank  with  $500  doing  a  large  business  it  can  do  business 
for  less  than  an  overhead  charge  of  1  per  cent.  If  you  start  in 
these  $10,000  banks  they  could  not  do  it.  It  is  physically  impossible 
unless  some  of  the  people  do  like  they  did  in  the  old  time  in 
Europe,  go  up  and  give  their  services  for  nothing;  that  is,  to  say 
the  least  of  it,  very  un-American. 

Those  are  three  points  I  wanted  to  bring  out  before  you.  As  I 
said  at  the  beginning,  I  am  not  here  at  my  own  volition;  if  you  had 
not  summoned  me  I  would  never  have  been  here.  Yet  I  was  glad 
to  have  the  opportunity  to  register  in  the  most  vigorous  form  a 
protest  to  legislation  organizing  these  land-mortgage  banks  with 
adequate  capital  stock. 

Again,  I  would  not  presume  to  take  up  the  time  of  the  com- 
mittee in  regard  to  our  experiences  in  Europe  and  what  we  have 
found  there,  although  I  am  familiar  with  it.  I  was  much  interested 
in  the  land  mortgage  and  personal  credit  systems  obtaining  there. 
Personal  credits  is  an  exceedingly  attractive  subject.     It  is  a  won- 

37031—14 42 


658  RURAL   CREDITS. 

derfully  attractive  system  and  it  has  interested  me  tremendously, 
but  I  should  hate  to  see  it  in  any  way  confounded  with  this  subject. 
If  this  bill  does  not  do  anything  more  than  make  possible  these  in- 
stitutions and  get  in  the  mind  of  the  American  public  the  real  sig- 
nificance of  the  amortization  system  and  what  it  means  to  make  a 
man  provide  for  the  payment  of  his  money  when  you  loan  it  to  him, 
it  will  have  accomplished  an  untold  amount  of  good. 

By  way  of  parenthesis,  and  just  for  a  moment,  look  at  this  great 
industrial  urban  system  which  we  have  just  launched  in  this  country 
with  $7,000,000  capital.  It  induces  a  man  to  save,  because  when  a 
man  borrows  $200  he  signs  a  covenant  that  he  will  pay  it  back  in  a 
specific  way. 

Senator  Hollis.  What  do  you  refer  to  ? 

Mr.  Southgate.  I  refer  to  the  industrial  banks  which  have  just 
been  financed  and  established  in  New  York  for  the  purposes  of 
establishing  industrial  urban  banks  all  over  the  United  States. 

Senator  Hollis.  That  is  organized  under  a  New  York  State 
charter  ? 

Mr.  Southgate-  No;  it  is  a  Virginia  charter  loaning  money  in 
units  of  $50. 

Senator  Hollis.  Is  that  the  institution  that  Mr.  Morris  is  con- 
nected with? 

Mr.  Bulkley.  Is  that  the  Morris  plan  ? 

Mr.  Southgate.  Yes;  that  is  the  Morris  plan.  Mr.  Morris  will 
be  here  to-morrow. 

Mr.  Platt.  In  connection  with  the  statement  you  made  that  these 
banks  should  not  be  allowed  to  take  deposits,  would  you  say  that  they 
should  not  be  allowed  to  take,  for  instance,  deposits  from  the  Govern- 
ment postal  savings  bank  funds  ? 

Mr.  Southgate.  You  mean  in  order  to  have  a  liquid  fund  with 
which  they  could  turn  new  securities  prior  to  the  sale  of  the 
debentures  of  the  old?  What  would  they  need  it  for?  ■  To  loan 
out  currently  to  earn  money  for  their  overhead  expenses  ? 

Mr.  Platt.  It  seems  to  me  it  might  be  well  for  the  farmers  doing 
business  with  these  banks  to  be  allowed  to  put  some  of  their  savings 
in  these  banks  and  have  your  provision  that  the  banks  might  be 
available  for  postal  funds.  If  they  are  not  to  be  allowed  to  receive 
any  deposits  that,  of  course,  will  have  to  be  changed  or  cut  out. 

Mr.  Southgate.  My  idea  of  that  is  not  that  the  postal  savings 
should  be  deposited  with  these  land-mortgage  banks,  but  that  these 
deposits  remain  with  national  banks  as  at  present,  but  make  it  pos- 
sible for  national  banks  to  buy  land-bank  mortgage  bonds  to  deposit 
with  the  Treasury  as  security  for  postal  savings. 

If  you  help  to  make  liquid  this  form  of  security  by  giving  the 
right  to  all  these  national  banks  in  the  country  to  use  these  securi- 
ties rs  provided  for  for  different  collateral  purposes,  say  the  postal 
savings  as  one,  you  create  a  great  avenue  at  the  outset  for  the  use 
of  these  bonds,  just  like  you  create  a  demand  for  Government. 2 
and  3  percents  to-day,  to  secure  circulation  under  the  old  system. 

Senator  Hollis.  That  was  the  suggestion  made  yesterday  by  Mr. 
Jones,  I  believe. 

Mr.  Jones.  Mr.  Southgate  is  absolutely  with  the  minority  and 
does  not  know  it. 


RURAL   CREDITS.  659 

Senator  Hollis.  Mr.  Southgate,  when  you  speak  of  a  bank  you 
naturally  think  of  an  institution  with  plate  glass  and  onyx  columns 
and  mahogany  counters,  etc.,  which  is  kept  open  three  or  four  hours 
a  day,  and  where  people  come  in,  deposit  their  money  and  cash  their 
checks.  You  have  had  a  little  more  experience  than  we  have,  and 
you  know  about  the  operation  of  a  bank.  Do  you  think  it  is  feasible 
to  have  these  land-mortgage  banks  more  like  our  building  and  loan 
associations  in  the  North  and  East,  run  inexpensively,  very  simply* 
and  really  run  for  the  purpose  of  permitting  farmers  to  associate 
themselves  together  to  get  better  credit,  and  not  run  as  a  bank  in 
the  ordinary  acceptation  of  the  term,  but  run  economically  and  open 
perhaps  one  or  two  evenings  in  the  week,  in  some  unpretentions  office* 
where  they  have  a  safe  but  do  not  pretend  to  keep  much  or  any 
money,  but  where  they  do  receive  applications  for  loans,  pass  on  them 
intelligently,  as  one  neighbor  will  on  another  neighbor's  collateral, 
and  make  loans  up  to  the  amount  of  the  capital,  and  then  have  some 
central  authority  to  investigate  the  loans  and  issue  bonds  on  those 
loans  as  collateral?  Now,  have  you  in  mind  that  a  system  of  that, 
sort  would  be  successful  in  this  country? 

Mr.  Southgate.  That  is  a  very  far-reaching  question.  It  ramifies 
in  two  different  directions.  It  sounds  exactly  like  the  old  Raiffeiseii 
system  in  the  early  days,  which  obtained  in  Italy  and  Germany,  but 
which  is  obsolete  now  and  is  superseded  by  something  which  is 
better.  Secondly,  there  is  no  such  thing  will  ever  exist,  in  my  humble 
opinion,  in  America  as  an  association  of  farmers  getting  together  to 
borrow  money  in  an  accumulative  form  on  land  mortgages.  That 
will  distinctly  be  for  dynamic  money,  for  personal  credit  reasons* 
Such  an  idea  as  you  advance  would  enable  the  farmer  to  have  a 
cooperative  creamery,  a  cooperative  tobacco  warehouse,  or  cooperative 
cotton  storage  for  the  public  utility,  which  is  paid  for  by  them  at  a 
schedule  of  rates  very  low,  yet  sufficient  to  amortize  the  loan  that 
caused  it  to  come  to  pass,  and  thus  they  use  and  own  their  public1 
utilities.  In  that  respect  farmers  may  coalesce  and  stand  for  per- 
sonal credit  in  those  societies  to  which  I  have  referred.  But  in  an 
association  of  men  mortgaging  their  land  for  a  common  fund,  I  do 
not  believe  it  will  ever  exist  in  this  country. 

Senator  Hollis.  I  do  not  mean  that. 

Mr.  Southgate.  You  said  that  the  association  could  come  together 
to  make  mortgage  loans. 

Senator  Hollis.  I  was  trying  to  get  away  from  the  ordinary  bank 
idea.  Of  course  some  one,  either  the  farmers  or  those  interested, 
would  have  to  form  an  institution  to  do  this  business,  and  you  would 
have  to  call  it  a  bank;  but  as  a  bank  suggests  to  me  the  machinery 
I  have  described,  I  wanted  to  get  away  from  that.  I  suppose  the 
plan  would  include  capital  stock,  responsibility  of  the  individual 
double  the  amount  of  the  capital  stock,  but  not  a  responsibility  of 
one  farmer  for  another  farmer's  loan  by  any  means.  I  do  not  mean 
that.  What  I  was  trying  to  do  was  to  see  if  we  could  not  do  this 
work  and  get  away  from  the  idea  of  a  bank,  which  is  almost  neces: 
sarily  the  idea  of  a  commercial  bank,  because  you  do  not  need  all 
this  machinery  if  you  are  going  to  issue  75  or  100  loans  in  20  or  30 
years;  it  is  not  necessary  to  keep  the  bank  open  during  regular 
banking  hours  in  order  to  do  that. 


6G0  RURAL   CREDITS. 

Mr.  Soutiioate.  Seventy-five  or  one  hundred  loans?  Not  more 
than  that? 

Senator  Hollis.  The  local  association,  be  it  a  bank  or  what  not, 
can  only  issue  $150,000  in  loans  on  $10,000  capital,  which  is  the 
scheme  of  this  bill.  It  would  only  issue  75  or  100  loans,  and  you 
do  not  have  to  have  a  big  bank  to  take  care  of  those  loans. 

Mr.  Sotjthgate.  You  would  have  to  have  an  employee  who  would 
supervise  it  and  handle  it,  and  who  would  look  after  it  and  take  care 
of  it  in  the  system  you  speak  of. 

Senator  Hollis.  That  would  have  to  be  done  by  some  organization 
which  will  be  called  a  bank,  just  as  it  is  done  in  large  estates  of 
millions  of  dollars  that  are  handled  by  three  trustees.  They  do  not 
need  to  have  banking  rooms.  They  have  an  officer  with  clerks  and 
a  secretary,  and  they  are  responsible.  Directors  are  no  more  than 
trustees  of  the  bank's  funds,  and  they  are  charged  with  responsi- 
bility concerning  them.  I  am  making  this  suggestion  because  it 
has  been  made  by  various  witnesses  in  the  past  two  weeks. 

Mr.  Southgate.  It  is  exactly  to  get  away  from  that  unstable  situa- 
tion, as  it  relates  to  money — that  most  difficult  of  all  commodities  in 
the  world  to  handle  and  handle  successfully — money.  It  is  to  get 
away  from  that  that  I  have  advocated  this  Federal  board  plan.  In 
the  first  instance,  suppose  you  had  three  or  four  or  five  affiliated 
banks  in  every  State;  that  is,  an  average  of  that  many.  It  would 
only  be  about  250,  when  we  have  now  8,000  national  banks,  to  say 
nothing  of  the  tremendous  number  of  State  banks.  Suppose  you 
had  five  in  each  State,  Senator  Hollis,  you  would  not  need  a  localized 
$10,000  organization  to  make  the  facilities  of  your  sectional  bank 
ready  for  the  use  of  the  farmers ;  but  in  a  radius  of  50  or  75  or  100 
miles,  with  a  bank  attached,  you  would  have  your  loan  agencies, 
which  are  suggested  by  this  bill,  to  go  out  and  censor  loans,  to  pass 
upon  the  validity  of  the  tax  assessments,  in  connection  with  it,  its 
assessed  value,  etc..  to  see  that  the  loan  is  conservatively  made  and 
brought  into  this  institution,  and  have  only  just  five  institutions 
through  the  State.  These  land-mortgage  banks  would  have  the  bene- 
fit of  the  lowest  rate  of  interest  consistent  with  existing  financial 
conditions,  and  would  make  a  market  for  the  sale  of  these  bonds,  as 
they  do  now  in  Europe,  but  which  they  did  not  use  to  do  when  they 
used  to  make  mortgages  and  market  them  the  best  way  they  could; 
but  that  is  all  obsolete  now. 

My  experience  has  been  that  the  man  seeks  the  institution  pretty 
rapidly,  and  you  do  not  have  to  provide  too  many  facilities  to  make 
a  man  borrow,  and  it  does  not  have  to  be  too  handy,  and  you  do  not 
have  to  have  all  these  little  institutions  to  make  it  a  success. 

Senator  Hollis.  Is  it  your  plan  to  have  the  central  institutions 
one  in  a  State,  or  one  in  a  large  district,  or  five  in  the  State  and  then 
do  the  business  through  branches? 

Mr.  Southgate.  No.  I  outlined  it  in  the  beginning.  Following, 
as  I  explained,  slightly,  your  new  currency  system,  to  have  this  Fed- 
eral board  in  Washington  to  consist  of  these  five  men,  and  have  an 
assessment  against  the  affiliated  banks  for  a  small  amount  of  their 
capital  to  make  this  central  guaranty  fund  and  justify  the  Gov- 
ernment in  guaranteeing  these  bonds  without  its  touching  the  Gov- 
ernment's funds  to  do  it,  and  then,  as  I  said,  if  you  wanted  your 


RURAL    CREDITS.  66l 

regional  banks,  say  12  in  number,  in  the  various  agricultural  sec- 
tions, all  right,  but  if  not,  let  these  five  banks  in  each  State  affiliate 
with  the  Federal  board  direct,  and  cut  out  the  regional  banks  in  order 
to  prevent  any  red  tape  or  any  more  ramifying  system,  and  make 
it  as  plain  and  simple  as  possible.  Perhaps  it  would  be  a  good  idea  to 
let  those  affiliated  banks,  only  240  in  number,  if  there  were  five  in 
each  State,  affiliate  with  the  central  reserve  board  and  pass  up  every 
mortgage  to  that  board  that  it  might  be  issued  through  that  board, 
and  have  the  approval  or  stamp  of  the  Government  on  it,  which 
would  give  it  standing  everywhere.  If  you  had  these  five  banks  in  each. 
State  you  certainly  would  not  need  the  little  institutions  such  as 
you  suggest.  That  idea,  Senator,  is  an  absolutely  practical  idea 
when  it  comes  to  personal  credit  short-time  loans,  but  not  for  the 
hypothecation  of  that  which  the  farmer  has  for  years  worked  to 
obtain.  "I  will  never  put  a  mortgage  on  it,"  says  the  average 
farmer,  "  for  the  benefit  of  anything  or  anybody  else  except  my  own 
purposes."    They  are  entirely  two  different  things. 

Senator  Hollis.  There  will  be  a  reluctance  to  discard  the  local 
knowledge  and  the  local  help  which  you  may  get  out  of  some  sort 
of  small  local  institutions.  It  may  be  wise  to  do  it — I  am  not  cer- 
tain as  to  that.  But  you  will  find  that  a  great  many  of  the  members 
of  this  committee  feel  we  ought  to  get  all  that  local  supervision 
and  help  that  it  is  possible  to  get. 

Mr.  Southgate.  It  might  be  that  you  can  get  a  plan  whereby  that 
local  committee  could  pass  upon  the  validity  of  the  loan  value  of 
the  land,  and  all  that,  and  pass  it  up  without  being  an  institution 
with  capital  stock  to  manage,  which  could  not  be  done  except  on  a 
business  basis.    That  would  possibly  be  a  feasible  plan. 

Mr.  Platt.  You  do  not  think  it  would  be  possible  to  have  a  co* 
operative  bank? 

Mr.  Southgate.  Not  in  mortgages. 

Mr.  Platt.  You  said  the  farmers  never  would  combine.  In  New 
York  State  there  are  the  building  and  loan  associations  which  are, 
as  a  matter  of  fact,  cooperative  associations  among  the  farmers. 
I  understand  there  are  a  number  of  them  in  such  small  towns  that 
there  is  practically  no  town  loaning  and  no  town  people  in  the 
associations. 

Mr.  Southgate.  Do  a  dozen  farmers  mortgage  their  lands  for  a 
common  fund?  That  is,  cooperation  in  the  matter  of  land  mort- 
gages. 

Mr.  Platt.  The  building  and  loan  associations  do  not. 

Mr.  Southgate.  That  is  cooperation  in  the  sharing  of  profits,  but 
not  in  the  matter  of  mortgaging  the  lands.  They  will  not  mort- 
gage their  lands  except  for  their  own  individual  loan,  to  build  a 
barn  or  a  house  or  buy  land.  The  old  Keiffeisen  system  used  to  be 
one  under  which  it  was  contemplated  that  five  farmers  would  hypoth- 
ecate their  land  for  50  per  cent  of  its  value,  and  hold  the  funds  in 
a  common  fund  for  the  common  good. 

Mr.  Platt.  Farm-land  bank  cooperation  is  not  in  the  sense  of 
liability,  but  it  is  a  cooperative  bank  as  far  as  both  borrowers  and 
investors   are  concerned. 

Mr.  Southgate.  The  point  we  are  trying  to  discuss  is  community 
of  interest  in  the  borrowing — five  men  put  mortgages  on  their  five 


662  RURAL   CREDITS. 

farms  for  the  benefit  of  some  central  good.  It  is  not  done  in  this 
country,  I  believe,  anywhere,  at  least  not  in  the  United  States  in 
any  place  where  the  highest  measure  of  cooperation  is  developed, 
which,  I  think,  perhaps,  is  in  Minnesota. 

Mr.  Platt.  "  For  the  benefit  of  some  central  good  " — do  you  mean 
by  that  for  the  issuing  of  bonds,  for  instance? 

Mr.  Southgate.  For  the  issuing  of  some  individual  community 
use.  If  you  will  read  the  history  of  the  Reiffeisen  banks  you  will 
find  that  is  the  way  they  first  started. 

Mr.  Platt.  They  were  amortization  personal-credit  banks? 

Mr.  Southgate.  No;  it  was  the  land-mortgage  feature  attached 
to  the  personal-credit  association. 

.Mr.  Platt.  The  mortgages  were  placed  for  the  purpose  of  guar- 
anteeing credit  rather  than  for  purely  mortgage  purposes. 

Senator  Hollis,  as  I  understood  him,  undertook  to  draw  out 
from  you  an  opinion  as  to  whether  you  did  not  think  it  was  pos- 
sible to  run  these  small  $10,000  banks  as  building  and  loan  associa- 
tions are  run,  without  any  overhead  charges  to  speak  of,  with  one 
man  as  secretary  at  $300  a  year,  perhaps,  and  with  the  office  open 
once  or  twice  a  week.  Why  could  that  not  be  done  ?  I  do  not  think 
you  fully  answered  the  question.  You  said  that  these  little  banks 
would  have  pretty  high  overhead  charges  and  the  big  banks  would 
be  run  with  very  much  less  overhead  charges.  I  do  not  think  that 
is  correct. 

Mr.  Southgate.  With  less  overhead  charge:  less  charge  on  the 
basis  of  its  earnings.  For  instance,  suppose  a  bank  was  limited  to 
1  per  cent  of  the  business  it  did,  and  it  had  a  capital  of  $300,000; 
do  you  not  think  it  could  do  business  at  a  lesser  rate  than  one  that 
had  a  capital  of  $10,000  on  its  overhead  charges  ? 

Mr.  Platt.  I  am  not  so  sure  about  that. 

Mr.  Southgate.  Of  course  it  would.  That  would  be  deirying  the 
economy  of  large  endeavor. 

Mr.  Platt.  But  the  large  bank  has  to  have  the  banking  house, 
possibly  with  the  onyx  columns  and  all  that  sort  of  thing,  but  the 
small  bank  does  not  .have  to  have  anything  but  a  little  space  to 
transact  business,  and  they  could  keep  open  one  night  a  week  or 
maybe  one  or  two  nights  a  month.  Why  should  it  have  any  ex- 
penses at  all. 

Mr.  Southgate.  Another  reason  why  that  is  absolutely  imprac- 
tical in  our  country  is  that  we  do  not  have  the  community  interest 
among  the  farmers  here  that  they  have  in  Europe,  where  the  average 
farm  is  20  acres,  where  everybody  is  together,  where  everybody  lives 
in  the  village  and  goes  out  to  the  farm  every  morning  and  comes  back 
in  the  evening.  That  is  an  altogether  different  situation.  When  you 
come  to  a  question  of  finance  in  which  you  expect  other  people  to 
participate  }*ou  have  got  to  get  away  from  every  phase  of  senti- 
mental reason  or  feeling  this,  that,  or  the  other  way.  Unless  it  is  on 
an  absolute  business  basis  it  will  not  be  a  success.  I  do  not  believe 
the  borrowing  and  lending  of  money  ought  to  be  done  on  any  other 
basis. 

If  there  are  no  other  questions,  I  will  leave  the  testimony  with 
those  three  points  that  I  wished  to  give  you,  which  I  have  brought 
out 


EUEAL   CREDITS.  663 

STATEMENT  OF  W.  B.  DOAK,  OF  CLIFTON  STATION,  VA. 

Senator  Hollis.  Mr.  Doak,  will  you  please  state  your  full  name 
and  also  state  where  you  live? 

Mr.  Doak.  W.  B.  Doak,  Clifton  Station,  Va. 

Senator  Hollis.  And  what  is  your  occupation? 

Mr.  Doak.  Farmer;  representing  the  Northern  Virginia  Farmers' 
Institute. 

Senator  Hollis.  The  Northern  Virginia  Farmers'  Institute?  Just 
tell  us  what  the  institute  is,  so  we  will  understand. 

Mr.  Doak.  The  institute  is  an  association  of  farmers  in  that  State, 
which  meets  monthly,  and  is  the  oldest  in  the  State. 

I  will  begin  by  outlining  my  position  on  the  banking  question, 
relating  a  little  personal  experience.  I  can  remember  when  as  the 
manager  of  the  Burke's  Garden  Cattle  Co.  I  got  a  statement  from  the 
Bank  of  Princeton,  W.  Va.,  giving  notice  of  a  note  for  $30,000,  and 
to  make  a  new  note.  It  was  for  another  cattle  company  of  a  very 
similar  name.  Now,  that  brings  out  an  idea.  The  man  who  bor- 
rowed that  money,  by  the  way,  has  succeeded  in  accumulating  some 
40,000  or  50,000  acres  of  land  within  the  short  space  of  one  lifetime 
by  what  we  conceive  to  be  special  privilege  in  the  matter  of  borrow- 
ing money.  He  got  that  money  outside  the  State.  Now,  suppose  a 
farmer  like  myself,  with,  say,  300  acres  of  land,  went  over  to  that 
bank  in  West  Virginia  and  asked  for  $200  or  $300,  an  equal  amount 
in  proportion;  he  would  get  no  money.  The  cashier  would  say  he 
did  not  know  me  personally  and  did  not  know  anybody  that  I  knew, 
and  I  would  not  get  the  money.  It  brings  out,  as  I  see  it,  one  of  the 
failures  of  our  present  system  of  financing  land.  In  other  words,  it 
actually  consisted  of  a  "  restriction  of  credits  and  concentration  ol 
cash,"  as,  I  believe,  President  Wilson  put  it. 

The  average  farmer,  small  farmer,  is  practically  unable  to  finance 
his  operations,  yet  he  has  to  operate,  and  he  must  go  to  an  agent 
and  pay  5  per  cent  for  the  use  of  the  money  two  or  three  years  on 
terms  that  are  practically  impossible.  A  mortgage  can  not  be  paid 
off  in  two  or  three,  or  even  five  years,  as  people  are  well  aware. 

Now,  a  second  experience  I  am  just  going  to  relate.  Two  brothers 
were  left  $40,000.  Not  a  very  large  amount,  still  it  is  right  handy  to 
have  that  much  given  you.  Of  one  man's  money,  $25,000  is  in  the 
bank  stock — a  controlling  interest,  by  the  way — and  the  rest  in  a 
farm,  a  $15,000  farm.  The  other  brother  got  a  $40,000  farm,  about 
800  acres.  People  say  they  started  in  life  on  an  equal  basis,  but  if 
Will  wants  to  borrow  money  to  stock  that  farm,  buy  hogs,  cattle, 
sheep,  and  horses,  and  buy  equipment  to  rim  it,  and  he  goes  to  C.  B. 
to  borrow  the  money,  and  he  is  told,  "  You  must  put  up  collateral 
and  get  somebody  to  indorse  your  note;  your  land  is  not  good  at  the 
bank ;  we  can  not  loan  you  money  on  it ;  but  if  you  get  the  money  we 
will  have  to  let  you  have  it  for  only  30,  60,  or  90  days."  Will  will 
say,  "  I  can  not  do  that  in  30,  60,  or  90  days;  I  can  not  turn  nry  crop 
or  turn  my  stock  in  that  length  of  time."  There  are  billions  of  dol- 
lars in  bank  deposits  handled  thus;  in  this  case,  between  $300,000 
and  $500,000.  That  bank  runs  about  $400,000  in  deposits  and  about 
the  same  in  loan  and  discount.    In  other  words,  C.  B.  got  this  money 


664  RURAL   CREDITS. 

from  the  community,  for  which  he  gave  no  security  and  on  which  he 
paid  neither  interest  nor  taxes. 

Now,  that  is  the  way  it  looks  to  a  farmer.  It  certainly  does  not 
prove  to  me  that  we  are  getting  a  square  deal  up  to  the  present  time. 

Mr.  Platt.  Do  you  mean  to  say  that  some  people  who  borrow 
money  from  the  bank  do  not  pay  interest  on  it  ? 

Mr.  Doak.  No,  sir.  This  bank  has  been  known  to  take  out  12  per 
cent  in  advance.  I  said  that  the  banker  got  his  money  without  pay- 
ing interest.  At  that  time  the  bank  did  not  pay  any  interest.  They 
do,  I  think,  now.  They  have  to  pay  some  interest  on  time  deposits; 
but  at  that  time  they  paid  neither  interest  nor  taxes,  nor  gave  any 
security.  The  other  brother,  the  farmer  brother,  had  to  furnish  collat- 
eral or  personal  indorsement,  and  that  made  it  practically  impossible 
for  him  to  get  sufficient  money.  There  is  a  condition  of  affairs  that  is 
leading  to  ruin  to-day.  Land  is  being  depleted  and  abandoned  rapidly 
in  Virginia,  with  the  exception  of  the  holdings  of  a  few  very  wealthy 
men  who  have  bought  and  improved  land  close  to  the  towns  and 
cities  along  the  electric  lines  which  is  gaining  rapidly  in  value.  There 
is  possibly  50  per  cent  more  land  being  impoverished  in  Virginia  than 
improved.  Xow.  you  need  not  take  my  word  for  it ;  you  can  ride  up 
and  down  the  railroads  and  in  the  country,  riding  by  and  see  it,  and 
you  will  see  that  things  are  getting  bad,  and  things  are  getting  worse 
and  not  getting  better,  but  getting  worse,  and  you  can  see  that  our 
country  is  very  poorly  financed.  You  can  look  at  it  from  the  two 
ways.  Take  our  two  adjoining  counties  across  the  Potomac  River — 
Prince  William  and  Fairfax.  As  a  matter  of  fact,  Fairfax  County 
has  260,000  acres  of  land  and  Prince  William  County  has  220,000 
acres  of  land.  And,  by  the  way,  the  president  of  our  farmers'  insti- 
tute is  also  president  of  the  leading  bank.  We  often  have  a  friendly 
argument  over  this  question.  I  tell  him,  "  You  need  not  try  to  make 
me  believe  you  have  got  plenty  of  money.  There  you  have  got 
$600,000  in  three  banks  in  Prince  William  Count}7.  That  is  less  than 
$3  an  acre.  If  all  the  money  were  loaned  to  the  farmers  it  would 
be  less  than  $3  an  acre/'  The  English  tenant  is  expected  to  have  $50 
an  acre  to  equip  the  farm  he  rents  with  live  stock  and  machinery. 
We  have  written  our  own  condemnation  on  the  landscape — bush- 
grown,  gully-worn  fields. 

Mr.  Platt.  Where  do  the  deposits  come  from  in  this  bank?  Do 
they  come  from  the  farmers? 

Mr.  Doak.  Largely;  yes,  sir.  I  am  not  a  banker.  I  would  not 
undertake  to  say  very  much  about  it,  but  that  would  be  my  im- 
pression. 

Mr.  Platt.  If  the  farmer  has  deposits  in  the  bank,  can  he  get  a 
loan? 

Mr.  Doak.  Oh,  yes.  I  have  always  been  able  to  borrow  a  little 
money. 

Mr.  Platt.  Do  you  think  that  it  would  be  good  banking,  and  would 
it  be  safe,  for  a  banker  to  loan  money,  for  instance,  to  a  man  who  had 
nothing  on  deposit  ? 

Mr.  Doak.  I  am  not  a  banker.  Of  course,  I  will  admit  that  does 
not  look  like  good  business. 

Mr.  Platt.  Is  that  not  largely  the  real  trouble  among  the  farm- 
ers— that  they  do  not  do  business  with  the  banks  at  all,  consequently 
when  they  come  to  ask  for  loans  the  bank  has  no  way  of  knowing 


RURAL   CREDITS.  665 

what  they  save  or  whether  they  ever  do  save  anything,  consequently 
it  is  pretty  dangerous  business  to  loan  other  people's  money  to  men 
who  had  shown  no  capacity  to  handle  money. 

Mr.  Doak.  He  offers  personal  credit  or  surety,  which  they  usually 
require.  That  is  not  the  main  point  we  are  driving  at,  however.  I 
am  going  to  state  that  when  I  went  to  the  State  Farmers'  Institute, 
at  Richmond,  I  was  astonished  to  hear  Dr.  Coulter — who  is,  I  be- 
lieve, secretary  of  this  commission — talk  this  matter  over;  and  he 
never  mentioned  a  farm-land  bank.  He  discussed  the  credit  union. 
It  seems  to  me  that  the  credit  union  is  not  anything  like  so  well 
suited  to  Virginia  conditions. 

By  the  way,  I  happen  to  come  from  the  stock-farming  section  of 
Virginia,  and  I  expect  I  know  about  Virginia  conditions  as  well  as 
most  any  man,  farmer  or  banker  either,  certainly  from  that  standpoint. 
I  sell  cattle  or  sheep  almost  all  over  the  State,  and  have  lived  east 
and  west  of  the  mountains,  hence  I  feel  like  I  am  reasonably  well 
qualified  to  represent  the  farmers  before  this  meeting.  They  have 
been  willing  to  trust  me  with  the  job,  anyway. 

In  regard  to  the  credit-union  system,  we  have  a  rather  old,  worn 
soil,  while  our  section  is  a  comparatively  new  community,  namely, 
farmers  are  moving  in  and  out  all  the  while.  That  is,  we  are  not 
close  to  each  other,  and  in  that  respect  are  not  like  Germany.  We 
are  not  that  kind,  in  fact — not  that  the  men  would  not  trust  each 
other  at  all,  but  they  would  not  indorse  promiscuously,  as  Germans 
do  in  credit  unions — but,  as  I  understand  this  farm-land  bank  propo- 
sition, a  man  puts  up  his  land  for  the  money  he  gets;  and  it  seems 
to  me  it  is  eminently  suited  to  agricultural  conditions  here.  As  for 
the  operation  of  the  bank,  I  do  not  know  what  the  difficulties  along 
that  line  would  be;  but  take  our  case  particularly,  why  could  not  this 
president  of  the  national  bank  there — it  seems  that  was  mentioned — 
also  act  as  president  of  our  farm-land  bank?  He  seemed  very  much 
interested  in  the  proposition,  and  is  trying  to  develop  it.  I  see  no 
reason  why  it  could  not  be  worked  very  economically.  We  certainly 
can  show  a  great  many  of  our  city  friends  all  the  way  around  the 
block  when  it  comes  to  running  an  insurance  business.  We  have  a 
little  farmers'  mutual  up  there  in  Loudoun  County — -Waterford— 
which  I  suppose  writes  as  much  insurance  as  most  any  concern  in 
Virginia.  They  are  very  close.  They  do  not  spend  any  money.  A 
friend  of  mine — their  local  agent — told  me  the  other  day  that  they 
would  not  even  let  him  have  a  blotter  when  he  asked  for  it.  [Laugh- 
ter.] But  we  are  doing  the  business,  and  we  are  insuring  property, 
and  putting  a  lot  of  city  people  out  of  business,  for  the  very  simple 
reason  that  their  overhead  charges  are  entirely  too  large.  They  are 
beyond  reason. 

Senator  Hollis.  You  have  given  us  some  very  valuable  informa- 
tion. Do  you  find  that  your  farmers  are  able  to  run  the  machinery 
of  that  insurance  company,  and  run  it  economically  and  successfully? 

Mr.  Doak.  We  have  for  a  great  many  years. 

Senator  Hollis.  Have  you  had  any  losses? 

Mr.  Doak.  Oh,  yes;  they  have  paid  a  great  many  losses.  I  am  not 
an  insurance  man,  but  I  know  I  insure  with  them,  and  know  the 
thing  has  been  going  on  there  for  a  great  many  years. 


666  RURAL   CREDITS. 

Senator  Hollis.  Who  are  the  men  who  run  that  insurance  com- 
pany?   Are  the}'  farmers,  or  are  they  men  of  business  experience? 

Mr.  Doak.  Practically  all  of  them  are  farmers.  It  is  run  up  there 
in  the  county  3  or  4  miles  from  a  railroad,  even. 

Senator  Hollis.  You  find  that  men  are  willing,  for  the  sake  of  the 
community,  to  contribute  more  or  less  of  their  time  to  an  association 
of  that  sort? 

Mr.  Doak.  Yes,  sir;  they  are  actually  doing  it. 

Senator  Hollis.  Have  you  been  able  to  run  anything  in  the  nature 
of  a  cooperative  creamery  or  a  cooperative  selling  agencv,  or  anything 
of  that  kind? 

Mr.  Doak.  Well,  I  could  not  say  that  we  have  in  the  way  that 
would  be  extensive  enough.  We  are  selling  some  few  products,  just 
in  a  small  way,  but  we  have  no  regular  organization  in  that  par- 
ticular line.    We  have  not  done  anything  worth  while. 

Senator  Hollis.  You  have  heard  the  proposition  as  stated  here 
this  morning,  and  do  you  believe  .that  the  farmers  and  other  men  of 
property  in  your  vicinity  would  take  enough  interest  in  a  bank  which 
would  help  them  place  their  loans  at  a  less  rate  of  interest  to  sub- 
scribe to  a  substantial  capital,  and  do  the  work  without  large  salaries, 
if  they  were  given  the  opportunity  ? 

Mr.  Doak.  Yes,  sir;  I  think  so;  but  I  would  object  to  the  banker's 
idea  of  a  large  capitalization.  I  should  think  that  $10,000  as  a 
minimum  would  be  about  right  to  start  with. 

Senator  Hollis.  If  you  have  small  local  banks,  of  course,  they 
would  have  to  have  small  capital.  Mr.  Southgate's  idea  was  that  it 
was  better  to  have  a  few  large  banks  with  large  capital,  so  that  they 
would  command  the  confidence  of  the  investor  and  have  them, 
through  their  agents,  serve  the  different  communities. 

Mr.  Southgate.  And  have  these  banks  under  Government  super- 
vision, so  as  to  prevent  the  possibility  of  overreaching,  or  anything 
else  that  would  come  by  reason  of  large  capital  stock  by  which  the 
farmer  would  be  held  down  by  the  Government. 

Senator  Hollis.  You  see,  Mr.  Doak,  there  are  those  two  schools 
of  thought.  One  is  to  have  a  small  institution  with  a  local,  intimate 
knowledge  of  the  properties  that  are  offered  as  security  for  loans,  and 
work  up,  possibly,  to  a  central  organization ;  the  other  having  strong, 
large  institutions  which  will  reach  out  locally  and  do  the  business. 
You  see,  there  are  those  two  schools.  Which  of  those  two  schools  do 
you  think  the  farmers  of  your  vicinity  would  prefer? 

Mr.  Doak.  I  should  think  they  would  decidedly  prefer  something 
in  the  nature  of  this  Fletcher-Moss  bill.  In  the  first  place,  it  comes 
down  to  the  local  organization  anyway,  does  nt  not?  A  bank  at 
Richmond  would  not  loan  $5,000  on  my  farm  or  $10,000  on  my  farm 
without  some  local  man  to  value  it,  would  it? 

Mr.  Southgate.  They  would  eventually  send  their  agent  down  to 
you,  and  you  would  have  to  stand  whatever  expense  there  was  at- 
tached to  that. 

Mr.  Doak.  If  they  did  send  their  agent  would  he  be  competent  to 
put  a  rational  value  on  that  farm — if  they  sent  their  agent  from 
Richmond  down  there?  Would  not  the  farmers,  in  other  words, 
right  there  on  the  job,  who  know  that  land,  be  in  better  position  to 
put  a  rational  value  on  that  farm  and  say  how  much  it  was  worth? 


RUEAL   CREDITS.  667 

Mr.  Southgate.  That  would  be  contrary  to  every  precedent  of  ordi- 
nary banking.  Do  you  believe  a  man  would  like  to  borrow  money 
from  a  bank,  50  per  cent  of  whose  officers  were  men  who  own  farms? 
You  take  five  farmers,  they  have  an  exalted  opinion  of  their  land. 
That  would  not  be  sound  banking.  You  would  have  to  have  a 
fiduciary  agent,  as  provided  for  by  that  bill  to  do  that  very  thing,  a 
censoring  agent,  to  determine  from  the  basis  of  assessment  and  all 
other  things,  the  last  sales  of  real  estate,  and  all  other  methods  that 
they  would  have  of  obtaining  value. 

Mr.  Plait.  If  the  local  organization  was  made  up  of  farmers  who 
had  their  capital  stock  in  the  bank  and  their  money  at  stake,  they 
might  be  a  little  conservative,  I  would  think,  in  estimating  what 
they  would  loan. 

Mr.  Southgate.  They  are  cooperative,  you  see,  to  the  extent  of 
unlimited  liability,  to  the  extent  they  would  have  to  limit  the 
capital 

Mr.  Platt  (interposing).  Every  corporation  is  cooperative  any- 
way to  some  extent. 

Mr.  Doak.  Mr.  Southgate  was  tending  to  leave  the  impression  that 
by  avoiding  the  small  banks,  the  local  organizations,  he  would  re- 
duce expenses.  It  seems  to  me  that  it  would  not  do  that,  because  it 
would  eventually  have  to  be  brought  down  to  the  community,  and 
that  would  be  expensive.  We  farmers  could  do  quite  a  bit  of  busi- 
ness without  spending  any  more  money  than  the  expert  Mr.  South- 
gate  would  send  down  from  Richmond  would  on  one  trip.  We  do 
not  spend  money  so  foolishly  as  some  city  men  do.  I  am  quite  sure 
there  would  not  be  any  savings  there  in  time  to  come. 

Mr.  Platt.  Would  you  say  that  most  of  the  farmers  are  willing 
to  mortgage  their  land  ? 

Mr.  Doak.  Mr.  Southgate  also  left  the  impression  that  farmers 
would  not  mortgage  their  land.  At  our  last  meeting  one  of  the  oldest 
and  one  of  the  best  farmers  in  Prince  William  County — and  by  the 
way,  he  is  not  earring  a  mortgage  now — said  that  if  this  bill  was 
passed  he  would  borrow  money ;  he  would  mortgage  that  farm. 

Mr.  Southgate.  You  must  have  misunderstood  there. 

Mr.  Platt.  I  would  like  to  go  into  that  a  little  further.  You  say 
he  has  no  mortgage  on  his  farm  now  ? 

Mr.  Doak.  No. 

Mr.  Platt.  What  would  he  do  with  the  money?  Does  he  need  it 
on  the  farm? 

Mr.  Doak.  I  would  not  undertake  to  say  just  what  he  would  do. 
He  is  a  man  of  good  judgment.  I  do  not  think  he  would  throw  the 
money  away.  I  do  not  know  exactly  what  all  his  plans  are,  but  I 
imagine  he  would  probably  lime,  fertilize,  and  seed  some  fields  to 
grass.  He  might  buy  some  live  stock,  and  there  are  many  things 
a  farmer  might  buy.  You  see,  we  are  very  poorly  stocked.  Xew 
Zealand  is  carrying  one  sheep  to  every  2|  acres,  and  we  are  carrying 
less  than  one  sheep  to  100  acres  in  our  county.  I  am  more  familiar 
with  figures  on  sheep,  but  our  other  industries  stand  in  about  the 
same  proportion.  That  proves  how  much  we  lack  of  being  stocked 
up.  It  shows  how  pitifully  inadequate  our  present  banking  facilities 
are. 


668  EURAL   CREDITS. 

Mr.  Platt.  If  you  had  credit  facilities  at  not  too  high  a  rate  of 
interest  you  could  easily  use  the  money  to  advantage  in  conducting 
your  farm? 

Mr.  Doak.  To  be  sure.  We  could  use  the  money  to  advantage. 
Hundreds  of  thousands  of  acres  of  land  in  Virginia  are  absolutely 
abandoned,  with  not  a  head  of  stock  of  any  kind  on  it. 

Mr.  Platt.  This  particular  farmer  you  spoke  of,  the  man  who  has 
no  mortgage  now:  what  would  you  say  from  your  own  judgment  as 
to  whether  he  could  profitably  mortgage  his  farm  and  use  the  money? 

Mr.  Doak.  Yes,  sir;  I  think  he  could  use  some  money  to  great 
advantage. 

Mr.  Southgate.  Would  that  assist  in  really  getting  a  larger  pro- 
duction and  lowering  the  cost  of  living?  That  is  the  fundamental 
principle  of  this  whole  thing,  to  aid  production  and  make  more  liquid 
the  securities  which  the  farmer  has. 

Mr.  Doak.  We  certainly  could  not  raise  sheep  or  cattle  or  hogs 
without  putting  them  on  the  land,  could  we? 

Mr.  Southgate.  What  rate  of  interest  do  these  farmers  have  to 
pay  there  now? 

Mr.  Doak.  You  can  hardly  get  money  now — the  ordinary  man, 
you  know — without  paying  5  per  cent. 

By  the  way.  he  spoke  against  this  relief  from  taxation  as  being 
unjust  taxes  on  the  banks.  He  does  not  know  a  thing  in  the  world 
about  unjust  taxes.  Consider  new  settlers  or  young  farmers  who 
undertake  to  buy  land ;  when  they  come  in  they  have  to  pay  a  third 
or  a  half  down,  as  the  case  may  be,  and  are  assessed  on  the  other 
one-half  or  two-thirds.  They  are  made  to  pay  two  or  three  times 
as  much  taxes  as  they  are  worth.  There  is  no  justice  in  it  whatever, 
counting  both  Federal  and  State  income  taxes.  Thus  the  young 
farmer,  struggling  to  improve  an  old  farm  worth  $5,000  to  $10,000, 
is  forced  to  pay  more  money  to  support  the  Government  than  the 
fellow  with  a  net  cash  income  of  $5,000  a  year,  although  nine  times 
out  of  ten  for  the  first  five  years  on  the  farm  he  has  no  real  income. 
All  he  can  possibly  make  is  used  up  in  improvements.  Is  it  any 
wonder  people  leave  the  land?  That  would  be  relieved,  probably, 
by  this  bill  making  land  bonds  exempt.  They  would  get  the  money 
cheaper  by  this  bill. 

Mr.  Platt.  Do  they  have  to  pay  a  commission  every  time  the 
mortgages  are  renewed? 

Mr.  Doak.  Yes:  practically  the  lawyers  get  the  money,  you  know. 
Maybe  the  bank  gets  the  money.  In  our  case  this  gentleman  has  a 
son  who  is  a  lawyer,  who  loans  money  and  gets  the  commission  of 
5  per  cent.  The  money  may  come  out  of  the  banks  for  all  we  know, 
but  the  farmers  have  to  pay  5  per  cent  extra  by  way  of  commission 
besides  other  fees. 

Mr.  Platt.  If  you  had  credit  facilities  at  not  too  high  a  rate  of  in- 
terest you  could  easily  use  the  money  to  advantage  in  conducting 
your  farm.  Would  you  consider  a  5  or  6  per  cent  interest  rate  high 
if  it  was  a  straight  rate,  and  there  was  not  anything  added  to  it  in 
the  way  of  commission? 

Mr.  Doak.  It  seems  to  me  to  be  high  compared  with  other  coun- 
tries in  Europe. 

Mr.  Southgate.  You  said  that  gentleman  you  spoke  of  would 
put  a  mortgage  on  his  farm  if  this  bill  became  a  law.     What  do 


RURAL   CREDITS.  669 

you  reckon  he  would  get  that  money  for?  What  rate  to  you  have 
in  mind  that  he  would  have  gotten  now?  Just  take  the  actual  case. 
If  he  should  put  a  mortgage  on  his  farm  under  this  bill,  if  this  bill 
became  a  law,  what  rate  of  interest  would  he  pav? 

Mr.  Doak.  Under  this  bill  ? 

Mr.  Southgate.  Yes. 

Mr.  Doak.  Well,  I  should  presume  he  did  not  think  it  would 
exceed  6  per  cent 

Mr.  Southgate.  Then,  he  would  only  be  benefited  to  the  extent 
of  the  commission? 

Mr.  Doak.  Yes ;  so  far  as  interest  goes. 

Mr.  Southgate.  Is  that  all  the  benefit  it  would  be  to  him? 

Mr.  Doak.  No.  I  understand  this  bill  provides  for  a  35-year  loan, 
does  it  not  ? 

A  very  distinct  advantage  furnished  by  the  Fletcher-Moss  or  simi- 
lar farm-land  bank  proposition  over  our  present  private  farm-mort- 
gage business  is  that  it  prevents  personal  feeling  in  the  matter. 
Some  lenders  are  very  kind  and  considerate.  On  the  other  hand, 
many  succeed  in  making  themselves  and  their  mortgages  exceed- 
ingly offensive.  Instances  arise  in  which  the  borrower  is  known 
to  have  been  intentionally  and  maliciously  crippled  in  his  credit 
or  otherwise  injured  to  enable  the  creditor  or  his  friends  to  acquire 
a  large  and  desirable  place  at  great  sacrifice  by  foreclosure.  You 
can  readily  see  how  this  necessity  of  having  loans  renewed  every 
few  years  places  a  very  powerful  weapon  in  the  hands  of  the  people 
who  lend  money.  It  has  a  particularly  disastrous  effect  upon  farmers, 
because  the  farmer's  place  of  business  is  also  his  home.  It  disturbs 
the  rouftree,  the  unit  and  very  foundation  stone  of  democratic  insti- 
tutions. That  is,  to  make  the  point  perfectly  clear,  no  purchaser 
of  farm-land  bank  bonds  could  say  he  held  a  mortgage  or  trust 
against  any  particular  farm  and  farmer.  Anything  he  might  do 
to  disparage  one  would  work  against  all  and  prove  of  no  particular 
benefit  to  him.  Hence  temptation  to  disparage  any  is  removed. 
This  difference  alone,  while  quite  impossible  to  reduce  to  figures, 
would  justify  the  borrower  in  paying  considerably  more  to  get  a 
farm-land  bank  to  carry  his  loan. 

All  who  have  lived  in  the  country  realize  how  frequently  oppor- 
tunities offer  by  which  men  with  influence  may  render  the  farming 
operations  of  any  particular  farmer  unprofitable.  Namely  his  taxes 
may  be  raised  arbitrarily,  personal  credit  denied  at  the  bank,  dealers 
refuse  to  handle  his  stock  or  crop  at  a  fair  price,  his  road  or  outlet 
to  public  road  may  be  rendered  practically  impassable,  or  outside 
interference  make  it  almost  impossible  to  get  along  with  neighbors 
or  help. 

We  consider  this  matter  of  rural  credits  of  infinitely  more  conse- 
quence to  the  country  than  agricultural  extension,  vocational  train- 
ing, or  any  other  system  of  lecturing  farmers.  Is  it  not  really  ab- 
surd to  presume  that  to  put  an  inexperienced  student  in  a  county, 
and  have  him  dispense  cheap  advice — always  stale  and  often  mis- 
leading— will  effect  any  appreciable  uplift  in  American  agriculture? 

Mr.  Platt.  Yes ;  on  an  amortization  plan  by  which  to  pay  for  the 
loan. 

Mr.  Doak.  There  is  quite  a  difference.  At  least,  I  would  make 
quite  a  difference,  because  a  man  can  not  pay  off  a  mortgage  in  three 


670  RURAL   CREDITS. 

or  five  years,  and  you  know  it.  Tt  is  absolutely  impossible  to  do  it 
from  the  proceeds  of  the  farm. 

Mr.  Southgate.  That  has  nothing  to  do  with  the  interest,  of 
course — the  question  of  what  he  paid  for  his  mortgage.  That  is  what 
I  am  getting  at.  The  amortization  feature;  nobody  on  earth  would 
say  that  that  was  not  a  splendid  thing  to  provide  for  long-time  pay- 
ments, but  he  would  get  the  money  for  no  less  than  he  is  getting  it 
now.  perhaps. 

Mr.  Doak.  The  commission  makes  a  difference  of  1  per  cent. 
When  we  are  borrowing  $10,000,  $20,000,  or  $40,000  it  is  quite  a 
little  item. 

Mr.  Platt.  These  farmers  in  your  neighborhood  would  not  ex- 
pect this  bill  to  make  the  rates  of  interest  lower  than  they  are,  gen- 
erally speaking,  to  merchants  in  the  towns? 

Mr.  Doak.  No,  sir. 

Mr.  Platt.  Suppose  the  bill  did  become  a  law,  and  it  would  make 
the  rates  of  interest  quite  a  little  lower — -5  per  cent  or  4^  per  cent — 
would  that  induce  a  good  many  farmers  to  mortgage  their  lands, 
who,  perhaps,  ought  not  to  mortgage  it  for  far  more  than  they  ought 
to  borrow  ? 

Mr.  Doak.  I  hardly  think  so.  The  farmers  have  been  schooled 
pretty  severely  and  can  be  depended  upon.  They  are  a  lot  more 
careful  than  city  people  in  handling  money.  I  would  not  blame 
the  bill  if  an  occasional  farmer  did  get  a  little  reckless  with  his 
money  when  I  see  the  amount  of  money  that  has  been  frittered  away 
in  the  toAvns. 

Mr.  Platt.  Would  you  think  it  wise  to  induce  them  to  borrow? 

Mr.  Doak.  It  depends  on  what  they  borrow  it  for.  I  do  not  think 
a  farmer  should  borrow  money  to  buy  an  automobile  to  gad  around 
in,  but  if  I  am  borrowing  money  to  buy  live  stock,  cattle,  sheep,  and 
hogs,  or  to  make  permanent  improvements  on  land,  I  think  it  ought 
to  be  encouraged.  Some  of  the  poorest  farmers  I  have  ever  known 
do  not  know  anything  and  do  not  do  anything  more  than  simply 
sell  off  a  little  timber  and  live  from  hand  to  mouth,  and  the  very 
poorest  farming  I  know  of  has  been  done  by  men  entirely  out  of 
debt. 

Mr.  Platt.  That  is  the  truth,  and  that  is  one  trouble — they  do  not 
do  anything.  If  they  are  loaned  money  on  mortgages  on  their  farms, 
would  they  do  any  more  than  they  have  in  the  past? 

Mr.  Doak.  I  believe  most  of  them  would.  I  believe  it  would  stimu- 
late production.  The  simple  influence  of  others  would  help.  An 
opportunity  to  do  something  at  a  profit,  I  believe,  would  be  an 
encouragement.     There  is  no  question  in  the  world  about  that. 

I  think  this  is  the  most  important  hill  Congress  has  ever  considered. 
At  least  it  seems  so  to  me. 

By  the  way.  I  want  to  say  what  our  bankers  indorsed.  They  met 
in  Richmond  and  condemned  the  Glass-Owen  currency  bill  absolutely 
and  unqualifiedly,  and  it  would  net  he  safe  to  follow  our  friends  in 
tin1  banking  business,  beeause  we  do  not  know  exactty  where  they  are. 
They  have  been  on  too  many  different  sides  of  the  same  question. 

It  seems  to  me  that  Mr.  Southgate  left  the  impression  that  the 
farmers,  in  going  into  a  farmer's  bank,  negotiating  these  loans,  all 
individually  stood  for  all  the  money  that  was  borrowed.  That  is  not 
my  conception  of  the  bill  at  all. 


BUBAL  CBEDITS.  671 

Mr.  Platt.  I  did  not  catch  that, 

Mr.  Doak.  It  seems  to  me  that  Mr.  Southgate  has  left  the  impres- 
sion that  in  establishing  these  farm-land  banks,  in  negotiating  these 
loans,  that  the  farmers  individually  indorse  and  were  liable  for  the 
loans,  the  money  that  was  borrowed.  I  do  not  understand  the  bill 
means  that  at  all. 

Mr.  Platt.  He  was  talking  about  a  cooperative  plan  in  Europe. 

Mr.  Doak.  That  is  what  you  said,  isn't  it  ? 

Mr.  Southgate.  Exactly  to  the  contrary.  I  said  that  farmers 
would  not  mortgage  their  land.  Exactly  to  the  contrary,  that  a  man 
will  mortgage  land  for  his  own  benefit,  for  his  own  purposes,  to  buy 
more  land  or  make  improvements,  to  increase  production,  but  he 
would  not  do  it  for  the  benefit  of  the  community. 

Mr.  Doak.  That  is  all  we  ask  to  do,  and  it  seems  to  me  that  the 
other  matter  is  irrevelant. 

Mr.  Platt.  Are  there  any  building  and  loan  associations  in  Virginia 
that  you  know  of? 

Mr.  Doak.  Not  to  my  personal  knowledge,  loaning  on  farms. 

Mr.  Platt.  I  understand  they  are  making  loans  in  North  Carolina 
on  the  12-year  amortization  plan.  It  is  purely  cooperative.  Do  you 
think  the  farmers  would  want  as  long  loans  as  35  years,  for  one 
generation  ? 

Mr.  Doak.  It  occurs  to  me  that  a  great  many  young  men  will  buy 
farms  and  borrow.  Some  of  our  best  farmers  are  practically  without 
capital,  at  least  without  sufficient  capital — I  had  better  put  it  that 
way.  It  takes  a  lot  of  money  to  run  a  farm  just  right,  and  there  are 
a  great  many  men,  some  of  our  best  farmers,  now  tenants.  By  the 
the  way,  I  have  heard  some  of  our  good  friends  object  to  the  bill.  I 
think  what  they  said  was  if  there  were  ready  money  to  be  loaned  to 
the  other  fellow,  who  would  work  their  land,  but  what  we  want  to 
know  is  how  the  people  come  in  on  that  sort  of  proposition.  I 
understand  you  represent  the  people  of  the  United  States,  and  it  is 
the  object  of  this  currency  and  farm-land  banking  proposition,  or 
any  other  banking  proposition,  to  create  such  condition  in  the  money 
market  as  that  money  will  be  available  not  only  to  a  comparatively  few 
men,  just  as  I  said  about  the  head  of  the  cattle  company  in  southwestern 
Virginia  who  had  managed  to  acquire,  in  the  short  space  of  one  life- 
time, 40,000  acres  of  land  in  Virginia  by  special  favors.  I  know  some 
good  friends  of  mine,  moneyed  men,  looking  out  for  their  end  of  the 
string  and  they  said  that  the  farm-land  bank  bill  would  be  a  very 
bad  bill,  as  it  would  enable  the  tenant  to  buy  land. 

That  is  what  the  tenant  ought  to  do.  If  he  has  money  enough  to 
stock  it  and  knows  how  to  run  it,  it  is  to  the  interest  of  the  com- 
munity and  the  interest  of  the  man,  and  all  good  business  sense  would 
indicate,  it  seems  to  me,  that  he  should  be  provided  with  funds.  We 
have  just  as  fertile  farms  as  anybody  on  earth.  We  certainly  can  not 
give  the  foreign  farmer  all  the  advantage  in  the  way  of  cheaper  land 
and  labor,  lower  taxes  and  interest,  throw  open  our  markets  to  him 
and  expect  to  compete  with  him,  can  we?  It  costs  me  just  as  much 
money  to  put  my  wool  and  mohair  into  Boston  or  Sanford,  Me., 
as  it  does  the  shepherd  in  New  Zealand  or  Argentina.  I  understand 
they  borrow  money  for  2£  per  cent  in  New  Zealand. 

Mr.  Southgate.  Where  is  that  ? 


672  RURAL   CREDITS. 

Mr.  Doak.  In  New  Zealand.  I  believe  the  Credit  Foncier  rate  in 
France  is  4.88,  it  is  not,  which  pays  both  principal  and  interest? 
Yon  take  the  matter  of  cattle — we  used  to  run  a  great  many  cattle  in 
Texas.  The  interest  charge  on  a  steer  has  been  figured  up,  and  it 
amounts  to  $45 — just  the  charge  for  the  use  of  the  money. 

Mr.  Platt.  Of  course,  I  do  not  know  what  the  value  of  land  is  in 
New  Zealand,  but  in  Europe  ordinarily  the  rate  of  interest  is  so  low, 
and  that  is  particularly  because  Europe  is  the  great  reservoir  for 
capital,  and  it  also  ought  to  be  considered  that  land  is  a  great  deal 
higher  priced:  it  is  worth  three  or  four  times  the  value  of  land  in 
this  country,  and  that  somewhat  offsets  the  difference  in  the  interest 
rate. 

Mr.  Southgate.  Mr.  Chairman,  those  are  subsidized  by  the  Govern- 
ment and  can  loan  money  to  the  institution  at  a  lesser  rate,  thus  en- 
abling them  to  loan  that  money  at  a  lower  rate  than  it  can  possibly 
be  done  over  here  under  our  system  or  by  our  institutions. 

Mr.  Doak.  Would  it  not  really  be  easier  and  better  and  compara- 
tively safer  to  handle  at  a  profit  2-|  per  cent  money  on  a  margin  of  1 
per  cent  than  6  or  7  per  cent  money  at  1  per  cent?  Could  not  our 
local  banks,  in  other  words,  handle  the  money,  say,  2  or  3  per  cent 
money,  on  a  1  per  cent  basis  at  less  expense,  and  could  not  they  do  a 
safer  business  and  more  profitable  business  than  with  6  or  7  per  cent 
money  ? 

Mr.  Platt.  I  do  not  quite  understand  how. 

Mr.  Doak.  That  would  be  a  greater  rate  of  profit  relatively, 
wouldn't  it  ? 

Mr.  Platt.  You  mean  if  somebody  furnished  them  the  money 
at  2£  per  cent- — the  GoA^ernment,  for  instance  ? 

Mr.  Doak.  Yes ;  postal  savings.    What  do  they  bring,  for  instance  ? 

Mr.  Platt.  Three  per  cent  now,  I  think. 

Mr.  Doak.  Would  it  not  be  comparatively  easier  to  get  a  profit  on 
that  money  at  1  per  cent  than  it  would  be  if  you  had  money  at  6  per 
cent,  from  a  banker's  standpoint?  I  am  not  a  banker,  but  it  looks 
to  me  like  that? 

Senator  Hollts.  Is  this  your  point,  Mr.  Doak,  that  if  these  banks 
can  get  money  to  loan  at  2  or  2^  per  cent,  then,  of  course,  it  is  easier 
for  them  to  loan  it  out  at  a  low  rate  of  interest? 

Mr.  Doak.  At  3i  per  cent. 

Senator  Hollis.  Sure;  because  they  would  get  their  margin  there, 
and  the  cheaper  they  could  get  the  funds  the  cheaper  they  could 
accommodate  the  borrower.     I  think  that  is  perfectly  evident. 

Mr.  Platt.  It  is  not  your  idea,  is  it,  that  the  Government  ought  to 
let  them  have  money  at  2  per  cent — these  banks? 

Mr.  Doak.  I  am  not  a  lawyer  and  have  never  gone  into  these  things 
as  carefully  as  that.  It  occurred  to  me  that  if  the  Government  has 
postal  savings  to  loan,  that  they  can  just  as  well  put  it  back  into  the 
country.  I  think  it  has  gone  heretofore  into  the  financial  centers, 
and  I  think  it  would  tend  to  equalize  things  and  it  would  go  far  to 
benefit  the  people. 

Mr.  Platt.  That  would  not  go  very  far.  There  are  only  $40,000,000 
of  postal  deposits  in  the  country  and  something  like  $8,000,000,000  of 
farm  loans  already. 

Senator  Hollis.  $2,500,000,000. 


RURAL   CREDITS.  673 

Mr.  Platt.  Roughly  speaking,  there  are  almost  10  times  as  much 
money  in  farm  mortgages — in  fact,  almost  100  times  as  much — as  the 
postal  savings. 

Mr.  Southgate.  If  the  postal-savings  deposits  were  wrapped  up 
in  35-year  bonds,  where  would  the  Government  come  in?  How  can 
the  Government  get  the  money,  if  it  wanted  it,  out  of  these  35-year 
bonds  ? 

Mr.  Platt.  There  is  not  any  question  about  that.  There  is  one 
thing  I  would  like  to  ask  you :  Do  you  think  the  farmers  would 
stand  for  a  plan  by  which  they  were  somewhat  supervised  as  to  how 
they  were  to  use  the  money?  For  instance,  a  farmer  has  a  farm 
worth  $2,000,  and  he  mortgages  it  for  $1,000;  would  it  be  practical 
for  any  State  or  Government  agent  to  watch  to  see  how  he  was 
spending  the  money,  to  see  whether  he  was  really  spending  it  in  pur- 
chasing cattle  and  stocking  his  farm  to  make  it  more  productive,  or 
would  they  resent  that? 

Mr.  Doak.  They  have  to  be  subject  to  a  little  inspection  in  dairy- 
ing, for  instance,  already. 

Mr.  Platt.  You  do  not  see  that  there  would  be  any  serious  objec- 
tion to  that? 

Mr.  Doak.  I  do  not  take  too  kindly  to  a  Government  supervision, 
but  I  think  we  would  have  to  submit  to  it;  we  would  be  willing  to, 
for  we  would  be  better  off  than  under  present  conditions.  Some- 
thing has  to  be  done  for  the  farmer.  Farming  is  in  a  bad  way,  and 
there  is  no  question  in  my  mind  but  that  it  is  getting  worse  all  the 
time. 

Mr.  Platt.  These  farms  that  are  being  abandoned — are  they  mort- 
gaged ? 

Mr.  Doak.  I  say  "  abandoned  " — there  is  no  land  in  Virginia  that 
nobody  pays  taxes  on,  but  it  is  land — say  a  man  owns  500  or  1,000 
acres;  he  probably  may  have  two-thirds  of  it  that  is  virtually  aban- 
doned; it  is  not  fenced,  not  stocked,  and  nothing  in  the  world  done 
with  it ;  it  is  impossible  for  him  to  do  anything  with  it  under  present 
conditions ;  there  is  no  crop  put  on  it. 

Mr.  Platt.  He  might  sell  it  to  somebody  who  can  use  it. 

Mr.  Doak.  Who  would  he  sell  it  to  ?  There  are  more  people  selling 
than  buying,  I  reckon. 

Mr.  Platt.  Is  it  the  tendency  in  Virginia  to  split  up  the  larger 
farms  ? 

Mr.  Doak.  Generally  speaking.  Of  course  there  are  certain  sec- 
tions which  are  prospering;  there  is  no  question  about  that. 

Mr.  Platt.  Is  it  the  tendency  to  split  up  the  larger  farms? 

Mr.  Doak.  I  think  the  farms  are  inclined  to  grow. 

Mr.  Platt.  They  are  more  inclined  to  grow  ? 

Mr.  Doak.  In  size,  anyway. 

The  place  adjoining  my  farm  has  been  in  the  hands  of  nonresident 
owners  30  years.  To  the  best  of  my  knowledge,  they  have  never  set 
a  post,  planted  a  crop,  or  put  any  stock  thereon.  Although  nearer 
the  town,  more  level  in  contour,  heavier  timbered,  and  slightly  deeper 
in  soil,  hence  of  greater  inherent  value,  therefore  in  justice  it  should 
pay  the  most  taxes.  On  the  contrary,  taxes  on  my  farm  have  been 
raised  until  it  is  paying  four  times  what  the  other  does.  On  the 
other  side  two  other  farmers  have  recently  left.     These  places  all 

37031—14 43 


674  RURAL   CREDITS. 

had  comfortable  houses,  which  are  empty  all  the  while,  and  are 
a\  it hin  a  day's  drive  of  the  National  Capital. 

Easier  money  will  enable  people  already  in  the  country  to  take 
over  most  of  these  practically  abandoned  places  and  stock  them  up 
with  sheep  and  cattle  for  grazing  purposes,  thus  greatly  increasing 
supplies  of  beef  and  mutton  and  relieving  the  people's  demand  for 
meat,  which  is,  and  will  continue  to  be,  the  most  acute  problem  of 
the  high  cost  of  living. 

Where  soil  is  adapted  to  intensive  culture  and  high  acreage  pro- 
duction can  be  maintained  every  year,  small  holdings  are  advisable. 
On  the  other  hand,  most  of  Virginia  and  other  Eastern  States  are 
hilly  or  mountainous  and  better  suited  to  grazing  than  cultivation. 
It  has  been  clearly  established  that  even  for  general  farming  a  place 
of  less  than  400  acres  is  not  an  economic  unit,  while  for  grazing  con- 
siderably more  is  indicated.  Physical  conditions  must  be  allowed  to 
determine  whether  holdings  of  land  be  made  larger  or  smaller. 

Mr.  Platt.  In  spite  of  the  fact  that  a  great  many  farmers  can 
not  use  all  their  land  ? 

Mr.  Doak.  They  are  more  likely  to  grow  than  not.  It  is  this  way : 
Some  people  have  an  idea  that  land  is  advancing,  you  know.  People 
will  sacrifice  to  hold  it,  hoping  that  somebody  will  come  in  and  buy 
it.  I  do  not  know  what  the  figures  are,  but  I  think  there  is  more 
increase  in  size  than  otherwise.    Dr.  Coulter  can  say. 

Mr.  Platt.  I  do  not  mean  according  to  the  census  figures ;  I  mean 
from  your  observation  of  your  own  country. 

Mr.  Doak.  Yes. 

Mr.  Platt.  People  are  buying  more  land  instead  of  splitting  up 
larger  farms? 

Mr.  Bulkley.  I  wish  you  would  tell  us  how  far  you  feel  satis- 
fied with  the  Fletcher-Moss  bill,  and  what  changes  you  would  sug- 
gest in  it. 

Mr.  Doak.  I  am  not  a  banker  or  a  lawyer,  and  I  do  not  make 
any  specific  recommendation. 

Mr.  Bulkley.  Never  mind  the  exact  language. 

Mr.  Doak.  It  seems  to  me  to  be  a  right  good  bill.  I  am  not  ob- 
jecting to  it  in  any  particular. 

Mr.  Bulkley.  I  do  not  mean  in  exact  language,  Mr.  Doak;  I  mean 
broadly  what  your  criticisms  would  be. 

Mr.  Doak.  I  do  not  know  that  I  have  any  particular  criticisms. 
We  voted  to  indorse  it  just  as  it  stood.  A  20  per  cent  minimum  on 
capital  stock,  viz,  $2,000  loan  from  a  $10,000  bank  would  leave  out 
the  majority  of  our  farms,  as  they  sell  from  $4,000  to  $20,000  each. 
Might  not  this  be  modified  so  a  few  of  these  larger  propositions 
might  be  handled  from  the  start? 

Mr.  Platt.  You  think  a  little  bank  would  be  organized  with 
$10,000  capital? 

Mr.  Doak.  I  do  not  think  there  is  an}'  question  about  it. 

Mr.  Platt.  Do  you  think  the  farmers  could  organize  it  themselves? 

Mr.  Doak.  Yes,  sir. 

Mr.  Platt.  They  could  finance  it? 

Mr.  Doak.  I  think  the  farmers  would  put  up  the  money. 

Mr.  Bulkley.  Would  the  farmers  buy  these  bonds? 

Mr.  Doak.  The  farmers  might.  They  put  money  out  now.  too, 
through  their  lawvers.     A  woman  has  an  estate  left  her.  and  the 


SURAL   CREDITS.  675 

lawyer  gets  the  money — gets  5  per  cent,  quite  a  nice  little  fee  on  a 
$5,000  loan.  That  money  would  go  into  farm-land  bonds.  There 
is  no  question  in  the  world  in  my  mind  but  that  they  would  sell 
all  right,  and  she  would  get  just  as  much  and  get  more,  in  fact, 
because  those  bonds  would  be  exempt  from  taxation.  Our  rate  is 
$1.40.  I  think  that  is  what  it  is.  That  has  to  come  out,  as  it  is, 
of  the  6  per  cent.  You  see  it  cuts  both  ways.  It  is' just  like  this: 
A  man  puts  in  his  money  on  a  land  bond,  and  he  would  not  get  any 
more  than  4^  per  cent.  The  tax  rate  sometimes  runs  as  high  as 
$1.70  in  some  countries.  You  see  it  is  only  4^  per  cent,  or  a  little 
less  than  that,  is  all  they  actually  get  on  the  money. 

Mr.  Platt.  Are  mortgages  taxed  in  Virginia? 

Mr.  Doak.  Oh,  yes;  land  tax.  The  banker  seems  to  be  laboring 
under  the  impression  that  he  is  subjected  to  hardships,  but  he  has 
no  hardships  at  all.  The  farmer's  cattle,  sheep,  and  hogs,  and 
everything  on  the  place  is  his  stock  in  trade,  and  he  has  got  to  pay 
a  tax  on  it.  Demand  deposits  in  the  bank  is  the  banker's  stock  in 
trade,  but  he  does  not  pay  any  tax  on  it. 

Senator  Hollis.  The  banker  has  to  pay  a  tax  on  deposits  in  the 
bank,  if  he  has  in  his  vault  enough  to  come  in  under  the  law. 

Mr.  Doak.  The  legislature  just  passed  a  law  in  Richmond  which 
sa37s  only  20  cents  on  $100. 

Senator  Hollis.  Twenty  per  cent  ? 

Mr.  Southgate.  It  had  been  $1.25  prior  to  the  time  it  was  made 
20  per  cent. 

Mr.  Platt.  I  did  not  know  that  bank  deposits  were  taxed  in  any 
State. 

Senator  Hollis.  I  have  to  turn  in  every  year,  to  show  how  much 
money  I  have  in  the  bank,  and  I  do  it.  every  cent;  I  take  it  out  of 
my  bank  balance. 

Mr.  Plait.  That  does  not  obtain  in  New  York  State. 

Mr.  Doak.  They  have  not  been  doing  it  in  Virginia.  I  went  down 
to  Richmond  one  day  and  there  was  about  $60,000,000  in  bank  and  they 
reported  some  $600,000— $120,000.  That  is  about  all  that  was  re- 
ported. So  that  you  see  the  bank's  money  has  never  been  taxed, 
strictly  speaking. 

Senator  Hollis.  You  see  a  bank  might  have  deposits  of  $1,000,000 
and  notes  and  discounts  of  $1,000,000.  and  only  20  per  cent  of  that 
actually  in  the  vault,  on  hand,  so  that  they  might  be  perfectly 
square  in  that.  I  think  that  is  right.  They  would  be  taxed  on  what 
they  actually  had  on  hand. 

Mr.  Doak.  I  can  not  agree  with  that.  I  remember  being  down  in 
Richmond  when  Auditor  Moore  was  making  that  campaign  to  tax 
bank  deposits.  I  am  giving  it  offhand,  but  the  figures  are  approxi- 
mately correct  at  any  rate.  There  were  about  $60,000,000  on  deposit 
in  the  banks  in  Richmond  the  day  they  returned  some  $500,000  or 
$600,000 — less  than  one-hundredth'actually  returned  for  taxation. 

Mr.  Platt.  If  you  taxed  the  bank  deposits,  you  would  tax  about 
ten  or  eleven  times  more  money  than  there  is  in  existence  in  the 
United  States,  because  the  bank  deposits  amount  to  I  don't  know  just 
exactly  how  many  times  the  actual  currency  in  existence;  but  the 
amount  of  currency  in  existence  is  about  $3,500,000,000.  and  the  bank 
deposits  how  much  ? 

Senator  Hollis.  $17,000,000,000. 


676  RURAL   CREDITS. 

Mr.  Plait.  $17,000,000,000.  In  other  words,  the  bank  deposits 
are  the  amount  loaned,  and  not  the  real  money. 

Mr.  Southgate.  Under  the  law  the  amount  that  is  on  deposit  is 
offset  by  what  is  loaned.  A  man  has  to  use  the  money  for  loaning 
and  for  all  kinds  of  purposes.  You  can  not  take  a  thing  of  that  kind 
and  say  you  are  going  to  produce  figures  thus  and  so. 

Mr.  Doak.  I  notice  the  court  figured  on  that  the  other  day,  and 
they  ruled  that  the  bank  would  have  to  pay.  The  contention  there 
was  that  it  was  mostly  borrowed  money,  and  that  they  ought  not  to 
pay  taxes,  because  they  borrowed  the  money,  but  the  court  required 
them  to  pay. 

Mr.  Bathrick.  I  would  like  to  ask  this  gentleman  one  question. 
1  was  interested  in  your  statement  that  a  good  many  farms  in  Vir- 
ginia are  permitted  to  lie  out.  I  believe  that  is  the  expression  that 
they  use.  Yen  said  that  that  condition  is  existing  and  growing,  as 
I  understand,  in  your  State,  where  the  farmers  get  money  at  5  and  6 
per  cent.     Did  you  say  you  got  the  money  at  5  or  6  per  cent  ? 

Mr.  Doak.  Six  per  cent. 

Mr.  Bathrick.  What  do  you  think  would  happen— would  that 
condition  increase  to  a  greater  extent,  of  farms  lying  out  and  being 
abandoned,  so  far  as  production  is  concerned,  if  you  had  to  pay 
from  10  to  20  per  cent  ? 

Mr.  Doak.  Yes.  sir;  I  think  so.  It  certainly  would  strike  me 
that  way.     I  am  one  farmer  that  would  quit  the  farm  anyway. 

Mr.  Bathrick.  You  believe  it  would  be  disastrous  to  production 
if  you  had  to  pay  10  to  20  per  r>ent  ? 

Mr.  Doak.  Yes.  sir. 

Mr.  Bathrick.  Do  you  think  it  would  be  possible  to  develop  an 
agricultural  district,  however  rich  it  may  be.  if  the  fanners,  in 
order  to  develop  that  country,  have  to  pay  10  to  20  per  cent  interest 
on  their  capital?     Do  you  think  it  is  practicable  and  possible? 

Mr.  Doak.  To  develop  the  land  ? 

Mr.  Bathrick.  Yes.,  sir. 

Mr.  Doak.  There  are  so  many  things  we  have  to  consider;  land 
might  be  so  very  much  better  than  our  land,  and  the  location  might 
be  better  and  the  labor  cost  might  be  lower,  so  I  would  not  commit 
myself  without  knowing  more  of  the  details. 

Mr.  Bathrick.  Take  conditions  with  which  you  are  familiar: 
do  you  think  it  would  be  possible  to  develop,  to  any  particular  ex- 
tent, agricultural  areas  where  the  farmer,  as  a  general  thing,  has  to 
pay  from  10  to  20  per  cent  for  money? 

Mr.  Doak.  Do  you  mean  to  say  do  t  think  it  can  be  done  in  Vir- 
ginia? 

Mr.  Bathrick.   Yes :  in  the  land  markets  you  are  familiar  with. 

Mr.  Doak.  Xo:  T  do  not. 

Mr.  Platt.  How  much  do  you  suppose  the  commission  would  be 
that  would  be  paid  in  Virginia  by  a  farmer  when  he  first  issued  his 
mortgage  ? 

Mr.  Doak.  For  a  loan  running  as  long  as,  say,  5  years,  for  instance, 
a  man  pays  a  commission  of  $'>0  per  $1,000.  and  spreads  that  over 
the  number  of  years. 

Mr.  Platt.  Reckoned  down  to  percentages,  would  it  amount  to 
more  than  1  per  cent  increase  in  the  interest? 

Mr.  Doak.  Fully  1  per  cent  and  probably  more. 


RURAL   CREDITS.  677 

Mr.  Platt.  Then  the  farmer  is  really  paying  considerably  over 
7  per  cent? 

Mr.  Doak.  Considerably  over  7  per  cent,  because  there  is  the 
abstract  of  title  to  be  drawn,  and  at  times  there  is  a  resurvey  and 
abstract  of  title,  and  that  runs  the  rate  up.  By  the  way,  every  time 
you  sell,  buy,  or  borrow  on  land  you  have  got  a  fee  to  pay  a  lawyer; 
you  have  got  to  have  an  abstract  of  title,  deed,  etc. 

Mr.  Bulkley.  Is  there  anything  else  you  wanted  to  say,  Mr. 
Doak?     Have  you  concluded? 

Mr.  Doak.  Yes,  sir.     I  thank  you  very  much. 

Mr.  Bulkley.  Mr.  Southgate.  do  you  want  to  add  something  to 
what  you  have  said  ? 

Mr.  Southgate.  I  wanted  to  try  and  clear  up,  in  just  two  or  three 
minutes,  Mr.  Chairman,  the  subject  that  Mr.  Doak  seemed  to  be 
mixed  on,  to  some  extent,  the  difference  between  the  personal-credit 
side,  as  bearing  en  the  question,  and  my  conception  of  the  land-mort- 
gage bank,  and  I  have  it  in  print  here,  a  preliminary  report  that  I 
made,  and  I  would  like  to  read  it  to  show  my  own  view  of  how  I 
hope  that  this  thing  would  greatly  benefit  the  farming  interests.  I 
do  not  think  it  would  take  five  minutes.  This  was  written  a  month 
after  we  returned  from  Europe. 

Norfolk.  Ya..  September  22,  J913. 
Hon.  William  Hodges  Mann, 

Governor  of  Virginia,  Richmond,  Ya. 

Dear  Sir  :  Iu  keeping  with  your  appointment  to  membership  in  the  American 
commission  formed  by  the  Southern  Commercial  Congress  for  the  purpose  of 
accepting  the  invitation  to  the  principal  countries  of  Europe  extended  the 
Southern  Commercial  Congress  through  the  International  Institute  of  Agricul- 
ture at  Rome,  Italy,  to  study  the  existing  systems  of  agriculture  cooperation 
and  finance : 

I  went  to  Europe,  without  cost  to  the  Slate,  as  a  member  of  said  commission, 
which  body  consisted  of  2  representatives  each  from  36  States  of  the  Union 
and  of  4  Provinces  of  the  Dominion  of  Canada,  and  also  of  7  Federal  com- 
missioners appointed  by  the  President  of  the  United  States. 

The  joint  work  of  the  commission  covered  3  months  of  active  labor,  10  hours 
each  day,  as  may  be  seen  when  it  is  advised  that  very  thorough  investigations 
were  made  in  Italy,  Hungary,  Austria,  Russia,  Egypt,  Germany,  Switzerland, 
France,  Belgium,  Denmark,  Sweden,  England,  and  Ireland. 

The  commission  was  graciously  received  in  every  instance  by  the  Governments 
of  these  respective  countries,  who,  by  prearrangement,  were  ready  with  experts 
from  national  and  local  institutions,  officers  of  central  societies,  eminent  econo- 
mists, bankers,  specialists  in  agricultural  development,  etc..  all  of  whom  gave 
valuable  testimony  which  otherwise  it  would  have  taken  the  commission  months 
to  secure,  and  thus  to  have  covered  such  a  field  would  have  been  practically 
impossible  in  so  short  a  period  of  time. 

So  important  and  far-reaching  have  been  the  results  of  the  research  that  by 
and  with  the  consent  of  President  Wilson  the  American  commission  has  become 
a  permanent  body,  to  continue  its  labors  for  general  welfare  and  rural  uplift, 
electing  the  following  as  its  officers:  Senator  Duncan  U.  Fletcher,  of  Florida, 
president;  Dr.  Kenyon  L.  Rutterfield.  of  Massachusetts,  vice  president;  Thomas 
S.  Southgate,  of  Virginia,  vice  president:  Harris  N.  Weinstock.  of  California, 
vice  president;  Clarence  J.  Owens,  of  Maryland,  managing  director. 

The  offices  of  the  commission  will  be  in  Washington,  D.  C.  Two  committees 
have  been  duly  appointed,  viz:  Committee  on  compilation  of  official  report; 
advisory  board  to  the  compiling  committee. 

These  committees  are  charged  with  the  duty  of  assembling  and  compiling  the 
official  report  for  the  people  of  the  United  States.  It  is  hoped  that  this  report 
may  be  ready  for  distribution  during  the  fall  or  winter  of  this  year. 

Irrespective  of  this  official  report,  I  have  thought  it  courteous,  as  well  as 
obligatory,  to  render  you  direct  a  brief  report,  in  view  of  being  for  the  time 
the  agent  of  the  State,  and  this  will  be  done  in  the  briefest  possible  manner 


678  RURAL   CREDITS. 

to  be  at  all  useful  or  comprehensive,  and  it  will  be  purely  a  personal  expression 
of  my  own  opinion  and  in  no  manner  having  connection  with  the  official  expres- 
sion of  the  commission  as  a  body. 

First,  lei  it  be  said  that  uniformly  in  all  countries  of  Europe  agricultural 
development  is  far  in  advance  of  that  to  which  our  American  farmers  have 
yet  attained.  Not  because  European  farmers  possess  a  larger  degree  of  intelli- 
gence— in  fact,  this  is  to  the  contrary — but  the  reasons  for  this  difference  are 
along  other  linos  and  are  most  obvious: 

First.  The  high  cost  of  living  and  the  necessity  for  furnishing  food  for  over- 
populous  areas  make  it  the  most  vital  and  far-reaching  concern  of  the  Govern- 
ments themselves;  hence  their  direct  assistance. 

Second.  One  of  the  fundamentals  of  political  economy  is  that  a  nation 
which  can  produce  a  surplus  of  life's  necessities  immediately  and  automatically 
places  itself  in  an  independent  position  and  becomes  a  factor  among  other 
nations  as  a  world  power;  hence  the  Government's  additional  incentive. 

Third.  The  struggle  of  the  Governments  of  Europe  to  prevent  the  balance  of 
commerce  from  being  invariably  against  them  by  reason  of  the  constant  need 
for  the  importation  of  foodstuffs  to  feed  their  people. 

Fourth.  The  vital  need  for  improving  rural-life  conditions,  not  only  to  keep 
men  on  farms,  but  to  prevent  socialistic  unrest,  so  pronounced  in  many  parts 
of  Europe.  These  Governments  believe  firmly  that  the  higher  the  ideals  of 
country  life  the  higher  the  type  of  citizenship  which  will  inevitably  result 
therefrom. 

This,  then,  is  a  brief  outline  of  why  this  development  has  exceeded  ours, 
which  naturally  leads  to  a  statement  of  the  fact  "  Of  what  do  these  advanced 
methods  consist?  " 

First.  A  genuine  system  of  cooperation  for  mutual  aid  and  betterment  in 
finance,  production,  and  marketing. 

Second.  Intensifying  of  acreage  and  yield  by  the  application  of  better  and 
more  improved  methods. 

Third.  The  strenuous  conservation  of  every  phase  of  resource.  (They  say 
we  waste  more  than  they  produce.) 

Fourth.  Educating  the  farmer  to  business  methods  in  buying  and  selling  and 
handling  his  records  and  accounts. 

Fifth.  In  the  continued  thought  for  rural  uplift  work.  The  inaugurating  of 
cooperative  schools,  even  churches,  clubrooms.  amusement  halls,  libraries,  play- 
grounds, etc. 

To  analyze  these:  First,  in  regard  to  cooperative  effort  in  finance,  marketing, 
and  production.  There  are  three  popular  systems  of  banking  which  should  be 
mentioned,  because  they  are  fundamentally  the  basis  or  starting  point  of  all 
cooperation:  (1)  The  Raiffeisen  system  of  •"unlimited  liability":  (2)  the 
Schulze-Delitzsch  system  of  "limited  liability";  (3)  the  general  "land-mort- 
gage" system  with  amortization  features. 

The  Raiffeisen  system  of  rural  banking  operates  as  follows:  A  community, 
neighborhood,  or  county  organize  themselves  into  a  cooperative  banking  society 
without  capita]  stock;  the  membership  of  these  organizations  average  from 
24  to  40  each.  When  one  man  wishes  to  borrow,  the  obligation  is  upon  him 
to  satisfy  the  loan  committee  of  the  bona  fide  need  which  he  may  have.  This 
done,  the  note  or  bill  is  made  in  the  name  of  the  society,  and  every  member  is 
thus  bound  for  the  payment  of  the  loan  of  the  one  so  borrowing.  This  note  or 
bill  is  rediscounted  with  an  affiliated  State  bank,  several  of  which  in  each 
country  act  as  agents  for  the  country  societies  both  to  receive  their  deposits 
and  furnish  funds  for  their  loans.  The  country  bank  borrows  its  money  from 
the  State  institution,  usually  at  4h  to  5£  per  cent,  and  in  extending  its  loan  to 
its  customer  adds  one-half  of  1  per  cent  to  cover  the  expenses  only,  as  these 
country  banks  are  not  operated  for  profit  but  only  in  and  for  mutual  benefit 
and  protection. 

The  second  system,  thai  of  the  Schulze-Delitzsch,  is  identical  with  the 
Raiffeisen  system,  except  that  these  banks  or  societies  are  founded  with  share 
capital  and  are  called  "  limited  liability  "  hanks.  When  loans  are  granted 
members,  the  security  to  the  State  or  discounting  hank  is  the  entire  capital 
stock  of  the  country  hank  or  society  first;  then  the  prorated  remaining  lia- 
bility of  the  stock  members  second. 

The  third  system  has  but  little  direct  connection  with  either  of  the  others, 
[t  is  less  cooperative,  but  is  of  all  factors  used  in  Europe  the  most  potential 
in  the  development  of  general  agriculture,  viz.  the  "land-mortgage"  system. 
These  institutions  are  very   large  and  influential,   with  capital  stocks  ranging 


RURAL   CREDITS.  679 

from   $10,000,000   to   $100,000,000.    which   capital    is    used    to    perform    but    one 
function;  that  is.  the  loaning  of  money  on  farm-land  mortgage. 

It  will  he  readily  observed  that  these  two  separate  styles  of  banking  insti- 
tutions render  two  separate  but  nevertheless  very  important  functions. 

In  the  first  (the  Raift'eisen  or  Schulze-Delitzsch  system)  the  loans  to  af- 
filiated members  are  all  short-time  loans,  payable  usually  within  the  year,  at 
harvest;  this  style  of  money  is  called  by  them  "dynamic,"  because  it  assists 
in  immediate  results,  enabling  the  borrower  to  buy  new  equipment,  to  pur- 
chase stock,  to  build  barns,  to  save  growing  crops,  to  do  all  those  things  for 
the  individual  farmer  that  ready  money  does  for  the  merchant.  Not  only 
this,  but  more :  These  cooperative  banking  societies  borrow  money  frequently 
for  the  benefit  of  their  members  jointly.  For  instance,  suppose  an  affiliated 
society  wishes  to  build  for  themselves  a  tobacco  warehouse  in  which  to  con- 
duct its  own  sales,  or  a  cotton  storage  warehouse  or  gin,  or  a  cooperative 
dairy;  it  borrows  the  money  for  the  benefit  of  all.  The. same  committee  fixes 
a  low  uniform  charge  for  its  use.  As  the  public  utility  earns  slowly  a  profit 
in  its  operations,  the  joint  note  is  gradually  curtailed  and  finally  disposed  of 
without  one-third  the  cost  for  its  (the  public  utility's)  service  to  any  member 
that  would  result  iii  shipping  as  individuals  the  various  products  to  city  com- 
mission men  or  otherwise:  and  thus  cooperative  marketing  follows  as  naturally 
as  possible  and  great  economies  invariably  result. 

But  further  still,  this  same  society,  through  its  executive  committee,  pools 
the  need  of  its  members  for  fertilizer,  machinery,  stock  and  other  basic  essen- 
tials and  thus  buys  in  large  quantities  for  cash  from  the  discount  of  its  note 
or  bill,  and  each  member  pays  as  his  interest  may  appear.  The  result  is  the 
society  buys,  for  instance,  the  general  individual  products  of  fertilizer,  assem- 
bles them,  and  mixes  the  constituent  parts,  according  to  National  and  State 
formulas  readily  furnished  by  the  Government,  with  the  result  that  the 
member  farmer  effects  large  saving  in  buying  cost ;  he  ceases  to  pay  the  large 
percentage  of  filler;  he  quits  paying  the  railroads  of  the  country  $2  to  $5  per 
ton  freight  on  the  weight  of  the  filler  that  is  of  no  use  to  him  ;  and  thus  it  will 
be  seen  something  of  what  European  cooperative  production  means. 

These  are  only  mere  outlines  of  what  may  be  done  by  these  small  banking 
community  societies,  the  full  force  of  which  may  be  appreciated  by  the  state- 
ment that  in  Germany  alone  the  societies  using  the  two  systems  I  Raiffeison 
and  Shulze-Delitzschf  did  a  business  in  1912  of  $4,500,000,000,  and  other  sys- 
tems were  used  in  addition. 

These  figures  are  from  Government  records,  which  also  testify  that  this 
wonderful  amount  of  business  was  handled  on  cooperative  responsibility  with- 
out the  loss  of  one  one-hundredth  of  1  per  cent.  Surely,  then,  this  class  of 
mone  has  rightfully  earned  the  terminology  of  "dynamic." 

Now,  the  third  important  system,  viz,  the  "land  mortgage"  bank,  performs 
also  a  wonderful  service  and  can  possibly  be  briefly  illustrated  as  follows. 
This  form  of  money  is  termed  "  static  "  : 

A  farmer  who  is  a  renter,  or  who  may  be  working  on  shares,  as  so  many  do. 
saves  a  small  amount  and  wishes  to  become  an  owner.  He  prepares  to  buy  a 
$5,000  farm.  He  pays  40  per  cent  cash  on  it,  or  $2,000.  and  gives  his  mortgage 
for  $3,000.  He  decides  that  it  will  take  20  years  for  him  to  liquidate  his  loan. 
The  bank  takes  his  mortgage  on  the  amortization  or  sinking-fund  basis  only, 
and  charges  him  4  per  cent  flat  for  his  money,  plus  an  amount  that  will 
amortize  the  loan  in  the  period  of  time  he  desires.  For  instance,  if  4  per  cent 
be  the  basis  (as  it  is  in  most  all  parts  of  Europe,  and  4-£  per  cent  in  some  sec- 
tions), he  will  pay  as  follows:  For  20  years,  7.65  per  cent;  for  15  years,  9.35 
per  cent;  for  10  years,  11.85  per  cent. 

He  has  thus  paid  a  rate  of  interest  which  he  can  earn  readily,  and  in  many 
cases  no  more  than  ordinary  rent  would  otherwise  be;  and  at  the  end  of  this 
period  his  mortgage  is  paid  and  his  property  has  doubled  in  value  in  the  mean- 
time. The  illustration,  of  course,  applies  to  the  large  farmer  as  well,  who  may 
own  100  acres  and  wishes  to  buy  200  more;  he  simply  follows  the  same  course. 
The  governments  of  Europe  say  that  these  institutions  not  only  assist  greatly 
in  making  the  rural-life  proposition  sufficiently  attractive  to  induce  larger  pro- 
duction, but  that  they  perform  a  great  sociological  service  as  well,  for  any 
system  which  helps  to  make  an  owner  out  of  a  tenant  or  hired  man  contributes 
to  an  incalculable  degree  to  the  citizenship  of  the  State  or  nation,  and  hence 
the  governments  feel  keeitfy  the  obligation  to  assist,  foster,  and  promote  these 
institutions  wherever  they  are  needed. 


680  RURAL   CREDITS. 

This,  then,  is  but  a  brief  outline  of  what  is  really  meant  by  European  cooper- 
ative rural  finance,  as  referred  to  above  in  section  1. 

As  to  section  2 — the  intensifying  of  acreage  and  yield — not  a  great  deal  can 
be  said,  for  this  is  a  story  which  is  already  being  constantly  agitated  by  the 
agricultural  departments  of  all  the  States,  as  well  as  by  the  department  of  the 
National  Government.  Suffice  it  to  say  the  yield  need  is  s<>  great  that  the  most 
of  these  farms  are  made  to  produce  two  separate  crops  at  the  same  time;  in 
some  instances,  two  vegetables  on  one  large  flat  row  with  fruit  or  vine  culture 
above. 

They  also  study  constantly  the  intelligent  application  of  fertilizer  and  employ 
the  most  scientific  methods  of  cultivation  and  irrigation  when  necessary. 

In  the  matter  of  conservation,  it  would  be  difficult  to  recite  in  print  the 
degree  of  care  and  thought  applied  by  these  people  to  this  one  phase  of  farm 
operation,  and  surely  there  is  no  lesson  our  Virginia  farmers  need  to  learn  for 
their  own  profit  more  than  that  which  this  phase  teaches.  European  farmers 
believe  that  everything  produced  has  a  value,  and  use  effectively  every  by- 
product. They  raise  that  which  they  need  for  their  own  use,  as  also  that  of 
their  stock.  They  also  employ  the  idea  of  cooperative  selling,  as  explained 
above. 

Further,  as  to  sections  4  and  5,  it  must  be  admitted  that  the  application  of 
intelligent  business  methods  is  a  desirable  foundation  for  any  line  of  endeavor, 
and  should,  theoretically  at  least,  apply  to  the  farmer  as  well  as  to  other  avoca- 
tions in  life.  This  is  where  cooperative  rural-community  work  has  such  an 
effective  opportunity  to  teach  and  spread  broadcast  among  its  affiliated  mem- 
bership reforms  of  this  character. 

Men  are  slaves  of  rut,  habit,  and  custom ;  hence  when  a  few  strong  leaders 
of  any  rural  community  take  advanced  stands  for  the  public  good,  it  is  not 
difficult  to  get  others  to  readily  follow. 

Many  forceful  illustrations  of  this  idea  were  found  in  the  rural  sections  of 
Italy,  Austria,  and  Germany,  where  country  life  has  been  raised  to  a  happy, 
contented,  and  attractive  state,  which  is  the  direct  result  of  the  various  forms 
of  community  life  made  possible  by  genuine  cooperative  effort  along  all  lines. 

SUMMARY. 

This,  then,  is  but  the  briefest  possible  outline  of  what  European  cooperative 
rural  effort  means,  and,  as  stated  above,  will  be  treated  far  more  comprehen- 
sively in  the  commission's  official  report  when  issued. 

In  conclusion  permit  me  to  say  that  I  appreciate  to  the  fullest  extent  that 
I  was  not  instructed  by  the  State  to  make  recommendations  as  a  result  of  the 
study  of  this  subject  fyet  if  some  suggestion  as  to  a  possible  plan  of  action 
to  use  some  of  the  striking  features  developed  be  not  made,  the  question  arises 
as  to  the  purpose  of  attending  at  all.  Hence  the  following  suggestions  are 
made  solely  as  such;  and  if  there  be  any  practicality  in  them,  I  shall  be  glad 
and  feel  fully  repaid  for  the  sacrifice  of  time  and  means  employed. 

SUGGESTIONS. 

First.  At  the  forthcoming  session  of  the  legislature  a  commission  should  be 
raised,  of  which  the  commissioner  of  agriculture  should  be  either  chairman  or 
a  member;  the  purpose  of  said  commission  being  to  personally  visit  all  magis- 
terial districts  of  the  State  and  spread  broadcast  among  the  farmers  of  same 
this  new  and  progressive  method  of  finance  and  marketing. 

Rural  banking  societies  should  then  and  there  be  formed,  either  with  or 
without  share  capital  contributed  by  the  farmers  themselves.  Those  society 
banks  should  then  clear  through  and  deposit  with  a  parent  bank  of  the  State, 
centrally  located,  either  some  institution  now  in  existence  or  hereafter  to  be 
formed  for  the  purpose. 

Absolutely  advocating  exactly  what  I  have  spoken  of  to-day, 
making  a  commission  for  the  State,  at  this  present  session  of  the 
legislature,  to  stand  between  the  farmer  and  the  market,  yet  that 
has  nothing  to  do  with  mortgage  banks  no  more  than  this  piece  of 
wood,  because  you  can  not  float  bonds  that  come  from  land-mort- 
gage banks,  unless  you  have  got  a  system  to  them  that  will  commend 


RURAL  CREDITS.  681 

them  to  the  fiduciary  agencies  that  are  going  to  buy  them.  That  is 
why  I  wanted  to  clarify  the  two  things  or  conditio])-  that  are  so 
essential  for  the  farmers'  good. 

Second.  By  all  means  the  farmers  of  the  State  should  have  new  and  im- 
proved facilities  for  using  a  land-mortgage  system  with  long  time  amortization 
features  for  the  purpose  of  acquiring  additional  land  and  also  to  assist  tenants 
to  become  owners. 

It  is  hoped  that  as  a  result  of  the  Fletcher  bill  already  introduced  in  Con- 
gress such  a  great  national  institution  may  be  formed,  with  branches  located 
centrally  in  every  State.  It  is  proposed  by  this  bill  that  such  land-mortgage 
bank  shall  be  run  under  strictest  Government  supervision  and  not  for  profit ; 
on  the  contrary,  to  afford  the  farmer  the  opportunity  to  borrow  money  on  the 
lowest  possible  interest  basis.  If  Virginia  is  to  have  access  to  such  an  institu- 
tion it  will  no  doubt  be  necessary  to  have  an  intelligent  reconstruction  of  our 
present  homestead,  registration,  and  other  lanci  laws. 

Third.  An  outright  repeal  of  the  State  and  other  taxes  on  land  mortgages. 
In  no  country  of  Europe  does  such  a  tax  exist.  The  elimination  of  it  is  really 
one  of  the  fundamental  prerequisites  to  cheap  money  to  the  farmer. 

With  the  filling  of  this  report,  which  is  most  respectfully  submitted,  my  com- 
mission is  thus  fulfilled. 

I  only  arose  to  take  that  six  or  eight  minutes  to  clarify  the  dif- 
ferences between  those  two  forms  of  money  which  are  all  over  Europe. 
One  is  called  static  and  one  is  called  dynamic,  and  they  are  just  as 
different  as  it  is  possible  for  money  to  be. 

Mr.  Bulkley.  You  have  touched  two  or  three  times  on  the  subject 
of  Government  aid  or  subsidy  to  personal-credit  societies. 

Mr.  Southgate.  Over  there,  do  you  mean,  or  here. 

Mr.  Bulkley.  Well,  I  think  you  talked  about  it  over  there,  but  I 
would  like  to  get  your  view  of  what  we  can  learn  from  foreign  ex- 
perience, in  view  of  adopting  it  here. 

Mr.  Southgate.  I  do  not  believe  that  it  is  necessary  or  desirable 
to  affiliate  here  to  that  extent,  because  the  Federal  board  will  pass 
upon  those  mortgages  and  will  make  their  face  value  absolutely 
beyond  question. 

Mr.  Bulkley.  Do  you  think  it  advisable  to  deposit  postal  savings 
funds  in  those  banks? 

Mr.  Southgate.  No,  sir.  I  think  that  every  national  bank  and 
every  depository  of  the  United  States  Government  should  be  author- 
ized to  accept  the  land-mortgage  bonds  in  lieu  of  Government  bonds, 
to  secure  deposits. 

Mr.  Bulkley.  You  said  that,  but  how  about  putting  postal  savings 
funds  in  land-mortgage  banks  ? 

Mr.  Southgate.  I  think  it  is  absolutely  improper,  because  the 
Government  should  have  the  money  where  it  can  withdraw  it  if  it 
wants  to. 

Mr.  Bulkley.  Do  you  think  it  would  be  impossible  for  the  Gov- 
ernment to  deposit  postal  savings  funds  with  the  land-mortgage 
banks  for  the  purpose  of  assisting  them  in  raising  a  reserve  fund? 

Mr.  Southgate.  I  think  it  would  be  very  much  better  if  the  Treas- 
ury Department  would  issue  a  ruling,  if  it  could  do  so  without  con- 
gressional enactment,  to  the  effect  that  money  deposited  in  the 
present  depositories  for  postal  savings— that  the  Government  would 
accept  land-mortgage  bonds  as  security  for  those  deposits,  where 
they  now  require  certain  forms  of  commercial  paper  or  Government 
bonds. 


682  RURAL    CREDITS. 

Mr.  Bulkjley.  Can  you  tell  us  briefly  why  it  is  undesirable  for  the 
Government  in  this  country  to  aid  these  banks  when,  as  a  matter  of 
fact,  very  many  foreign  Governments  are  doing  it? 

Mr.  Southgate.  They  do  not  do  it  per  se.  They  may  do  it- in- 
directly. Perhaps  some  of  these  gentlemen  who  were  there  may  know 
of  that.  If  the  current  money  rate  in  Italy  is  4  per  cent,  the  Gov- 
ernment will  loan  these  great  institutions  money  for  2^  per  cent.  It 
is  equivalent  to  a  subsidy  of  the  differences  of  what  they  loan  it  at 
and  what  the  money  would  bring  on  the  market. 

Mr.  Bulkley.  That  is  what  I  said. 

Mr.  Southgate.  Yes ;  that  is  right. 

Mr.  Bulkley.  But  what  is  the  distinction  between  the  conditions 
here  and  there  that  would  make  it  desirable  there  and  undesirable 
here? 

Mr.  Southgate.  Because  I  think  we  have  not  any  centralized 
governmental  systems  here  as  they  have  there.  Ours  is  more  a  Gov- 
ernment of  the  people,  and  any  form  of  subsidy  of  any  kind  is  dis- 
tasteful to  a  certain  part  of  the  people  of  this  country,  and,  again, 
I  do  not  believe  agriculture  desires  to  be  helped  by  that  form  of 
subsidy.  "What  agriculture  wants  is  for  the  Government  to  say  that 
when  it  issues  its  bonds  predicated  upon  its  $40,000,000,000  worth  of 
farm  land,  that  those  bonds  are  as  good  as  the  Government's  own 
bonds.  That  is  what  is  true  in  Europe  and  that  is  what  the  Federal 
board  would  do  in  establishing  these  bonds  when  they  are  issued. 

Mr.  pPlatt.  It  might  be  said,  right  in  this  connection,  that  the 
Federal  reserve  act  provides  for  the  deposit  of  all  Government  funds 
in  the  Federal  reserve  banks. 

Senator  Hollis.  It  gives  the  Secretary  power  to  put  them  there 
if  he  wants  to,  but  he  is  not  compelled  to  put  a  dollar  there  unless 
he  wants  to. 

Mr.  Doak.  Air.  Chairman,  speaking  about  the  farmer,  and  what 
you  think  we  are  entitled  to — we  do  not  ask  for  special  favors;  we 
ask  for  a  square  deal,  which  is  to  be  put  on  an  equal  footing  with  foreign 
competition  in  the  matter  of  interest.  The  gentleman  leaves  the  im- 
pression that  the  foreign  farmer  is  worse  off  than  we  are.  In  Aus- 
tralia, for  instance,  71,000  miles  of  rabbit-proof  fence  was  built.  If 
the  sheep  business  was  the  same  in  Australia  as  it  is  here,  there  would 
not  be  a  sheep  in  the  domain.  I  do  not  say  the  Government  should 
do  those  things.  I  really  make  a  statement  of  fact  of  the  condition 
of  the  Virginia  sheepmen.  We  are  up  against  it.  and  I  certainly 
feel  that  we  are  entitled  to  at.  least  some  effort  being  made  by  the 
Government  to  offset  the  manifest  inequality  in  our  labor  cost  in  the 
production  of  farm  products. 

Mr.  Bulkley.  Do  you  differ  from  Mr.  Southgate's  opinion  when 
he  says  the  farmer  dees  not  need  the  Government  to  lend  financial 
aid  to  the  extent  we  are  here  proposing  ( 

Mr.  Doak.  I  do  not  have  the  remotest  idea  that  it  will  be  found 
necessary  for  the  Government  to  undertake  to  float  all  these  farm 
bonds.  I  do  believe  the  Government  will  have  to  put  a  little  money 
into  it.  Who  is  carrying  all  of  these  farm  mortgages  now?  Will 
not  a  large  per  cent  of  tins  money  go  into  these  farm  bonds?  Why 
should  it  not?  The  widows  and  orphans  I  have  referred  to  will  not 
get  in  our  State  over  4.40  or  4.70  per  cent  on  their  money,  don't  you 
i     It  is  just  like  cutting  out  another  middleman  and  making  the 


RURAL   CREDITS.  683 

stuff  lower,  because  the  commission  runs  up  on  the  borrower's  side, 
and  it  is  double  taxation,  and  that  robs  the  lender,  don't  you  see, 
and  both  of  them  suffer. 

Mr.  Seldomridge.  Do  you  not  think  that  if  we  can  defer  in  any 
way  the  funds  seeking  investment,  that  both  the  investor  and  the 
farmer  will  be  benefited  ?  • 

Mr.  Doak.  Yes,  sir.  That  is  another  point — that  farmers  have  an 
idea  that  this  bill  will  tend,  at  least,  to  bring  a  tremendous  amount 
of  money  that  has  been  literally  squandered  by  our  big  concerns  in 
high  ideas— that  most  of  these  funds  are  literally  squandered  by 
men  in  the  cities,  and  you  see,  this  bill  will  tend  to  put  a  little  of  that 
money  back  into  the  country  where  it  originally  came  from,  and 
where  it  originally  belongs  now,  and  where  it  would  certainly  be  for 
the  interest  of  all  to  put  it- 
Mr.  Bulkley.  Mr.  Jones  would  like  to  make  a  few  remarks. 

Mr.  Gordon  Jones.  Our  farmer  friend  has  touched  on  some  very 
vital  points,  and  I  am  in  hearty  accord  with  him  in  a  number  of 
things.  He  would  change  his  opinion  somewhat,  however.  I  am  con- 
fident, if  he  were  to  come  in  closer  touch  with  the  investing  public, 
as  Mr.  Southgate,  Mr.  Breitung,  and  others  whose  evidence  you 
have  had  before  you  have  done.  Now,  I  have  the  greatest  respect 
for  the  men  who  drew  the  Fletcher-Moss  bill,  but  T  do  not  believe 
they  have  had  much  actual  experience  in  feeling  the  pulse  of  the  in- 
vesting public  as  some  of  the  rest  of  us  have  had.  I  hope  this  does 
not  sound  egotistical,  but  we  wTho  come  constantly  in  touch  with  the 
investing  public  or  are  investors  ourselves  believe  we  can  better  ap- 
preciate how  land-mortgage  bonds  are  going  to  be  received  and 
whether  they  will  be  looked  upon  as  safe  or  not. 

Our  farmer  friend  believes  that  the  little  $10,000  bank  will  be  able 
to  issue  a  safe  and  satisfactory  bond.  It  is  natural  for  him  to  feel 
that  way.  for  it  is  on  his  security  that  the  bond  would  be  issued. 
Doubtless  a  mortgage  upon  his  land  would  be  safe  and  sound.  But 
we  have  to  face  the  other  fellow,  the  man  whose  money  is  to  be  put 
up  to  buy  the  bond.  He  is  the  man  we  are  trying  to  reach.  I  do  not 
believe  the  experience  of  those  who  have  come  in  most  intimate 
touch  with  the  investor  has  been  brought  into  this  Fletcher-Mos>  bill. 
I  was  very  much  interested  in  Mr.  Southgate;s  remarks.  I  had  some 
correspondence  with  Mr.  Southgate,  and  while  he  did  not  fall  in 
line  and  agree  to  indorse  the  minority  report  of  the  American  com- 
mission, he  had  some  very  pronounced  independent  idea-.  So  I 
consider  I  am  fortunate  in  being  here  this  morning  to  hear  him,  for 
T  did  not  even  knoAv  he  was  to  be  before  you. 

Having  hear.d  Mr.  Southgate,  I  am  convinced  that  he  and  the 
minority  could  get  together  absolutely,  for  I  am  sure  Mr.  South- 
gate  would  see  the  strength  of  the  minority's  plan  of  building  up  to 
the  large  bank  that  he  advocates  if  we  could  properly  put  it  before 
him.  I  hope  before  he  goes  back  to  have  a  private  interview  with  him 
for  that  purpose. 

Mr.  Southgate  touched  upon  one  matter  that  I  had  expected  to 
ask  you  to  hear  me  upon  this  morning. 

I  would  like  to  amend  my  remarks  of  yesterday  to  the  extent  that 
I  would  not  permit  the  investment  of  postal  savings  funds  direct  in 
land-mortgage  bonds.  Mr.  Southgate  brought  out  one  reason  that 
I  have  for  this  suggestion,  namely,  the  necessity  of  the  Government 


C)84  EURAL   CREDITS. 

keeping  these  funds  available  at  all  times  and  not  invested.  Those 
funds,  outside  of  what  are  invested  in  United  States  Government 
bonds,  are  now  deposited  in  banks  subject  to  check.  I  would  amend 
that,  however,  as  Mr.  Southgate  suggests,  and  permit  the  bonds  of 
land-mortgage  institutions  to  be  accepted  as  collateral  from  such 
depositary  banks.  This  in  addition  to  my  suggestion  permitting  the 
bonds  to  be  accepted  by  the  Secretary  of  the  Treasury  against  regular 
funds.  The  postal  savings  funds,  to  me  the  most  sacred  funds  that 
we  have  built  up  in  this  country,  would  then  have  behind  them,  first, 
the  depositary  commercial  bank,  either  State  or  national;  second,  the 
land- mortgage  banks;  and  third,  specific  land-mortgage  bonds  as 
collateral.  It  would  be  an  absolutely  safe  security,  and  I  do  not  be- 
lieve that  Congress  will  ever  consider  investment  of  postal  savings 
funds  direct  in  any  other  security  than  Government  bonds,  as  now 
provided,  and  I  believe  it  would  be  folly  to  put  it  up  to  Congress 
with  such  provision  in  the  bill. 

Now.  this  central  bank  that  I  have  spoken  of,  built  up  from  the 
federation  of  the  unit  banks,  should  be  allowed  to  receive  accounts 
of  the  affiliated  banks.  That  is  a  form  of  credit  deposit.  The  unit 
banks  would  send  in  their  securities  for  which  the3'  should  be  allowed 
to  take  credit  upon  the  books  of  the  central  for  convenience  and 
to  facilitate  the  transaction  between  them.  It  will  be  necessary  for 
them  to  have  open  accounts  with  each  other,  and  there  will  always  be 
a  debiting  and  crediting  between  the  central  bank  and  the  affiliated 
banks.  That  would  furnish  the  simplest  method  of  settlement  of 
amortization  amounts  and  of  interest  payments.  Therefore  the  affil- 
iated banks  and  unit  banks  should  all  be  allowed  to  carry  accounts 
with  the  central  bank  to  that  extent,  but  under  no  circumstances 
should  deposits  be  received  by  either  the  central  or  the  unit  banks 
from  other  sources. 

Mr.  Platt.  Would  there  be  any  interest  payments  on  that? 

Mr.  Jones.  I  should  leave  that  for  adjustment  between  them.  Such 
accounts  may  be  very  temporary  and  need  not  ever  draw  any  interest. 

One  other  thing  I  think  is  very  important,  and  that  is  the  ma- 
chinery for  increasing  a  bank's  capital  as  demand  comes  upon  it. 
After  it  loans  15  times  its  capital  there  is  going  to  be  necessity  for 
increasing  the  capital.  You  should  make  that  machinery  for  in- 
creasing just  as  simple  as  possible. 

Mr.  Seldomridge.  Would  you  favor  taking  in  the  public  as  sub- 
scribers to  the  capital  stock  of  land-mortgage  banks? 

Mr.  Jones.  Oh,  yes.  It  is  only  the  public  that  the  plan  contem- 
plates will  own  the  stock. 

Mr.  Seldomridge.  You  would  limit  the  sale  of  the  stock  to  the 
public? 

Mr.  Jones.  Yes,  sir. 

Mr.  Seldomridge.  And  not  accept  the  purchase  of  stock  by  any 
banking  concern? 

Mr.  Jones.  No.  If  I  did  not  make  that  clear  I  have  failed  in  my 
purpose.  I  do  not  propose  that  these  country  banks  would  them- 
selves own  the  stock,  but  that  the  farmers  and  bankers  in  each  com- 
munity would  subscribe. 

Mr.  Seldomridge.  To  the  land-mortgage  bank  stock? 

Mr.  Jones.  To  the  land-mortgage  unit  banks. 


RURAL   CREDITS.  685 

Mr.  Seldomridge.  Do  you  think  that  the  local  regional  banks  would 
be  so  enlarged  as  to  permit  them  to  pass  upon  the  capacity  of  these 
land-mortgage  banks  to  organize,  subject  to  appeal  from  its  decision 
to  a  higher  board? 

Mr.  Jones.  I  thought  over  that  a  great  deal  last  night,  Mr.  Sel- 
domridge, and  the  more  I  think  over  this  subject  the  bigger  the 
subject  gets.  I  will  say  to  you  frankly  that  I  believe  you  have  just 
as  big  a  subject  to  handle  as  the  whole  Committee  of  Banking  and 
Currency  had  when  they  undertook  to  organize  the  regional  banks. 
It  is  just  as  far-reaching  if  not  further  reaching. 

Senator  Hollis.  It  is.  It  is  going  into  a  newer  field,  where  dis- 
aster would  be  more  widely  spread. 

Mr.  Jones.  Mind  you,  the  Federal  reserve  act  has  been  built  up  on 
what  has  been  urged  and  advocated  for  years.  I  myself  have  studied 
and  talked  on  that  subject  for  15  years  and  urged  some  of  the  prin- 
ciples that  are  in  the  bill  now,  along  with  many  others.  But  here 
you  have  taken  hold  of  something  all  of  a  sudden,  and  I  say  it  is 
more  far-reaching  and  you  have  a  more  complicated  problem  to  solve 
than  was  the  currency  bill. 

Mr.  Seldom  ridge.  It  is  largely  a  practical  demonstration,  is  it 
not?  It  is  not  merely  political,  but  it  is  getting  into  the  domain  of 
practice. 

Mr.  Jones.  Certainly.  I  would  not  imply  that  it  is  theory  that 
you  are  working  on. 

Mr.  Seldomridge.  I  do  not  mean  that.  I  mean  the  time  has  come 
where  we  can  learn  very  little  along  the  line  of  investigation,  but 
we  must  learn  more  now  in  the  matter  of  demonstration  in  this  rural 
finance. 

Mr.  Jones.  There  is  our  point.  It  is  not  practical  to  draft  into 
this  country  European  ideas  unless  you  can  Americanize  them.  We 
believe  in  American  customs  and  usages  such  as  the  majority  of  the 
committee  has  suggested.  We  want  to  apply  what  has  proven  a 
success  elsewhere  if  we  can  harmonize  them  to  our  recognized  cus- 
toms and  usages.  Only  in  that  way  can  we  with  safety  undertake 
anything  so  radically  new. 

Dr.  Coulter  suggested  in  correspondence  with  me  that  the  minority 
recommendation  as  to  the  maximum  amount  of  bonds  to  be  floated 
by  the  central  should  be  limited  to  15  times  the  capital  of  the  central. 
You  should  have  some  expert  work  that  out,  if  you  entertain  the 
minority's  plan,  because  there  are  many  things  that  should  be  con- 
sidered. Dr.  Coulter's  limit  would  be  impracticable  and  would 
kill  the  operation  of  the  plan.  It  is  so  easy  to  get  a  joker  in  a  bill. 
There  was  no  effort,  of  course,  on  Dr.  Coulter's  part  to  get  a  joker 
in  our  plan,  but  that  would  be  a  joker,  for  this  reason :  Each  little 
unit  bank  could  loan  15  times  its  capital.  The  central  bank  is  to  be 
built  up  from  25  per  cent  of  the  capital  of  each  one  of  the  unit  banks. 
For  illustration,  say  we  have  10  unit  banks  with  $10,000  capital 
each.  That  gives  $2,500  as  the  amount  each  unit  bank  shall  put  into 
a  central,  which  would  only  give  the  central  a  capital  stock  of 
$25,000.  Limit  that  central  bank  in  issuing  bonds  to  15  times  its 
capital  and  you  see  how  it  would  work  out.  They  can  not  float  all 
the  bonds  necessary  to  take  care  of  the  mortgages  sent  it  by  the 
units.     That  is  a  matter  that  must  be  figured  out,  and  it  did  not 


686  RURAL   CREDITS. 

occur  to  me  at  the  moment  of  my  correspondence  with  Dr.  Coulter, 
therefore  I  know  it  had  not  occurred  to  him.  So  I  know  he  was  not 
trying  to  get  the  joker  in  over  me,  but  it  would  be  a  joker. 

Mr.  O'Ilter.  That  is.  you  would  limit  the  central  bank  to  four 
times  its  capital. 

Mr.  Jones.  In  order  to  meet  this  condition  a  larger  amount  of 
founders'  shares  would  have  to  be  sold  than  we  thought  wise;  that 
is.  if  there  be  a  limit  of  bond  issue  in  proportion  to  the  capital  of 
the  central.  Should  the  limit  not  correspond  with  the  amount  of 
mortgages  the  central  could  receive  from  the  units?  Otherwise  we 
kill  the  federation  idea  and  build  up  the  unit  plan  of  bond  issue  to 
which  we  object 

I  am  frank  to  say  that  I  am  endeavoring  to  get  a  system  which  is 
strong  and  that  will  make  the  federated  plan  the  better,  so  that  there 
will  lie  no  unit  banks;  they  will  see  they  must  federate. 

Senator  Hollis.  In  this  broad  field  where  there  will  not  be  any 
fear  of  the  Money  Trust  and  New  York  dominance,  and  so  on,  do 
you  not  favor  giving  the  central  authority,  whatever  it  may  be, 
broad  discretion  in  those  details? 

Mr.  Jones.  I  do.  At  the  same  time,  the  Government  must  provide 
a  regulating  hand. 

Senator  Hollis.  Well,  that  would  be  the  Government,  in  my  judg- 
ment. 

Mr.  Jones.  I  do  not  think  there  is  any  feature  that  will  strengthen 
the  plan  like  strict  Government  supervision  and  regulation. 

Senator  Hollis.  In  my  judgment,  the  Government  would  have  a 
strong  hand  on  it.  just  as  they  have  on  the  Federal  reserve  system. 
That  i-  my  judgment  of  it. 

Mr.  Jones.  You  must  do  it  in  order  to  find  a  market  for  the  bonds. 

Mr.  Coulter.  That  is  the  main  thing. 

Mr.  Jones.  Another  point.  You  asked  me  a  question  yesterday 
regarding  the  land-mortgage  failure  as  having  previously  been  op- 
erated in  this  country.  There  is  one  other  cause  that  I  did  not  dwell 
upon. 

There  was  considerable  wildcatting  because  of  the  lack  of  Govern- 
ment supervision  and  regulation  and  there  was  no  amortization  fea- 
ture. I  remember  several  banks  had  issued  debentures  along  this 
idea.  10-year  debentures,  series  A;  10-year  debentures,  series  B.  As 
they  gathered  in  their  bonds  collectively  they  would  issue  de- 
bentures against  them,  put  them  aside  specifically  to  secure  a  certain 
series  of  debentures. 

Mr.  Platt.  You  mean  they  put  the  mortgages  aside? 

Mr.  Jones.  They  put  the  mortgages  aside,  just  like  it  is  proposed 
now.  but  these  mortgages  had  no  amortization  feature,  and  they 
were  nor  taken  care  of. 

It  is  a  well-known  fact  if  a  great  many  farmers  are  not  required 
to  pay  up  gradually  they  are  going  to  count  on  renewing  time  after 
time.  Is  that  not  so.  Mr.  Doak?  He  may  buy  an  automobile  if  he 
gets  ahead  instead  of  applying  it  on  his  mortgage  loan.  I  am  speak- 
ing of  some  farmers,  not  you,  Mr.  Doak.  As  Mr.  Seldomridge  says, 
if  we  do  nothing  else  we  want  to  require  him  to  get  out  of  debt. 

I  am  satisfied  if  there  had  been  Government  regulation  and  if 
there  had  been  an  amortization  feature  wo  would  have  had  vastly 


RURAL   CREDITS.  687 

different  conditions  20  years  ago.  But  the  system  went  down,  and 
went  down  with  a  crash,  and  the  people  remember  it.  We  must 
overcome  that  prejudice.  The  amortization  feature,  under  strict 
Government  regulation  and  supervision  with  the  more  stable  condi- 
tions now  prevailing,  and  a  system  of  federation,  preventing  wild- 
catting,  all  will  combine  to  overcome  it. 

I  think  you  very  much  for  your  attention. 

Mr.  Bulkley.  The  committee  will  stand  adjourned  until  2  o'clock 
this  afternoon. 

(The  first  part  of  the  testimony  of  Mr.  Gordon  Jones  can  be  found 
at  page  600  of  these  hearings.  The  minority  report  of  the  American 
commission  to  which  he  refers  is  part  2,  S.  Doc.  No.  261.) 

(The  committee  took  a  recess  until  2  o'clock  p.  m..  Wednesday, 
March  11.  1914.) 

AFTER  RECESS. 

The  committee  assembled  at  2  o'clock  p.  m. 
STATEMENT  OF  H.  S.  MOBLEY  (FARMER),  PRAIRIE  GROVE,  ARK. 

Mr.  Bulkley.  Mr.  Mobley,  will  you  give  your  name  and  business 
connection  to  the  stenographer? 

Senator  Hollis.  Just  give  your  name.  Mr.  Mobley. 

Mr.  Mobley.  H.  S.  Mobley. 

Senator  Hollis.  Where  do  you  live? 

Mr.  Mobley.  I  live  at  Prairie  Grove,  Ark. 

Senator  Hollis.  And  your  business  is  what? 

Mr.  Mobley.  I  am  a  farmer. 

Senator  Hollis.  Now  you  may  go  ahead. 

Mr.  Wingo  (a  Representative  from  Arkansas).  Just  a  moment.  I 
would  like  to  have  Mr.  Mobley  show  what  his  connection  is  with  the 
farmers'  organizations. 

Senator  Hollis.  I  think  it  would  be  well  to  give  us  that.  Just  give 
a  broad  perspective,  Mr.  Mobley. 

Mr.  Bulkley.  I  hope,  with  Mr.  Mobley's  consent,  that  Mr.  Wingo 
will  interrupt  when  he  thinks  some  point  ought  to  be  developed,  be- 
cause I  know  Mr.  Wingo  knows  Mr.  Mobley  and  the  local  conditions 
down  there,  and  we  want  him  to  develop  anything  he  desires  to. 

Mr.  Wingo.  I  would  like  to  have  Mr.  Mobley  state  what  his  con- 
nection is  with  farmers'  organizations. 

Mr.  Mobley.  I  am  State  president  of  the  Arkansas  division  of  the 
Farmers'  Union. 

It  is  usual  to  express  one's  appreciation  of  the  opportunity  to 
address  this  committee,  and  I  want  to  say  that  it  is  sincere  on  my 
part,  not  because  I  personally  have  the  privilege  of  being  here,  but 
because  this  committee  is  discussing  the  subject  which  is  of  vital 
interest  to  the  farmers  of  the  South,  and  especially  of  the  State  in 
which  I  live — Arkansas. 

I  do  not  know  much  about  the  northern,  eastern,  and  western 
farmers  or  the  farm  conditions  in  those  sections,  but  I  am  intimately 
acquainted  with  southern  farm  conditions.  Of  course,  I  know  in  a 
general  way  something  of  the  rates  of  interest  and  financial  re- 
sources of  the  northern,  western,  and  eastern  farmers.     Generally 


688  RURAL   CREDITS. 

speaking,  I  realize  that  they  enjoy  much  better  financial  opportuni- 
ties than  we  do;  but  I  want  to  confine  my  remarks  to  southern  condi- 
tions and  leave  it  to  others  to  discuss  the  needs  of  the  other  sections 
of  the  country. 

The  small  southern  farmer  suffers  a  serious  discrimination  in  the 
matter  of  getting  his  share  of  the  money  of  the  farm  communities 
to  finance  his  business.  He  is  discriminated  against  both  as  to  money 
on  long  time  for  investment,  and  also  in  regard  to  short-time  loans 
to  be  used  in  producing  and  marketing  his  crop.  We  have  two  nota- 
ble instances  in  our  State  illustrating  this.  Assisted  by  the  secretary 
of  the  Chamber  of  Commerce  of  Little  Rock,  the  president  of  one  of 
that  city's  largest  financial  institutions,  the  editor  of  one  of  our  State 
farm  papers,  and  others,  I  organized  at  Scott  Station,  in  Pulaski 
County,  a  selling  agency  to  market  the  cotton  crop  of  that  commu- 
nity. Those  composing  this  agency  were  what  we  call  large  planta- 
tion owners,  and  their  experience  was  that  they  suffered  but  little 
inconvenience  in  procuring  money  to  market  in  the  neighborhood  of 
1,000  bales  of  cotton.  That  was  an  instance  of  the  ability  of  this 
class  of  our  farmers  to  take  care  of  themselves  financially. 

Now,  an  instance  illustrating  the  difficulty  of  the  small  farmers  to 
do  the  same  thing  is  found  in  your  records  page  57  of  part  1,  Hear- 
ings of  Rural  Credits,  subcommittees  of  the  Committees  on  Banking 
and  Currency,  of  the  Senate  and  House  of  Representatives. 

I  read  there  a  statement  to  the  effect  that  a  farmer  from  Arkansas, 
who  had  his  cotton  in  a  warehouse,  went  to  the  banks,  tried  to  bor- 
row money  on  that  cotton  and  was  refused,  but  the  commission  man 
could  have  bought  that  cotton  from  this  small  farmer  and  the  banks 
would  have  advanced  the  commission  man  money  on  it.  The  com- 
ment of  this  committee  seemed  rather  queer  to  me.  Your  comment 
seemed  to  infer  that  this  farmer  might  have  been  trying  to  get  this 
money  in  order  to  hold  the  cotton  for  an  increase  in  price;  that  the 
banker  could  not  tell  how  long  the  farmer  wanted  to  use  it; 
how  long  he  would  hold  the  cotton;  and  for  the  reason  that  he 
might  have  wanted  the  money  for  speculative  purposes,  he  should 
not  have  been  granted  the  loan. 

In  regard  to  that  I  desire  to  mention  another  matter:  Last  fall, 
when  Secretary  McAdoo  placed  a  large  sum  of  money  in  the  banks 
for  the  purpose  of  moving  that  year's  crops,  the  national  meeting  of 
the  Farmers'  Union,  at  Salina,  Kans.,  appointed  a  commission  to 
visit  Washington  and  wait  upon  President  Wilson  and  Secretary 
McAdoo.  This  committee  did  so  and  represented  to  them  that  for 
12  years  the  organized  southern  farmers  had  tried  to  obtain  money 
to  be  used  in  a  cooperative  way  for  financing  the  sale  of  the  cotton 
crop,  but  that  they  had  been  unable  to  get  any  appreciable  help  from 
the  banks,  and  that  if  this  money  from  the  National  Treasury  was 
to  be  placed  in  the  southern  banks  by  the  Government  at  a  low  rate 
of  interest,  we  believed  that  the  producer  ought  to  have  a  fair  repre- 
sentative portion  of  it  at  a  correspondingly  low  interest  rate  to  be 
used  in  a  cooperative  way  in  marketing  his  own  crop  in  cases  where 
the  farmer  could  offer  sufficient  security  for  the  money. 

Mr.  Win  go.  Right  there.  Mr.  Mobley,  you  are  now  referring  to  the 
proposed  deposit  of  $50,000,000  by  the  Secretary  of  the  Treasury  in 


RURAL  CREDITS.  689 

different  banks  throughout  the  country  last  fall  for  the  purpose  of 
marketing  the  crops? 

Mr.  Mobley.  Yes ;  for  the  purpose  of  marketing  the  crops. 

Our  committee  visited  the  President  and  Secretary  McAdoo,  and 
afterwards  made  a  report  of  the  result  of  their  interview,  which 
was  published  in  our  national  organ,  the  National  Field,  of  Atlanta, 
Ga.  In  substance,  the  report  carried  great  assurance  to  the  pro- 
ducing farmer  that  this  money  would  be  loaned  to  him  as  well  as 
others  without  discrimination.  I  want  to  say  frankly  that  we  did 
not  believe — we  did  not  question  the  sincerity  of  the  President  or 
Secretary — but  we  did  not  believe  that  even  they  could,  under  the 
circumstances,  successfully  execute  a  system  of  financial  aid  to 
the  small  southern  cotton  farmer.  We  did  not  believe  that  this  money 
would  be  made  to  reach  and  help  the  small  producer  after  it  had 
been  placed  in  the  commercial  banks  of  the  cotton  sections.  This 
farmer,  previously  referred  to  in  your  hearings,  made  a  special 
effort,  which  proved  that  we  were  correct.  He  is  the  manager  of 
one  of  our  cooperative  societies.  This  society  has  a  splendidly  con- 
structed steel  warehouse,  and  is  incorporated.  The  cotton  was  fully 
insured  in  a  reputable  company,  and,  in  fact,  every  detail  that  would 
make  this  cotton  proper  security  for  money  had  been  attended  to. 
This  farmer  went  to  the  banks  that  had  $800,000  of  the  Govern- 
ment's money  on  deposit  and  tried  to  borrow  some  of  it,  not  for  the 
purpose  of  holding  cotton  for  speculation,  but  to  take  care  of  the 
distressed  cotton  of  the  members  of  that  warehouse  association. 

Perhaps  I  had  better  explain  what  distressed  cotton  is.  We 
classify  cotton  as  distressed  and  nondistressed.  Nondistressed  cot- 
ton is  that  which  remains  in  the  possession  of  the  producer  after  he 
has  paid  the  debts  which  constituted  a  lien  upon  it.  Distressed  cot- 
ton is  that  which  is  raised  by  a  man  who,  for  various  reasons,  has 
not  been  able  to  discharge  his  indebtedness,  and,  therefore,  who  can 
not  direct  the  sale  of  it.  We  try  to  finance  this  distressed  cotton 
in  our  southern  societies  so  that  it  may  be  sold  on  the  same  basis  as 
the  nondistressed  cotton.  Otherwise,  the  distressed  cotton  would  be 
forced  on  the  market  by  the  ones  holding  liens  against  it,  which 
would  have  the  effect  of  depressing  the  price,  both  of  the  distressed 
and  nondistressed  cotton.  But  this  selling  agency,  through  its 
manager  above  referred  to,  was  unable  to  procure  any  of  this  money 
for  that  purpose.  This  was  a  thorough  test  of  the  inability  of  the 
small  farmer  and  the  owner  of  distressed  cotton  to  procure,  under 
the  then  existing  financial  system,  aid  which  would  be  of  a  direct 
benefit  to  the  producer. 

This  test  convinces  me  that  no  matter  how  broad-minded  the  gen- 
tlemen of  this  committee  are — and  from  the  hearings  I  have  read 
and  what  I  have  seen  in  this  room,  I  believe  they  are  fair — I  desire 
to  add  further  that  men  of  small  means  who  operate  the  small  farms 
in  Arkansas  were  discriminated  against  to  an  unreasonable  degree 
by  many  of  the  banks  and  supply  merchants  of  Arkansas.  And  I 
have  offered  you  this  instance  as  a  proof  of  it. 

Senator  Hollts.  Now,  we  are  more  interested  in  the  reason  for 
that,  Mr.  Mobley.     Why  do  you  suppose  that  condition  prevails? 

37031—14- — 44 


690  RURAL   CREDITS. 

Mr.  Mobley.  I  will  try  to  explain. 

Senator  IIollis.  I  wish  you  would. 

Mr.  Mobley.  When  we  consider  farmers  of  the  South,  those  of  us 
who  work  with  them,  we  divide  them  into  three  classes.  The  first 
are  the  landlords.  They  often  own  a  relatively  large  stock  in  the 
local  banks  and  are  often  largely  interested  in  the  supply  houses  or 
have  commissaries  or  supply  houses  on  their  plantations,  and  are  men 
who  ordinarily  have  good  bank  resources  for  financing  their  business. 
That  is  one  class.  Another  is  the  small  farm  owner,  who  owns  his 
own  farm,  which  is  relatively  small,  actually  operates  it;  that  is,  tills 
the  soil  himself  or  personally  participates  in  doing  so  with  members 
of  his  family  and  possibly  some  hired  help.  We  call  him  the  small 
farm  owner  and  classify  him  in  two  ways.  There  is  in  this  class  the 
equity  farm  owner — you  understand  what  I  mean  by  that — the  one 
upon  whose  farm  there  is  a  mortgage.  And  the  third  class  are  the 
tenants  and  subtenants. 

With  regard  to  the  tenants  I  wish  to  speak  further.  I  have  shown 
the  landlord  is  reasonably  well  able  to  take  care  of  himself  with  the 
banks  and  supply  houses.  The  small  farm  owner,  if  he  lives  close 
to  a  good  market,  is  agriculturally  an  educated  or  experienced  man, 
and  uses  good  business  sense  and  industry  and  patronizes  the  bank, 
is  not  to  a  great  extent  discriminated  against,  but  if  he  is  at  a  dis- 
tance from  the  bank  and  is  on  an  average  with  the  majority  of  our 
small  farm  owners,  he  is  in  a  class  that  is  discriminated  against  as  the 
tenants  are. 

We  have  here  in  these  hearings  some  statements  that  bear  this  out. 
I  will  read  from  page  61  of  No.  1  (Hearings  on  Rural  Credits  before 
the  subcommittees  of  the  Committees  on  Banking  and  Currency  of 
the  Senate  and  House  of  Representatives),  in  Mr.  Thomson's  testi- 
mony.   The  report  says : 

In  a  very  short  conference  with  the  president  of  the  bank,  he  said  his  hank 
loaned  negroes  at  60  to  100  per  cent  interest,  hoth  principal  and  interest  pay- 
able in  six  mouths.  In  other  words,  he,  the  negro,  has  to  pay  $120  six  months 
from  date  for  the  use  of  $60  for  that  period  of  time. 

I  am  not  going  to  say  that  this  is  a  typical  case  of  how  the  white 
farmer  obtains  money  in  Arkansas,  but  I  am  going  to  say  that  you 
will  find  that  it  extends  further  among  the  small  white  farmers 
than  you  might  be  willing  to  believe  unless  you  wTere  to  make  an 
investigation. 

T  want  to  read  you  another  thing.  They  have  there  the  small  farm 
owner  or  tenant  who  are  not  able  to  finance  their  crops.  They  do 
what  we  call  "  make  arrangements."  They  go  to  a  merchant  and 
sign  a  blanket  chattel  mortgage  that  covers  everything  in  the  world 
that  they  have,  itemized  and  identified,  and  include  in  that  what 
they  do  not  have — that  is,  any  crop  that  they  may  raise  the  next 
year,  for  a  relatively  small  sum  of  money.  And  this  statement  that 
I  am  going  to  read  aptly  illustrates  and  shows  conditions  on  that 
line. 

The  advancer  (that  is  the  merchant)  is  obliged,  as  one  man  put  it,  to  fur- 
nish the  brains  for  the  whole  community.  He  knows  the  tracts  of  land,  its  pro- 
ductive power,  and  what  to  expect  when  a  man  goes  on  it;  he  knows  how  much 
family  the  advancee  lias,  how  much  flour,  meat,  meal,  or  sirup  he  ought  to 
use  in  a  given  time,  and  will  not  let  him  (the  advancee)  have  more;  asks  him 
how  much  company  he  has  had  since  he  got  his  last  barrel  of  flour,  or  how  he 


RURAL   CREDITS.  691 

could  use  it  so  quickly,  assuming  that  possibly  he  (the  advancee)  sold  part 
of  it  to  go  to  a  show,  or  something,  or  to  buy  whisky;  he  (the  advancer)  also 
watches  his  (the  advancee's)  cotton  and  corn  crop,  and  questions  him  closely 
as  to  how  much  work  he  is  putting  on  it,  and  if  there  is  a  possibility  of  a  crop 
failure,  (lie  advancer  cuts  down  the  rations  dealt  out  in  advance. 

I  believe  that  this  statement  describes  a  condition  that  prevails 
among  a  great  many  of  the  tenants  and  small  farm  owners  who  are 
unable  to  finance  their  business  on  an  equality  with  the  larger 
farmers. 

Mr.  Win  go.  That  is  the  tenant  farmer  you  are  speaking  of? 

Mr.  Mobley.  The  tenant  farmer  and  small  farm  owner  who  gives 
these  chattle  mortgages  for  supplies. 

Mr.  Seldomridge.  Is  there  any  usury  law  in  that  State  yon  have 
mentioned  ? 

Mr.  Mobley.  Yes:  a  very  strong  one. 

Mr.  Seldomridge.  How  is  it  evaded? 

Mr.  Mobley.  I  was  coming  to  that.     I  have  some  evidence  here. 

The  small  farm  owner  and  tenant  makes  that  arrangement  with  the 
merchants,  or  if  he  is  a  little  further  up  in  the  financial  grade,  he 
goes  to  the  bank  and  borrows  money  and  pays  cash  for  the  goods.  I 
have  a  note  here,  signed  by  one  of  these  small  farm  owners  who  bor- 
rows money  to  finance  the  production  of  his  crop,  which  I  would  like 
to  read,  but  I  would  not  like  to  give  the  name  of  the  bank,  because  I 
do  not  want  to  awaken  opposition.  This  note  is  signed  by  a  man 
who  is  the  son  of  a  Methodist  preacher.  I  mention  this  to  show  that 
his  childhood  environment  would  naturally  have  afforded  a  chance 
for  a  fair  education.  He  is  an  industrious  man  and  a  good  citizen. 
I  am  taking  this  case  because  it  is  illustrative  of  the  better  class  of 
small  farm  owners  who  have  to  borrow  money  on  short  credit  for 
productive  purposes.  The  note  is  dated  February  12,  1913,  and  is 
due  in  nine  months.  The  face  calls  for  $50  but  the  farmer  who  made 
it  received  only  $45.  In  other  words  he  paid  about  15|  per  cent  in- 
terest for  the  use  of  that  $15.  That  is  an  example  of  how  the  usury 
laws  are  evaded.  It  is  in  the  nature  of  a  discount.  If  he  had  bor- 
rowed that  money  for  only  six  months  it  is  very  probable  that  he 
would  have  received  only  $45,  but  would  have  paid  10  per  cent  inter- 
est on  $50  for  12  months  in  advance.  Do  not  understand  me  to  say 
that  all  our  banks  and  merchants  do  this. 

To  show  j^ou  where  the  matter  reaches  us,  making  us  feel  very 
strongly  on  the  subject,  if  our  organizers  go  into  a  community  to 
organize  the  cooperative  union  for  the  purpose  of  buying  supplies 
and  selling  and  financing  our  crops,  we  often  find  that  the  supply 
merchant  and  the  banks  who  are  guilty  of  these  practices  with  this 
class  of  farmers  succeed  in  breaking  up  such  organization.  Almost 
all  of  the  small  farmers  owe  them  something  and  are  under  obli- 
gation to  them,  and  their  influence  prevents  the  success  of  farm 
cooperation  in  almost  every  instance. 

Here  is  a  letter  which  will  show  how  this  opposition  manifests 
itself.     It  is  addressed  to  me,  and  says  as  follows: 

I,  myself,  know  of  a  surety  that  nonunion  men  rented  all  of  said 's 

land  that  was  formerly  farmed  by  union  men  in  the  year  1909,  and  for  no  other 
reason  known  to  our  farmers,  except  they  objected  to  patronizing  his  way  of 

ginning.     claims  he  could  not  make  a   living  by  ginning  at  50  cents  a 

hundred,  but  other  gin  companies  claim  rhey  could  make  a  profit  at  45  cents 


692  RURAL   CREDITS. 

less  B.  T.,  and,  so  far  as  I  have  knowledge,  there  are  no  union  farmers  on  this 
fa  nil  to-day. 

This  is  a  typical  case  of  such  communities.  I  have  more  of  such 
letters,  but  will  not  take  more  of  your  time  by  reading  them.  Their 
efforts  to  organize  and  gin  their  cotton  under  a  cooperative  contract 
was  defeated  by  the  farms  which  they  tended  being  rented  out  from 
under  them  by  the  landlord,  supply  merchant,  and  gin  owner,  who 
wanted  to  make  a  profit  by  ginning  their  cotton,  selling  them  goods, 
and  lending  them  money.  I  have  been  informed  that  some  of  the 
men  referred  to  in  this  letter  had  lived  on  that  farm  for  20  years, 
but  that  did  not  prevent  them  from  being  dispossessed  and  set  adrift. 

Thus  we  find  a  very  strong  opposition  among  that  class  to  any 
effort  to  organize  the  small  farm  owner  and  tenant  to  better  their 
own  condition. 

The  fact  that  this  condition  prevails  is  why  we  have  come  to  the 
national  Congress  asking  Federal  help.  This  local  condition  is  so 
influenced  by  these  people  that  it  is  practically  impossible  for  that 
class  to  receive  proper  relief  under  the  present  system. 

I  want  to  mention  in  this  connection  that  it  appears  to  me  that 
it  is  the  conclusion  of  this  committee  that  you  must  have  a  local 
body  of  farmers  in  order  to  initiate  a  system  of  farm  mortgage 
credit.  I  subscribe  in  a  manner  to  that  idea  and  would  recommend 
it  if  the  conditions  I  have  shown  did  not  prevail.  I  have  worked 
for  years  and  succeeded  in  organizing  several  organizations  which 
could  be  made  to  serve  this  purpose.  But  these  have  succeeded  only 
in  communities  which  were  practically  out  from  under  the  influence 
of  the  class  of  merchants  complained  of. 

So  I  believe  that  if  we  should  tell  these  people  that  the  Federal 
Government  was  going  to  assist  them  to  organize  cooperative  land 
and  personal  credit  banks,  whereby  they  could  borrow  money  at  a 
low  rate  of  interest  and  buy  supplies  at  cash  prices,  that  the  first 
idea  that  would  present  itself  would  be  to  ask,  what  is  the  banker 
who  holds  my  note  and  the  supply  merchant  who  has  a  mortgage 
on  my  crop  going  to  say  about  it  ?  Their  conclusion  would  be  that 
if  the}''  were  to  antagonize  these  persons  they  would  shut  off  their 
supplies.  Therefore,  we  can  not  afford  to  take  membership  in  such 
organizations. 

I  want  to  emphasize  the  fact  that  personally  I  am  in  favor  of 
this  particular  provision  and  many  others  of  the  Moss  bill,  but  I 
have  brought  up  this  difficulty  since  I  believe  it  will  be  a  serious 
hindrance  to  the  organization  of  these  local  credit  banks  among  the 
class  of  farmers  I  have  referred  to.  You  can  see  from  this  the  force 
of  the  request  for  direct  Government  aid. 

That  is  what  compels  them  to  take  the  position  set  forth  by  Mr. 
Hobbs  and  the  representatives  of  the  national  grange  in  their  testi- 
mony. I  realize  that  direct  Government  aid  is  not  supposed  to  be 
a  really  worth  while  opinion,  but  I  ask  for  it  nevertheless,  because 
I  am  conscientiously  convinced  that  the  condition  we  have  will  not 
be  met  by  the  local  cooperative  bank  idea  except  in  relatively  few 
communities  for  a  long  period  of  time. 

I  desire  to  say  that  this  class  of  bankers  who  hold  the  notes  of  the 
small  farm  owner,  or  the  landlord  who  holds  the  mortgage  of  the 
tenant,  will  ask  the  man  whose  notes  are  mortgages  they  hold.  "Are 


RURAL   CREDITS.  693 

you  going  to  join  this  bank"?  And  the  man  will  often  say  "  No," 
very  probably,  and  refuse  to  join. 

The  question  of  direct  aid  to  farmers  is  one  that  I  realize  you  gen- 
tlemen are  not  very  friendly  to.  I  have  read  all  of  the  hearings,  I 
believe,  except  a  few  numbers.  I  have  also  read  the  report  of  the 
visiting  committee  that  went  to  Europe  to  study  the  subject,  the 
Fletcher  bill,  and  the  Moss  bill.  But  looking  at  it  from  the  stand- 
point I  have  outlined,  we  can  not  see  any  other  way  to  obtain  help ; 
we  can  not  see  how  you  can  figure  out  any  other  method  which  would 
reach  us  without  giving  the  small  farm  owners  and  the  equity  farm 
owners  and  the  tenants  the  right  to  have  their  lands  or  other  prop- 
erty appraised  and  properly  taken  care  of  as  regards  the  proof  of 
credit  value,  and  then  have  a  direct  way  that  we  can  get  credit  from 
the  Government.  It  is  not  a  popular  suggestion,  but  I  believe  you 
will  find  it  represents  the  wish  and  necessity  of  a  very  large  number 
of  organized  farmers. 

Mr.  Platt  (interposing).  You  are  talking  about  personal  credit? 

Mr.  Mobley.  No,  sir;  I  am  talking  about  both  personal  and  land 
credit  from  the  Government. 

Mr.  Bulkley.  You  do  not  think  it  would  be  possible  to  mortgage 
a  piece  of  ground  without  making  a  public  record,  do  you? 

Mr.  Mobley.  No,  sir :  however,  the  arrangements  for  the  loan  could 
be  perfected  without  that. 

I  want  to  mention  another  matter.  I  do  not  know  what  you  think 
about  it,  but  I  noticed  that  Mr.  Doak  asked,  "  Should  the  land  bank, 
as  organized  under  the  Moss  bill  or  a  similar  bill,  receive  postal  sav- 
ing deposits  ?  "  The  banker  from  Virginia — I  did  not  catch  his 
name — did  not  think  they  should.  This  is  the  way  we  reason:  If 
this  postal  deposit  money  is  received  from  the  depositor,  who  is  a 
citizen,  at  2  per  cent,  and  deposited  in  a  commercial  bank  at  2^  per 
cent,  and  then  we  organize  a  land  bank  and  take  our  bonds,  which 
would  bear,  according  to  the  Moss  bill,  I  do  not  know  what  interest 
(and  nobody  else  knows,  according  to  that  bill,  as  I  read  it),  and 
deposit  those  bonds  in  a  commercial  bank;  if  the  bonds  draw  6  per 
cent  interest  and  the  bank  bought  them  with  money  costing  it  2^  per 
cent,  the  bank  would  be  making  3^  per  cent  on  the  deal,  and  the  Gov- 
ernment would  furnish  it  the  money  to  make  this  off  of  us.  That  is 
the  way  it  looks  to  me,  and  I  have  read  a  good  many  other  arguments 
in  these  hearings  that  have  the  same  kind  of  logic  in  them. 

That  brings  me  to  this  thought:  That  whatever  bank  bill  you 
recommend  to  aid  the  farmer— if  the  aid  that  he  gets  in  that,  has  to 
come  from  a  commercial  bank,  you  are  going  to  discredit  the  system 
in  the  South.  They  and  the  supply  houses  have  got  us  in  this  eco- 
nomic condition  down  there  where  we  have  to  sell  what  we  produce 
at  the  lowest  wholesale  price  and  buy  all  the  supplies  we  use  in  pro- 
duction and  hire  what  money  we  use  at  the  highest  rate  of  interest 
and  profit  price.  In  other  words,  we  are  buying  at  retail  and  selling 
at  wholesale,  and  we  say  this :  We  call  them  middlemen ;  that  is  the 
way  we  designate  them.  They  stand  there  getting  our  money  both 
ways.  It  makes  us  suspicious — I  want  that  word  to  go — it  makes  us 
suspicious  whenever  they  begin  to  talk  about  something  like  that 
question  of  the  postal  savings  bank.  We  would  like  to  have  aid  direct 
from  the  Government.  If  it  must  come  through  the  commercial 
banker,  the  money  that  they  would  lend  us  would  be  in  part  money 


694  RURAL   CREDITS. 

they  paid  24  per  cent  for,  and  the  return  they  would  get  from  us  for 
its  use  would  be  possibly  3  or  4  per  cent.  In  other  words,  it  would 
all  be  coming  their  way,  we  would  be  paying  the  bill  and  the  Gov- 
ernment would  be  furnishing  them  the  money.  In  other  words,  we 
would  have  another  middleman  between  us  and  the  money  supply, 
and  when  we  get  another  middleman  we  have  to  pay  more  for  the 
loan.    Do  you  agree  with  that? 

Senator  Hollis.  Yes. 

Mr.  Mobley.  We  are  American  people  and  are  not  unreasonable. 
We  believe  that  we  are  unreasonably  discriminated  against. 

Somebody  said  something  here  this  morning  about  the  possibility 
of  the  farmer  borrowing  money  to  buy  an  automobile.  We  do  not 
want  to  answer  arguments  like  that,  but  they  bring  out  the  idea  that 
the  farmer  as  a  class  can  net  safely  be  trusted  to  pledge  his  credit 
and  use  the  money.  I  will  admit  in  certain  cases  he  would  not  be, 
but  I  do  not  like  to  have  sarcasm  flung  at  us.  I  believe  if  the  statis- 
tics were  examined  as  to  buying  automobiles,  you  would  find  there 
are  many  more  people  in  the  towns  buying  automobiles  who  can  not 
afford  them  than  you  will  find  in  the  country.  It  may  not  be  good 
form  to  say  it  and  I  do  not  like  to,  but  we  want  to  say  that  if  you 
take  the 

Senator  Hollis  (interposing).  When  we  had  the  banking  bill,  the 
Federal  reserve  act.  before  the  committee  there  were  a  great  many 
more  flings  made  against  the  bankers  than  any  class  of  people  I  have 
ever  known  of.  You  are  not  discriminated  against  in  that  par- 
ticular? 

Mr.  Mobley.  We  were  not  present  when  those  things  were  going 
on,  but  we  are  usually  present  when  these  things  go  on. 

Senator  Hollis.  I  think  it  is  a  fact  that  there  are  more  such  things 
said  against  the  bankers  than  any  other  one  class  of  individuals. 

Mr.  Mobley.  We  "  cuss  "  Wall  Street  some  ourselves,  as  well  as  any- 
one else;  but,  then,  we  do  it  straight  from  the  shoulder,  and  have 
logical  reasons  for  doing  so.     But  that  is  rather  by  the  way. 

The  question  has  been  raised  with  regard  to  a  limited  loan,  and  the 
idea  as  outlined  in  the  hearing  seems  to  be  that  the  farmer  should  be 
able  to  borrow  money  to  pay  outstanding  debts  against  his  land, 
to  use  in  improving  the  land  for  which  he  has  already  paid,  or  to  pay 
by  the  loan  the  balance  of  the  purchase  price.  That  is  the  way  I 
understand  it.  I  will  tell  you  what  I  believe  about  it.  The  farmer, 
when  he  makes  application  for  that  loan,  ought  to  declare  in  the 
application  exactly  what  he  wants  the  money  for.  what  he  will  use 
it  for.  I  believe  in  that,  and  the  farmer  will  stand  for  it.  I  have 
talked  with  many  of  them  and  I  know  they  will.  I  know  the  men  in 
my  country  and  their  condition,  and  I  know  they  will  not  only  stand 
for  it.  but  they  will  be  glad  to.  because  they  will  realize  that  if  the 
money  is  actually  loaned  for  such  purposes  it  will  increase  the  value 
of  the  land,  the  security  they  have  to  offer,  and  will  help  to  bring 
about  a  lower  rate  of  interest  and  better  terms.  You  might  find 
some,  though,  who  would  disagree  with  this. 

There  has  been  another  matter  raised  in  the-e  hearings,  the  ques- 
tion of  statistics  on  farm  land-  as  security,  and  the  question  is  asked 
whether  land  as  security  appreciates  or  depreciates  in  value.  I 
believe  if  I  mortgaged  my  farm  to  a  land  bank  or  the  Government 
that  there  is  no  better  system  you  could  devise  by  which  I  might  get 


RURAL   CREDITS.  695 

the  money  at  a  lower  rate  of  interest,  on  long  time,  than  to  compel 
me  to  keep  an  account  of  the  land  I  cleared,  the  additional  produc- 
tion per  acre  or  loss,  the  extra  houses  built,  pig  houses,  smokehouses, 
etc.,  the  extra  painting,  repairing,  and  fence  building  I  had  done, 
together  with  whatever  had  been  lost  by  fire,  etc.,  to  show  whether 
the  security  has  appreciated  or  depreciated,  and  to  file  this  report 
with  the  local  land  bank  or  Government  agent  annually. 

Mr.  Bulkley.  You  would  require  the  borrower  to  make  an  annual 
report  as  to  the  condition  of  the  security? 

Mr.  Mobley.  Yes;  and  I  would  require  that  the  fiduciary  agent  in 
the  local  bank,  if  you  decided  in  favor  of  that  plan,  that  he  should 
sign  it. 

Mr.  Bulkley.  Subscribe  that  proof? 

Mr.  Mobley.  Yes. 

Mr.  Bulkley.  What  if  he  found  there  was  a  depreciation  ? 

Mr.  Mobley.  I  have  opened  the  proposition.  If  the  suggestion  is 
good  it  is  for  you  gentlemen  to  work  it  out,  but  there  ought  to  be  a 
foreclosing  or  penalizing  proposition  behind  these  bonds.  I  want 
them  to  be  good,  because  I  want  the  low  interest.  I  am  going  to 
leave  that  part  of  it  for  you  to  work  out.  There  would  have  to  be 
some  provision  for  penalties  or  foreclosure  proceedings,  since  if  he 
borrows  the  money  he  must  pay  it  back  and  keep  up  the  security.  I 
want  the  thing  done  squarely  and  in  the  manner  that  will  most  effi- 
ciently help  the  farmer. 

Mr.  Win  go.  I  wanted  to  get  your  idea  about  it.  Your  idea  is  to 
protect  against  what  some  denominate  reckless  borrowing  or  borrow- 
ing for  other  than  proper  purposes.  You  feel  like  supervision  ought 
to  be  had,  and  some  provision  ought  to  be  made  so  that  if  a  man  had 
made  a  reckless  loan  or  borrowed  money  for  purposes  other  than 
that  for  which  he  represented  that  we  would  have  some  way  by 
which  the  legitimate  borrowers'  interest  rate  would  not  be  affected 
by  reason  of  what  you  might  call  wildcat  borrowing,  so  as  to  tend 
to  show  that  he  is  a  bona  fide  patron  of  the  system,  and  so,  inci- 
dentally, to  affect  his  loan  for  the  full  term.  In  other  words,  you 
feel  that  there  ought  to  be  some  provision  by  which  his  loan  could 
be  foreclosed  if  he  does  not  show  by  his  acts  and  use  of  the  money 
that  he  is  of  the  class  that  needs  it  and  was  intended  to  be  benefited 
by  it. 

Mr.  Mobley.  In  substance  along  that  line;  yes;  and  that  this  could 
be  by  a  simple  system  of  farm  accounts,  though  it  would  have  to 
be  very  simple.  The  department  could  furnish  blanks  at  a  minimum 
cost  so  that  he  could  carry  it  out.  It  could  be  made  a  wonderful 
help  for  the  farmer.  If  you  can  get  him  to  keep  some  simple  form 
of  farm  accounts  it  will  educate  him  more  than  anything  you  can 
do  for  the  present  southern  farmer  of  the  last  two  classes.  We  have 
attempted  something  along  that  line  in  our  own  work.  There  is 
nothing  that  will  make  a  man  so  watchful  as  to  keep  an  account  of 
the  money  he  spends. 

Mr.  Wingo.  Would  you  make  him  keep  books? 

Mr.  Mobley.  Yes,  sir;  a  very  simple  form  of  accounting.  As  I 
say,  a  blank  form  can  be  worked  out  that  the  borrowing  farmer 
can  be  compelled  to  keep  as  one  condition  of  his  loan. 

I  have  not  made  any  notes ;  I  studied  the  matter  over  thoroughly. 
I  was  bothered  very  much  about  the  tax-exemption  clause  of  the 


966  RURAL   CREDITS. 

Moss  bill.  I  realize  that  if  these  bonds  can  be  exempted  from  taxa- 
tion and  the  mortgages  exempted  from  taxation,  it  is  very  desirable, 
because  it  will  help  to  get  a  lower  rate  of  interest.  I  do  not  know 
whether  it  can  be  done  or  not,  but  whatever  bill  you  bring  in,  if  you 
bring  in  something  that  does  that,  you  strengthen  it. 

Mr.  Seldomridge.  How  long  have  you  lived  in  this  section  you 
speak  of? 

Mr.  Mobley.  Since  1879,  in  Arkansas. 

Mr.  Seldomridge.  Has  there  been  any  improvement  in  agricultural 
conditions  there  in  the  past  5  or  10  years? 

Mr.  Mobley.  A  very  great  improvement. 

Mr.  Seldomridge.  Does  that  improvement  relate  to  the  population 
which  has  been  permanent  there,  or  does  it  relate  to  a  new  element  of 
population? 

Mr.  Mobley.  I  could  not  answer  that  question.  I  do  not  believe 
anybody  could  answer  it.  It  might  relate  to  a  new  population, 
Government  activity,  it  might  relate  to  the  work  of  the  agricultural 
schools,  it  might  relate  to  the  farm  organization's  work,  university 
extension,  farm  demonstration,  and  many  other  agencies. 

Mr.  Seldomridge.  Has  the  State  in  any  way,  through  its  legisla- 
ture, attempted  to  relieve  the  conditions  that  exist  with  reference  to 
injurious  financial  conditions? 

Mr.  Mobley.  No,  sir;  except  in  passing  usury  laws. 

Mr.  Seldomridge.  Is  that  due  to  a  lack  of  interest  or  simply  be- 
cause of  a  lack  of  information? 

Mr.  Mobley.  It  is  due  to  the  fact  that  those  men 

Mr.  Seldomridge  (interposing).  They  control  the  State  govern- 
ment ?     Is  that  the  idea  ? 

Mr.  Mobley.  They  are  the  men  that  control. 

I  want  to  tell  you  a  story.  I  cried  when  I  heard  it.  A  farmer,  an 
old  man,  in  the  State  of  Arkansas,  said  in  one  of  our  conventions, 
"  This  is  the  greatest  day  in  my  life,"  and  the  tears  ran  down  his 
old  face.  He  said :  "  Twenty  years  ago  I  came  in  town  here  to  the 
store  and  made  arrangements;  I  have  finished  paying  back  to-day,  and 
am  out  of  debt." 

It  is  a  kind  of  commercial  peonage  there  in  many  places  that  in- 
fluences the  debtor  to  vote  or  do  what  his  creditor  wants  him  to. 

This  man,  who  had  been  in  debt  to  one  man  for  20  years  continu- 
ously, would  represent  that  class  of  commercial  peonage,  and,  of 
course,  he  would  be  more  or  less  influenced  by  his  creditors. 

Mr.  Wingo.  Mr.  Mobley,  is  it  not  true,  in  answer  to  Mr.  Seldom- 
ridge's  question  as  to  what  had  been  the  causes  of  the  agricultural 
improvement  in  your  State — is  it  not  true  all  those  different  elements 
which  have  been  named  have  contributed  to  your  rapid  develop- 
ment? 

Mr.  Mobley.  The  railroads  have  helped;  the  university,  through 
its  extension  department,  has  helped;  the  common  agricultural 
schools  have  helped;  the  farm-demonstration  work  and  the  State 
department  of  agriculture  have  helped  to  advance  everything  except 
the  financial  side  of  it,  and  that  is  left  severely  alone.  The  help  is 
all  for  more  production  only. 

Mr.  Seldomridge.  If  the  committee  should  find,  in  its  judgment, 
that  it  would  be  impossible  to  render  the  direct  Government  aid 
that  is  asked  for,  but  should  provide  an  agency  through  which  the 


RURAL   CREDITS.  697 

farmers  might  work  together  with  others  who  might  be  interested 
in  his  welfare,  do  you  think  it  would  be  possible  for  the  agency  to 
be  developed  independent  of  this  moneyed  interest  you  say  dominates 
or  controls? 

Mr.  Mobley.  It  would  in  many  more  localities  than  if  our  aid  is 
indirect.  Of  course  the  conditions  I  mention  do  not  prevail  every- 
where.   But  we  could  work  it  out  best  with  direct  aid. 

Mr.  Wingo.  Coming  to  the  bill  that  has  been  introduced,  known 
as  the  Fletcher-Moss  bill,  do  I  understand  you  say  you  think  it 
would  be  wise  to  put  in  an  exemption  proposition  to  which  you 
referred,  exemption  from  taxation? 

Mr.  Mobley.  If  they  could  do  it  by  exempting  simply  the  mort- 
gages that  are  given  to  these  banks,  but  not  to  exempt  all  real  estate 
mortgages  ? 

Mr.  Wingo.  In  other  words,  your  exemption  would  go  to  the  mort- 
gage indebtedness  due  these  banks  alone  ? 

Mr.  Mobley.  To  this  class  of  banks  or  the  Government;  yes. 

Mr.  Wingo.  You  would  not  exempt  the  mortgages  and  bonds  and 
stock  of  the  bank?  You  would  not  exempt  all  of  these  different 
classes? 

Mr.  Mobley.  No,  sir;  I  would  not  exempt  the  stock  and  surplus 
and  net  income  derived  therefrom. 

Mr.  Wingo.  This  bill  provides  for  banks  with  a  capital  stock  of  a 
minimum  capital  of  $10,000,  and  the  theory  of  these  gentlemen  who 
propose  it  seems  to  be  that  a  certain  number  of  farmers  will  get 
together  and  take  that  stock.  Now,  do  you  believe  there  is  ready 
available  money  in  the  hands  of  the  farmers  to  organize  these  banks 
in  our  country? 

Mr.  Mobley.  I  know  there  is  not. 

Mr.  Wingo.  Is  not  the  trouble  with  the  tenant  class  that  they 
are  lacking  not  only  in  investment  capital,  but  they  are  lacking  also 
in  short-term  credits? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Platt.  Aren't  we  allowing  a  kind  of  a  misapprehension  to 
get  out  as  to  who  can  organize  these  banks?  There  is  nothing  to 
prevent  a  Wall  Street  business  man  from  organizing  one  of  these 
banks  down  there,  is  there? 

Mr.  Mobley.  If  a  company  of  men,  not  less  than  10  in  number,  in 
the  ordinary  farm  districts  of  Arkansas  can  assemble  so  much  as 
$10,000  of  money  as  a  working  capital  over  and  above  their  farm 
necessities,  they  can  put  that  money  to  commercial  and  bank  uses 
that  will  make  them  infinitely  more  than  they  can  ever  hope  to  make 
out  of  one  of  these  banks.  Such  banks  would  be  failures  with  us 
as  local  institutions. 

Mr.  Wingo.  Let  me  ask  you :  You  stated  to  the  committee  that 
there  were  three  classes,  the  landlord,  the  small  farm  owner,  and  the 
tenant  farmer.  Now,  is  it  not  a  fact,  as  you  have  already  stated, 
that  for  the  landlord  there  is  not  a  present  economic  need  for  legis- 
lation of  this  kind  in  his  behalf,  but  that  there  is  need  for  it  in  behalf 
of  the  tenant  farmer  and  the  small  farm  owner? 

Mr.  Mobley.  There  is  no  need  on  behalf  of  the  landlord;  he  is 
fully  able  to  take  care  of  himself.  But  the  other  two  classes  must 
have  help,  and  that  soon. 


698  RURAL   CREDITS. 

Mr.  Wingo.  The  man  you  are  thinking  of  is  not  the  landlord  or 
the  man  who  has  money  already  upon  deposit  with  the  banks,  but 
it  is  the  man  who  has  to  mortgage  his  crop  in  advance  in  order  to 
get  supplies  to  furnish  him.  That  is  the  man  you  have  in  mind 
and  whom  you  wish  to  benefit  when  you  ask  for  Government  aid? 

Mr.  Mobley.  Yes,  sir;  also  the  small  farm  owner  who  needs 
money  to  pay  off  a  mortgage  on  his  farm  or  to  make  improvements. 

Mr.  Wingo.  Now,  then,  if  you  could  get  investment  capital;  if 
these  farmers  that  you  have  in  mind  could  secure  investment  capital 
by  which  they  could  pay  for  their  homes,  secure  farm  homes  on  a 
low  rate  of  interest  at  a  long  time  under  an  amortization  plan;  in 
other  words,  if  you  could  secure  for  them,  under  some  feasible 
practical  plan,  investment  capital,  what  is  your  opinion  with  refer- 
ence to  whether  or  not  personal  credits  could  be  taken  care  of  locally 
and  the  pressure  along  that  line  be  relieved? 

Mr.  Mobley.  I  have  studied  personal  credits  from  the  standpoint 
of  this  class.  I  have  not  paid  so  much  attention  to  European  per- 
sonal credits,  because  I  felt  that  they  would  not  reach  us.  We  al- 
ready have  a  personal-credit  system  in  Arkansas. 

Mr.  Wingo.  That  is  the  point  I  wanted  to  bring  out,  that  if  he 
could  get  this  investment  capital  that  situation  would  be  relieved? 

Mr.  Mobley.  That  is  what  I  want  to  bring  out.  If  this  law  did 
authorize  these  land  banks  or  granted  Government  aid  and  would 
go  further  and  authorize  a  personal-credit  proposition,  and  they 
were  permitted  to  loan  money  on  good  chattel  mortgages  with  good 
personal  risks  behind  them,  these  banks  could  put  out  money  on 
the  chattel  mortgages,  or  advance  these  people  money  to  do  this 
farm  work  on  chattel  mortgages,  without  them  having  to  pay  this 
enormous  100  or  150  per  cent  store  profits  and  the  large  interest 
rates  they  now  pay.  Those  chattel  mortgages  are  good ;  those  people 
do  not  lose  on  them.  If  we  had  this  resource  for  money  we  would 
be  relieved  from  the  tension.  I  believe  that  it  would  be  simple  if 
we  had  a  law  giving  us  the  right  to  do  a  chattel-mortgage  business 
and  borrow  money — a  national  law — to  borrow  money  on  those 
chattel  mortgages  in  a  manner  similar  to  the  proposal  to  borrow  on 
land,  that  we  could  use  those  chattel  mortgages  and  often  find  money 
ourselves  from  what  surplus  we  might  have  to  a  great  extent,  and 
relieve  the  tenant  and  small  farm  owner  from  his  high  interest  rate 
and  take  care  of  his  needs. 

Mr.  Platt.  Why  couldn't  you  do  that  now  under  a  State  law  ? 

Mr.  Mobley.  We  could  not  afford  it.  Our  investment  in  our 
farms  is  too  hard  to  carry  at  present  for  us  to  undertake  to  do  such 
a  thing  without  help. 

Mr.  Wingo.  If  you  could  furnish  the  small  home  owner  a  rural- 
credit  plan  by  which  he  could  get  the  money  easily  with  which  to  pay 
for  his  home  or  pay  off  the  existing  high-rate  mortgage — short  term 
and  high  rate  mortgage — and  come  under  a  low-interest  rate  and  a 
long  term  and  get  his  investment  capital  where  it  would  be  more 
permanent,  so  that  it  would  not  bother  him  for  a  long  term  of  years, 
would  not  that  then  relieve  the  pressure  and  break  some  of  the 
alleged  monopoly  of  the  personal-credit  system  to  which  you  refer? 

Mr.  Mobley.  It  would  not  break  it,  but  it  would  help  a  whole  lot. 

Now,  in  this  law — this  is  not  a  criticism,  but  it  is  a  question 
that   comes  in   my   mind    and   has    occurred    to    many   gentlemen 


RURAL   CREDITS.  .  699 

with  whom  I  am  associated  in  this  work;  and  we  have  studied 
it  a  great  deal.  There  are  about  3,000  counties  in  the  United 
States.  Suppose  we  organize  the  banks  that  are  proposed  under 
this  law  in  a  number  of  those  counties — 300  of  them,  or  one- 
tenth  of  the  number  of  counties — and  attempt,  each  bank,  to  sell  its 
$150,000  worth  of  bonds.  Our  belief  is  that  it  would  have  a  directly 
opposite  effect  from  what  the  hearings  here  seem  to  expect;  that 
instead  of  it  decreasing  the  interest  we  have  to  pay,  it  would  increase 
it,  because  we  would  become  competitors  for  money.  We  would  be 
in  about  the  same  position  the  Frenchman  was,  as  I  remember  read- 
ing, in  his  Credit  Foncier.  Originally  he  went  to  a  bank  and  put 
up  his  security  and  received  a  handful  of  bonds,  and  had  to  go  out 
and  sell  wherever  he  could.  Would  not  that  be  just  what  we  would 
have  to  do  under  this  law?  Each  one  of  the  banks,  when  it  went  out 
to  sell  its  own  bonds  under  this  proposed  system,  would  be  putting 
practically  the  same  system  in  force  here  that  they  did  in  France. 
Having  to  peddle  these  bonds,  would  we  not  have  to  sell  them  for  just 
anything  we  could  get? 

Mr.  Wingo.  In  other  words,  you  think  there  would  be  keen  com- 
petition, or  some  competition,  in  the  same  market  ? 

Mr.  Mobley.   Yes. 

Mr.  Platt.  And  you  would  have  the  extra  cnarge  of  getting  out 
the  bonds  and  selling  them  added  to  the  mortgages? 

Mr.  Mobley.  Yes,  sir ;  and  then  we  have  this  further  condition : 
Instead  of  the  money-lending  world  seeking  us  to  lend  us  money, 
which  would  give  us  an  advantage  in  the  interest  rate,  it  would  be 
putting  us  in  the  position  of  competing  to  borrow  money,  and  that 
would  have  a  tendency  to  put  up  the  interest  rate. 

Mr.  Wingo.  You  think  that  would  increase  the  burden  on  the 
credit  system  of  the  country  and  increase  the  interest  rates? 

Mr.  Mobley.  Yes,  sir;  not  only  on  the  credit  system  of  the  coun- 
try, but  would  really  make  us  pay  a  higher  rate  of  interest  through 
the  operation  of  a  law  which  had  intended  to  give  us  a  lower  rate  of 
interest. 

Mr.  Platt.  In  other  words,  you  think  the  whole  system  if  issuing 
bonds  is  a  bad  one? 

Mr.  Mobley.  No;  though  I  think  it  would  be  in  the  way  this  pro- 
posed law  leaves  it.    This  law  says: 

*  *  *  Any  national  farm-land  bank  may,  with  the  consent  of  the  com- 
missioner of  farm-land  banks,  maintain  either  within  the  State  in  which  it  is 
operating  or  elsewhere  sales  agents  or  agencies  for  the  sale  of  its  national 
land-bank  bonds  or  for  trading  in  the  same. 

In  other  words,  we  might  have  a  Washington  County  land  bank 
with  an  agent  in  Chicago,  and  there  might  be  one  in  Benton  County 
and  300  or  400  or  500  other  counties  of  the  United  States,  each  one 
with  its  agent  out  trying  to  sell  $150,000  worth  of  bonds  for  each 
bank.  That  would  place  us  in  the  position  of  competing  one  against 
the  other  instead  of  having  them  come  to  us — seeking  us. 

Mr.  Bulkley.  I  think  you  understood  that  correctly;  but  there 
would  be  an  offset  for  that  in  the  advantage  of  exe  iption  from  taxa- 
tion. However,  I  see  the  justice  of  your  criticism,  and  I  thought  you 
would  make  some  suggestions  as  to  how  it  could  be  made  an  advan- 
tage to  the  borrower. 


RURAL   CREDITS. 

Mr.  Mobley.  I  am  Populist  enough  to  want  the  Government  to  let 
us  have  the  money,  and  all  of  the  organizations  that  I  am  acquainted 
with  think  that,  and  we  ask  that.  But  if  you  can  not  get  what  you 
ask  for,  then  take  the  next  best  thing. 

Mr.  Btjlkley.  What  is  the  next  best  thing? 

Mr.  Mobley.  I  believe  the  next  best  thing  would  be  for  a  commis- 
sion in  the  National  Treasury  to  handle  those  bonds,  and  for  none 
of  them  to  be  sold  anywhere  except  through  this  commission,  and  the 
^ale  to  be  graduated  or  controlled 

Mr.  AVingo  (interposing).  Would  you  have  a  Government  com- 
mission that  would  exercise  such  supervisory  control  as  to  prevent 
fraud  in  the  giving  of  those  mortgages  and  then,  under  that  Govern- 
ment supervision,  let  the  Government  commission  market  the  bonds, 
and  expense  of  marketing  be  paid  by  the  Government. 

Mr.  Mobley.  Yes;  and  not  let  any  of  those  banks  market  their 
bonds  at  all.  but  let  them  give  them  to  the  Government  commission 
to  market  and  without  waiting  for  the  bonds  to  be  sold  provide 
that  the  Government  will  advance  the  issuing  bank  the  par  value  of 
the  bonds  even  before  they  are  sold. 

Mr.  AA^ingo.  Suppose  that  this  bill  is  passed.  The  banks  must 
have  some  mortgages  before  they  can  issue  bonds,  as  I  gather  from 
the  bill.  AArould  there  be  any  way  by  which  the  local  land  bank,  if 
it  were  organized,  could  determine  what  rate  of  interest  they  would 
charge  the  farmer  who  wanted  to  mortgage  his  land?  How  would 
they  arrive  at  what  rate  the  interest  should  be,  because  the  bill  says 
there  must  be  a  1  per  cent  premium.  In  other  words,  on  the  mort- 
gage, as  I  understand,  the  farmer  must  pay  at  least  1  per  cent  higher 
rate  than  that  the  bonds  call  for.  How  will  they  know  in  advance 
what  the  bonds  will  sell  for?  How  would  that  be  determined?  Have 
you  studied  that  question? 

Mr.  Mobley.  Yes,  sir.  Under  this  law,  as  it  is  written  here,  if 
I  went  to  a  land  bank  and  offered  my  land  for  mortgage  and  asked 
what  rate  of  interest  I  would  have  to  pay,  there  would  be  nobody 
in  that  bank  and  nowhere  else  on  earth  who  could  answer  it.  I  would 
take  a  chance  on  what  I  would  have  to  pay,  because  that  bond  would 
have  to  be  sold,  and  whatever  it  sold  for  would  be  what  I  would  have 
to  pay  plus  1  per  cent.  But  if  you  had  a  commission  to  sell  those 
bonds  of  course  it  could  determine  in  advance  about  what  the 
rate  would  have  to  be  in  order  for  the  bond  to  sell  at  par. 

Senator  Hollis.  That  is  where  the  judgment  of  the  managers 
would  come  into  play.  They  would  have  to  form  a  judgment  as 
to  what  would  float  the  bond's  out  and  charge  you  a  rate  of  interest 
in  accordance  with  it.  And  if  they  loaned  it  to  you  too  cheaply 
they  would  have  to  lose  and  that  would  have  to  come  out  of  the 
capital  ? 

Mr.  Mobley.  It  could  not  be  any  other  way  under  the  proposed 
Moss  bill. 

Mr.  Platt.  You  could  assume  that  the  thing  would  start  off  with 
no  considerable  decrease  in  interest.  If  this  plan  is  put  into  effect, 
would  it  wipe  out  the  commissions  and  all  that  sort  of  thing? 

Mr.  Mobley.  No:  not  at  first  at  least.  AA7e  are  ready  to  accept  that 
condition;  but  now  there  is  another  thing  that  could  be  done  about 
the  interest.  The  Government  commission  for  selling  these  bonds 
<  nght  to  sav  what  interest  these  bonds  shall  bear  and  they  ought  to 


EUEAL   CREDITS.  701 

be  sold  at  that,  just  like  any  other  Government  bond.  The  Govern- 
ment does  not  underwrite  these  bonds — it  does  not  guarantee  them — 
but  yet  it  could  say  what  interest  those  bonds  shall  bear  and  make 
that  the  rate  of  interest  through  its  commission. 

Mr.  Bulkley.  Now,  right  there,  Mr.  Mobley.  How  can  you  do 
that?     You  can  not  compel  anybody  to  invest  in  them? 

Mr.  Mobley.  No,  sir. 

Mr.  Bulkley.  Then,  how  can  you  tell  at  what  rate  of  interest 
they  will  sell? 

Mr.  Mobley.  Now,  gentlemen,  I  am  not  positive,  but  I  believe  this 
commission  could  go  so  carefully  into  the  selling  value  of  such  bonds 
and  first-class  securities  and  the  usual  rates  of  interest  that  prevails 
in  those  things,  and  the  rate  of  interest  that  would  be  given  to  those 
bonds  could  be  very  nearly  determined.  The  commission  in  selling 
them  could  increase  or  lower  it,  as  the  money  market  demanded. 

Mr.  Platt.  Would  you  make  uniform  rates  of  interest  for  all 
parts  of  the  country  ? 

Mr.  Mobley.  No,  sir. 

Mr.  Platt.  How  could  the  United  States  Government  fix  a  rate 
of  interest  unless  it  applied  uniformly  everywhere? 

Mr.  Mobley.  Your  question  goes  beyond  my  ability  to  answer. 

Mr.  Wingo.  Let  me  call  attention  to  the  regional  reserve  bank 
provision,  by  which  the  directors  of  the  reserve  banks  fix  the  dis- 
count rate. 

Mr.  Bulkley.  They  have  to  fix  it  from  time  to  time. 

Mr.  Mobley.  That  is  what  I  had  in  mind  in  my  first  suggestion, 
in  suggesting  that  the  Government  sell  these  bonds  and  fix  the  rates 
to  prevent  the  local  banks  having  to  fix  them. 

Mr.  Bulkley.  Do  you  mean  you  would  try  to  figure  some  rate 
of  interest  which  would  make  the  bonds  sell  at  par ;  is  that  your  idea  ? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Bulkley.  Don't  you  see,  if  we  should  fix  the  rate  so  low  that 
the  investing  public  would  consider  those  bonds  to  be  worth  a  little 
bit  less  than  par  you  could  not  sell  them  at  all,  because  you  would 
not  be  authorized  to  sell  below  par? 

Mr.  Mobley.  You  evidently  misunderstood  me. 

Mr.  Bulkley.  Possibly.    What  did  you  mean? 

Mr.  Mobley.  You  are  talking  about  an  arbitrary  rate  of  interest  ? 

Mr.  Bulkley.  That  is  what  I  understood  you  to  say. 

Mr.  Mobley.  Mr.  Platt  asked  me  if  I  would  make  the  same  rate 
for  all  sections  of  the  country. 

Mr.  Bulkley.  What  did  you  mean  ? 

Mr.  Mobley.  I  said  the  Government  ought  to  fix  it,  but  I  did  not 
mean  to  fix  a  general  legal  rate.  I  mean  this  commission  ought  to 
fix  the  rate  at  which  the  bonds  sell  at  the  time  they  are  sold. 

Mr.  Bulkley.  Suppose  they  have  an  issue  ready  to  sell ;  how  would 
you  fix  the  rate? 

Mr.  Mobley.  This  commission  that  handles  the  bonds  would  fix 
a  rate  at  which  they  could  be  sold  at  that  time. 

Mr. 'Bulkley.  All  right.  Thev  would  have  to  sell  at  par,  wouldn't 
they? 

Mr.  Mobley.  Yes.  sir. 


RURAL   CREDITS. 

Mr.  Btjlkley.  Then  my  point  is  perfectly  good.  If  the  investing 
public  would  not  be  willing  to  pav  par  for  them,  then  could  not  buy 
them  at  all? 

Mr.  Mobley.  No.    The  commission  could  raise  the  interest. 

Mr.  Btjlkley.  The  commission  could  raise  the  interest? 

Mr.  Mobley.  Yes. 

Mr.  Btjlkley.  And  call  for  a  new  subscription? 

Mr.  Mobley.  No;  the  interest  would  not  be  printed  in  the  face  of 
the  bond.  The  rate  upon  the  bond  would  not  be  entered  until  after 
the  commission  knew  what  they  would  be  sold  for. 

Mr.  Bulkley.  I  do  not  understand  how  the  rate  could  be  fixed 
for  which  the  bonds  could  be  sold.  You  could  not  get  anj7body  to 
buy  a  bond  if  they  did  not  know  what  the  interest  was  going  to  be. 

Mr.  Mobley.  Let  us  state  a  case:  You  are  an  investor  and  the 
gentleman  there  [indicating]  is  the  commissioner.  You  say,  "  I  will 
buy  those  bonds  at  4  per  cent."  He  has  tried  to  get  3|,  but  he  could 
not  get  it,  and  he  says,  "All  right ;  they-  are  your  bonds  " ;  and  he 
writes  them  out  at  4  per  cent  and  you  take  them. 

Mr.  Bulkley.  By  agreement  with  the  purchaser? 

Mr.  Mobley.  Yes. 

Mr.  Wingo.  As  I  gathered  from  your  statement,  your  idea  was 
thas  this  commission  would  investigate  and  would  be  able  to  ascer- 
tain what  a  bond  of  that  character  would  really  be  worth,  and  that 
they  could  hold  those  bonds  for  that  figure.  After  that,  if  there  was 
no  competition  or  there  was  an  effort  to  try  to  force  the  sale  at  a 
higher  rate  than  the  commission  had  fixed,  they  could  be  held  off 
the  market  and  the  commission  could  ascertain  what  the  real  value 
of  the  bonds  of  that  character  were,  and  say,  "  We  will  not  sell  at  a 
higher  rate  than  that  which  thejr  should  really  bring." 

Mr.  Mobley.  That  is  my  idea  exactly.  The  commission  will  in- 
form itself  of  what  will  be  a  reasonable  rate  and  refuse  to  sell  at  an 
unreasonable  rate.  And  if  for  that  reason  the  bonds  are  held  off 
pending  sale  at  such  reasonable  rate  of  interest,  then  the  Govern- 
ment would  permit  us  to  go  ahead  and  conclude  our  transaction 
with  the  borrower,  it  holding  our  bonds  for  face  value  as  its  security. 

Mr.  Bulkley.  Of  course,  there  is  the  idea  that  somebody  ought  to 
keep  down  the  rate  of  interest  and  to  keep  up  the  price  of  the  bond : 
but  it  seems  to  me  much  better  to  do  that  by  having  some  person  who 
:s  interested  in  that  than  it  would  be  to  have  some  Government 
official  upon  a  salary  do  it. 

Mr.  Mobley.  I  disagree  with  you.  I  have  arrived  at  the  conclu- 
sion that  the  Government  can  find  men  who  backed  up  by  its  prestige 
can  sell  those  bonds  better  than  I  could  myself,  or  any  little  bank. 
I  believe  that  is  good  common  sense.  In  other  words,  I  believe  the 
Government  commission  could  sell  these  bonds  better  than  any  indi- 
vidual. 

Mr.  Wingo.  In  other  words,  you  believe  that  a  Government  com- 
mission, under  a  Federal  law  having  authority  to  supervise  the  issu- 
ing of  these  bonds  which,  in  itself,  would  carry  with  it  an  implied, 
though  not  a  legal,  guaranty  of  the  correctness  of  all  the  formalities 
and  the  solvency  of  the  issue — that  that,  within  itself,  would  give 
them  sufficient  prestige  to  bring  the  highest  price,  or  rather  the  low- 
est rate  of  interest,  in  the  open  market? 

Mr.  Mobley.  Yes,  sir. 


BUBAL    CrtEDlTS.  703 

Mr.  Seldomridge.  Do  you  recognize  that  that  value  would  attach 
to  a  bond  if  it  had  been  certified  to  by  the  central  agency  within  the 
State  rather  than  by  the  General  Government  acting  under  a  Fed- 
eral law? 

Mr.  Mobley.  Yes;  I  realize  that.  The  central-agency  idea  would 
be  our  third  idea,  as  I  would  express  it.  The  direct  aid  would  be  the 
first  idea.  The  Government  supervision  and  selling  of  those  bonds 
at  the  best  interest  rate  they  could  would  be  the  second  idea,  and  the 
central-bank  idea,  one  for  each  State,  would  be  the  third. 

Now,  then,  if  I  have  said  enough  about  that,  I  will  say:  As  I  see 
this  law,  a  central  bank  would  be  about  the  only  thing  we,  would  have 
for  Arkansas.  We  would  hardly  have  a  local  bank,  because,  as  I 
understand  it,  there  is  no  limit  on  the  amount  of  money  the  share- 
holder can  subscribe  to  the  stock  in  those  banks.  I  do  not  find  where 
it  is  limited,  and  I  understand  the  stockholder  can  be  a  nonresident. 
He  don't  have  to  be  a  citizen  of  the  United  States.  I  understand 
the  board  of  directors  can  be  one-fourth  of  them  nonresidents.  I 
think  I  am  correct  in  that.  Then  taking  into  consideration  the  fur- 
ther fact  that  $10,000  is  the  lowest  amount  of  money  you  can  use  to 
start  one  of  these  banks,  and  then  coming  down  in  my  country  where 
we  don't  have  that  amount  of  money  to  go  into  this  kind  of  a  busi- 
ness— that  is,  our  kind  of  people  don't  have  it — some  other  class  of 
people  are  the  people  who  are  going  to  put  up  the  money  to  start  the 
banks  and  carry  them  on.     That  is  patent  on  the  face  of  this  thing. 

Mr.  Wingo.  In  other  words,  the  condition  you  have  in  mind  to 
meet  is  a  condition  which  would  naturally  have  to  rely  upon  outside 
capital  ? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Wingo.  You  have  not  the  local  capital  available;  you  must 
get  outside  capital? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Wingo.  Isn't  it  a  fact  that  syndicate  banks  already  operate  in 
our  State;  that  is,  Kansas  City,  St.  Louis,  and  others  bankers  own 
a  string  of  banks  all  through  that  country?  One  man,  I  think  a 
preacher,  a  friend  of  Champ  Clark,  it  is  alleged,  owns,  I  think,  28 
banks  in  your  State  or  has  the  principal  interest  in  the  corporations 
that  do.  "Now,  bringing  in  that  outside  capital  under  the  present 
system,  these  banks  do  not  lower  the  rate  of  interest.  They  do  bring 
in  some  outside  capital,  but  the  competition  is  so  great  locally  it 
still  keeps  the  high  interest  rate. 

Mr.  Mobley.  Yes;  but  I  want  to  add  something  to  that.  The 
competition,  as  I  call  it,  for  the  hire  of  money  has  held  it  up,  and 
a  custom  resulting  practically  in  restraint  of  trade  in  money  matters 
also  tends  to  keep  interest  up. 

Mr.  Wingo.  Let  me  ask  you  this  question:  Is  there  anything  in 
the  State  law  you  know  of  that  would  prevent  the  organization  of 
a  bank  similar  to  the  ones  provided  for  in  here,  even  if  Congress 
never  does  act? 

Mr.  Mobley.  In  a  general  way,  no.  I  expect  on  the  question  of 
the  exemption  of  mortgages  and  things  like  that  you  would  have  to 
have  a  State  law. 

Mr.  Wingo.  But  I  mean  you  could  get  together  and  organize  State 
banks  for  the  lending  of  money  on  farm  mortgages  under  a  long 


704  RURAL   CREDITS. 

term  and  an  amortization  plan.  There  is  nothing  in  the  State  law 
to  prevent  this  that  you  know  of? 

Mr.  Mobley.  Nothing,  if  they  could  sell  their  bonds. 

Mr.  Platt.  If  farmers  in  your  neighborhood  can  afford  to  pay 
100  per  cent  it  would  seem  to  me  a  pretty  profitable  thing  to  go  into 
the  organization  of  these  banks. 

Mr.  Mobley.  Let  me  tell  you,  Mr.  Platt,  that  is  profoundly  put 
and  very  hard  to  answer.  It  brings  up  a  condition  of  mind  that  a 
man  gets  into.  It  is  like  a  man  who  is  mesmerized — he  is  controlled 
by  the  outside  power,  not  his  own  mind.  You  said  a  while  ago  you 
did  not  understand.  I  caught  your  point  all  right.  I  do  not  care 
to  explain,  but  there  is  a  condition  of  mind  there.  I  do  not  want 
to  talk  mysteriously,  but  that  condition  of  mind  would  keep  many 
out  of  such  banks. 

Mr.  Platt.  What  can  be  clone? 

Mr.  Mobley.  I  tell  you  direct  Government  aid  will  reach  him 
right  now. 

Mr.  Seldomridge.  Mr.  Mobley,  what  security  has  he  to  give  either 
for  a  loan  from  the  Government  or  an  individual  ? 

Mr.  Mobley.  He  often  has,  among  the  small  landowners,  a  pretty 
good  piece  of  ground. 

Mr.  Seldomridge.  Do  you  mean  clear  of  indebtedness  or  mort- 
gaged? 

Mr.  Mobley.  Many,  a  great  many,  of  this  one  class  are  without 
mortgage.  He  has,  in  the  next  instance,  a  good  piece  of  ground  with 
a  debt  on  it.  and  if  he  can  borrow  enough  to  pay  that  debt  off,  that 
man 

Mr.  Seldomridge  (interposing).  What  is  the  average  size  farm 
that  you  have  owned  by  the  class  of  people  that  need  this  help? 

Mr.  Mobley.  Now,  I  have  read  in  your  statistician's  report  here. 
Dr.  Thomson,  a  whole  lot  of  statistics  about  the  average  farm  in 
the  United  States,  and  all  like  that,  but  I  do  not  believe  any  informa- 
tion he  submitted  about  that.  It  would  range  anyAvhere  from  10 
to  160  acres. 

Mr.  Seldomridge.  What  is  the  value  of  your  land? 

Mr.  Mobley.  The  value  of  our  land  would  range  from  $10  to  $100 
an  acre. 

Mr.  Seldomridge.  Is  it  land  as  some  witnesses  have  described  as 
being  in  river  bottoms,  capable  of  being  flooded  or  its  value  destroyed 
by  any  overflow? 

Mr.  Mobley.  Some  is  in  the  broad,  rich,  alluvial  river  bottoms: 
some  is  in  the  wide,  rich  swamp  sections  which  have  been  drained : 
such  lands  being  subject  to  overflow.  Some  of  it  is  the  red  clay 
on  the  hillside;  some  of  it  is  rocky,  mountain  land;  some  of  it  is  on 
the  plateaus  of  the  mountains,  and  some  of  it  is  in  the  narrow  valleys. 

Mr.  Wingo.  May  I  be  permitted  a  suggestion?  Mr.  Seldomridge 
asked  what  can  he  offer  as  security.  In  other  words,  you  want  to 
know  whether  he  has  got  the  security  to  justify  it? 

Mr.  Seldomridge.  Yes. 

Mr.  Wingo.  Has  not  the  small  farmer  in  Arkansas  a  place  that  is 
of  sufficient  productive  value  so  that  he  now  makes  a  living  on  it  and 
yet  pays  a  high  rate  for  the  money  with  which  to  operate? 


RURAL   CREDITS.  705 

Mr.  Mobley.  Yes.  It  is  of  enough  productive  value  to  make  that 
and  in  the  mercantile-supply  proposition  to  pay  from  150  to  200  per 
cent. 

Mr.  YTingo.  In  other  words,  he  is  making  a  living  now  in  spite  of 
the  bad  conditions? 

Mr.  Mobley.  Yes. 

Mr.  Platt.  Coming  back  to  these  tenant  farmers,  isn't  it  possible 
for  them  to  dig  themselves  out  from  under  the  storekeeper  class 
through  the  parcel  post?  vYTry  can  not  they  go  to  Sears  Roebuck 
occasionally  and  buy  their  stuff  for  one-tenth  what  they  have  to  pay? 

Mr.  Mobley.  Mr.  Platt.  1  will  answer  3-011  this  way.  I  will  say 
I  am  the  owner  of  a  plantation  and  you  are  my  tenant,  and  you  are 
out  in  the  field  at  work,  and  I  come  over  to  your  house  to  the  pump  to 
get  a  drink,  and  I  see  a  catalogue  which  a  little  child  has  left  lying 
around  on  your  porch  of  Sears  Roebuck  &  Co.;  the  next  year  I  don't 
think  you  would  rent  from  me  again. 

Mr.  Wingo.  He  has  no  assurance  that  the  Sears  Roebuck  &  Co.'s 
catalogue  would  be  of  any  benefit,  as  their  prices  are  as  high  as  he  has 
to  pay  at  the  local  store? 

Mr.  Mobley.  I  am  not  going  to  argue  against  that ;  but  it  is  serious, 
Mr.  Platt ;  it  is  very  serious. 

Mr.  Platt.  You  mean  to  say  the  landlord  who  owns  the  ground 
and  owns  the  store  would  actually  throw  a  man  off  the  property  be- 
cause of  his  buying  goods  from  an  outside  source  ? 

Mr.  Mobley.  In  many  cases;  yes.  Some  might.  Of  course  you 
will  have  exceptions,  but  they  will  be  a  mighty  few.  The  ordinary 
man  who  is  a  renter  could  not  afford  to  patronize  Sears  Roebuck 
very  much  if  his  landlord  knew  it. 

Mr.  Platt.  His  lease  is  from  year  to  year? 

Mr.  Mobley.  Yes;  I  think  so. 

Mr.  Platt.  There  is  never  any  longer  lease  than  that? 

Mr.  Mobley.  Most  of  them  are  for  one  year. 

Mr.  Platt.  Do  those  tenants  have  any  possible  chance  to  buy  that 
land  at  a  reasonable  price,  any  of  them  ? 

Mr.  Mobley.  Not  under  the  present  financial  condition;  but  there 
might  be  a  very  vague  exception  in  the  case  of  the  very  industrious 
and  economical  man  that  he  could  do  it. 

Mr.  Platt.  Is  it  ever  sold  for  any  reasonable  amount,  so  that  if  he 
had  the  finances  he  could  buy  it? 

Mr.  Mobley.  There  is  always  a  class  of  land  in  Arkansas  owned  by 
the  sawmills,  which  we  call  cut-over  lands  and  hill  lands,  which  can 
be  bought  at  reasonable  prices.  But  with  that  would  be  the  improve- 
ment expense  of  building  a  house,  buying  the  tools,  and  general 
physical  plant  of  the  farmer  added  to  it. 

Mr.  Platt.  But  these  lands  you  speak  of,  they  are  now  leased  from 
year  to  year  and  are  not  ever  sold  ? 

Mr.  Mobley.  Oh,  no,  sir.  They  are  almost  entailed  estates,  in 
effect,  except  in  rare  cases. 

Mr.  Wingo.  Mr.  Mobley,  I  have  heard  it  suggested  by  one  gentle- 
man, in  just  a  general  way,  that  it  might  be  feasible  to  use  the  postal 
savings  banks  as  the  machinery  to  handle  this  proposition  by  author- 
izing the  investment  of  the  postal  savings  bank  funds  in  mortgages. 
"Would  that  relieve  the  class  of  people  you  want  to  be  relieved  and 

37031—14 45 


706  RURAL   CREDITS. 

let  the  Government  of  the  United  States,  whenever  necessary,  de- 
posit money  in  the  postal  savings  bank  as  they  do  in  the  regional 
reserve  banks?    Had  you  thought  any  along  that  line? 

Mr.  Mobley.  I  have  thought  that  that  might  be  a  suggestion  of  one 
way  we  might  have  direct  Government  relief  up  to  the  extent  of  the 
funds. 

Mr.  Wingo.  Now,  under  the  Federal  reserve  act  the  commerce  of 
the  countr}7,  the  merchants  can,  through  their  local  banks,  go  to  the 
regional  reserve  bank  and  have  their  paper  rediscounted  and  get  cur- 
rent funds  to  meet  their  needs;  and  where  the  till  money  of  the 
regional  reserve  bank  has  run  out  they  can  issue  regional  reserve 
bank  notes.  Had  you  thought  whether  a  feasible  plan  might  be  de- 
veloped with  that  as  a  skeleton  by  which  relief  might  be  granted  to 
the  farmers? 

Mr.  Mobley.  We  people  of  the  farm  reason  by  analogy  all  the 
time.  We  seldom  reason  independently.  We  say  if  that  is  done  for 
another  class  of  business,  we  can  not  see  why  it  could  not  be  done 
for  us. 

Mr.  Wingo.  And  your  idea  is,  then,  you  might  get  around  the 
constitutional  objections  to  the  Government  loaning  money  for  the 
purpose  of  aiding  farmers  as  well  as  you  do  in  the  Federal  reserve 
act  in  coming  to  the  aid  of  the  merchants;  is  that  the  idea? 

Mr.  Mobley.  That  is  analogy  again.  If  you  can  get  around  the 
Constitution  for  one  class,  if  they  get  around  the  Constitution  like 
in  the  Federal  reserve  act,  they  ought  to  get  around  the  Constitution 
for  another  class.    I  think  that  is  a  farmer's  viewpoint. 

Mr.  Platt.  I  think  you  are  right  in  saying  that.  I  think  the  Fed- 
eral reserve  act  has  no  business  containing  a  special  privilege  in  it, 
which  it  has,  in  the  way  of  terms. 

Mr.  Mobley.  It  is  like  this :  We  are  asking  for  something  that  will 
help  us,  but  we  do  not  care  whether  it  is  a  special  privilege  or  non- 
privilege,  if  it  reaches  the  point.  Now,  this  technicality  pver  terms, 
I  have  no  patience  with  that.  I  am  not  saying  to  tear  clown  the 
Constitution  and  avoid  the  law;  I  am  just  as  law-abiding  a  citizen 
and  want  protection  of  my  property,  what  little  it  is,  and  life,  as  well 
as  the  rest  of  them.  I  am  frank  to  say  the  farmers  of  the  United 
States  are  pretty  well  persuaded  of  the  fact  that  certain  people  of 
the  United  States  have  special  privileges;  but  there  are  two  view- 
points, you  know.  But  I  want  to  emphasize  this  thought,  that  we 
will  be  grateful  to  you  for  any  help  that  you  can  devise  for  us.  We 
recognize  the  difficulties  that  you  are  laboring  under.  We  know  that 
precedent  is  a  hard  thing  to  get  around.  We  know  these  things,  and 
that  you,  if  you  give  us  a  direct  banking  law  by  which  the  Govern- 
ment of  the  United  States  gives  us  direct  relief,  that  you  will  reach 
the  thought  and  the  sentiment  and  the  heart  and  awaken  the  grati- 
tude of  the  greatest  number  of  farmers  possible  in  the  South  and  in 
the  Middle  West. 

Mr.  Bulkley.  You  do  not  find  any  analogy  in  the  Federal  re- 
serve act  for  these  direct  loans  you  are  talking  about  ? 

Mr.  Mobley.  Let  us  see  if  we  do  not.  I  go  to  the  post  office  and 
put  in  my  dollar  and  take  out  a  deposit  slip  that  bears  2  per  cent. 
That  dollar  is  taken  out  of  the  post  office  and  carried  over  and  put 
in  a  national  bank  and  bears  -2-\  per  cent:  and  when  I  get  hard  up 
I  go  down  to  the  national  bank  and  borrow  it  at  from  7,  8,  9,  10,  12, 


KURAL   CREDITS.  707 

and  15  per  cent,  and  the  Government  gave  them  the  money  to  do  it 
with  and  it  paying  2^  per  cent,  and  the  individual  stockholders  are 
making  personal  profit  out  of  that  privilege  which  the  Government 
grants  them. 

Mr.  Bulkley.  That  is  all  true,  as  far  as  it  goes,  but  is  not  in  any 
way  responsive  to  the  question  I  asked  you. 

Mr.  Mobley.  I  thought  it  was  direct  aid  to  the  national  bank,  the 
Government  furnishing  them  money  out  of  which  individuals  make 
a  profit. 

Mr.  Bulkley.  The  postal-savings  law,  you  are  talking  about? 

Mr.  Moeley.  Yes. 

Mr.  Bulkley.  Of  course  I  was  talking  about  the  Federal  reserve 
act. 

Mr.  Mobley.  I  want  to  say,  Mr.  Bulkley,  with  all  candor,  that  I 
am  not  an  expert. 

Mr.  Bulkley.  No;  I  am  not  trying  to  trip  you  up.  I  wanted 
to  call  your  attention  to  the  difference  between  the  Republican  law 
and  the  Democratic  law.  You  are  talking  about  a  Republican  law. 
But  what  I  was  trying  to  find  out  is  whether,  in  fact,  you  find 
any  precedent  in  the  Federal  reserve  act,  which  is  what  we  are  talk- 
ing about,  for  a  direct  loan  to  the  farmer  or  an  individual  of  any 
kind  ? 

Mr.  Mobley.  I  must  say  that  whittling  it  down  to  just  one  man 
that  I  can  not  see  there  is  any  analogy ;  that  is,  I  do  not  know  of  any. 
But  it  comes  so  close  to  one  man  that  we  feel  like  the  Government  is 
almost  directly  aiding  persons  who  are  stockholders  in  these  national 
banks  to  make  profit,  and  that  if  it  can  do  that  that  you  could 
strain  the  laws  to  do  the  same  for  us,  because  you  go  to  a  com- 
pany of  men  who  stand  between  us  and  the  Government  and  you 
give  them  Government  aid  by  which  they  take  our  individual  money 
and  make  a  personal  profit  out  of  us.  We  feel  that  the  Government 
gives  them  the  help,  and  we  can  not  see  why  if  our  money,  deposited 
in  the  post  office,  brings  2  per  cent  from  the  Government,  that  it 
would  not  be  right,  by  a  careful  valuation  of  our  lands,  with  regard 
to  districts,  the  stage  of  improvements,  and  so  on,  and  the  moral 
risk  of  the  man  who  owns  it,  why  the  Government  can  not  issue 
a  bond  on  some  safe  evidence  of  our  indebtedness  that  bears  some 
reasonable  rate  of  interest  and  sell  it  and  send  back  to  us  the  pro- 
ceeds, and  say  "  Old  man,  go  on  and  pay  your  interest  and  your 
amortization  to  your  local  agent;  your  Government  will  grant  you 
relief;  it  is  in  sympathy  with  your  condition  and  fair  enough  to 
help  you  as  well  as  others." 

Mr.  Bulkley.  Of  course,  we  want  to  be  as  square  as  possible  to 
you.  When  the  Government  deposits  these  funds  in  the  banks — 
postal  savings  or  otherwise — the  banks  undertake  the  responsibility 
of  being  ready  to  pay  the  money  back  to  the  Government  whenever 
it  is  needed. 

Mr.  Mobley.  Yes. 

Mr.  Bulkley.  You  would  not  want  the  farmer  to  do  that? 

Mr.  Mobley.  Well,  I  will  tell  you,  now — I  may  be  misinformed — if 
you  confine  me  to  the  postal  savings  banks  funds,  I  understand  that 
is  to  be  paid  on  time;  that  has  a  certain  time  to  run,  which  is 
specified,  isn't  it  ?    It  runs  out  at  a  certain  time  or  is  paid  at  a  certain 


708  RURAL   CREDITS. 

time.  The  postal  savings  deposit  has  got  to  be  a  time  deposit  before  it 
draws  interest? 

Mr.  Bulkley.  You  are  talking  about  the  depositor's  deposit  in 
the  postal  savings  bank?  I  am  talking  now  about  the  deposit  which 
the  Government  makes  with  the  banks.  The  Government  holds  the 
banks  responsible  to  pay  at  any  time. 

Mr.  Mobley.  I  suppose  that  is  right.  That  is  mv  understanding 
of  it. 

Mr.  Bulkley.  We  have  to  figure  out  for  the  farmers  some  scheme 
that  won't  require  the  borrower  to  pay  back  on  demand.  We  have 
got  to  give  him  a  long  time. 

Mr.  Mobley.  Let  me  ask  you  this,  and  then  perhaps  I  can  answer. 
I  want  a  little  information  I  do  not  possess:  Is  it  not  a  fact  that 
there  are  bonds,  or  have  been,  at  least,  guaranteed  by  the  Govern- 
ment and  sold  that  run  for  long  periods  of  time — railroad  bonds  and 
things  like  that? 

Mr.  Bulkley.  The  Government  gave  aid  to  the  building  of  rail- 
roads across  the  continent — land  grants. 

Mr.  Mobley.  Those  were  long  terms,  vrerent  they  ? 

Mr.  Bulkley.  I  do  not  recollect  about  the  bonds;  they  gave  lands. 
Mr.  Mobley.  I  understand.  I  am  not  criticizing  what  the  Govern- 
ment did.  I  am  just  wondering — I  have  asked  the  question  lots  of 
times,  and  I  have  been  asked  it  by  others — I  understand  the  Govern- 
ment has  issued  bonds  running  from  50  to  75  years  ? 

Mr.  Wixgo.  No;  not  that  long. 

Mr.  Mobley.  From  the  answers  I  have  had,  I  am  pretty  well  per- 
suaded the  Government  has  issued  long-time  securities  to  aid  certain 
enterprises  of  a  corporate  nature,  which  resulted  in  private  gain. 

Mr.  Bulkley.  I  think  you  are  mistaken  about  that. 

Mr.  Platt.  Other  Governments  have.  I  do  not  know  whether 
the  Canadian  Government  has  guaranteed  the  Canadian  Pacific 
bonds  or  not,  but  I  think  they  have. 

Mr.  Mobley.  But.  then,  that  might  bring  up  another  thing  while 
we  are  talking  on  this.  Suppose  the  Government  has  not  done  so.  Are 
we  bound  always  to  do  only  what  has  been  done  before?  Is  it  not 
possible  sometimes  to  do  something  that  has  not  been  done  before  ? 

Mr.  Bulkley.  That  is  a  question.  Some  say  it  is  not  constitu- 
tional. I  have  not  formed  any  opinion  on  that,  but  it  is  very  strongly 
urged  that  is  not  constitutional. 

Mr.  Mobley.  I  am  not  able  to  tell  you  very  much  about  the  con- 
stitutionality of  it ;  I  am  not  a  lawyer,  but  I  thank  you  very  much 
for  having  brought  out  that  side  of  it  with  emphasis,  because  when 
T  go  back  home  our  people  are  going  to  say,  "  Did  you  ask  for  direct 
aid  ?  "  and  I  will  say,  "  Yes."  And  then,  if  they  get  hold  of  this  record, 
I  want  to  say.  ik  I  emphasized  that,"  but  if  we  can  not  get  direct  aid, 
then  we  will  take  anything  you  give  us. 

Senator  Hollts.  Mr.  Mobley,  if  you  gentlemen  are  going  to  be  in- 
terested in  what  is  said  here  and  done  here  I  think  we  ought  to  sug- 
gest some  of  these  difficulties.  In  the  first  place,  with  direct  aid.  it 
is  pretty  hard  where  to  draw  the  line.  If  you  do  not  draw  the  line 
but  let  ony  one  in  who  has  good  security  to  offer,  this  law  would  hike 
two  or  three  or  four  billion  dollars,  and  till  we  have  on  hand  now  is 
some  $200,000,000.  And  to  procure  that  money  the  Government 
would  have  to  issue  bonds,  and  how  long  those  bonds  would  have  to 


RURAL   CREDITS.  709 

run,  and  what  rate  they  should  bear  if  you  undertake  to  put  out 
such  an  amount  as  that,  are  more  or  less  problems.  Those  are  some 
of  the  difficulties  in  the  way,  even  if  it  was  constitutional. 

Mr.  Mobley.  Of  course,  if  you  can  not  do  it  all  at  once,  you  can 
only  do  as  much  as  you  can.  You  can  not  accomplish  an  impos- 
sibility. Why  couldn't  you,  if  your  committee  suggests  direct  aid  to 
the  farmer,  give  so  much — have  your  statistician  figure  out  what  you 
safely  could  do,  how  much  you  could  aid  a  year  to  each  State,  accord- 
ing to  the  population,  and  hold  the  thing  down  to  where  you  would 
not  over  run  the  money  market? 

Mr.  Wingo.  What  would  you  do  with  reference  to  limiting  the 
character — in  other  words,  the  point  I  want  to.  get  at  is  taking  an 
arbitrary  grade  that  you  would  make.  Say  that  you  would  limit  the 
loans  from  $250  to  $1,000,  and  to  a  man  who  is  not  actually  living 
upon  his  farm  on  anything  beyond,  say,  100  acres,  or  whatever  would 
be  a  proper  amount.  In  other  words,  limit  it  to  the  class  which 
really  has  a  pressing  economic  need  for  it.  Have  you  noticed  that 
something  has  been  said  about  the  farmers  needing  $2,000  loans? 

I  would  like  to  get  your  view  point  on  that :  Would  you  regard  a 
man  as  belonging  to  the  class  that  ought  to  be  relieved  as  a  farmer, 
who  has  a  farm  that  is  properly  developed  and  would  demand  a 
direct  loan  of  $2,000  from  the  Government  under  any  system  ? 

Mr.  Mobley.  Down  with  us  that  man  would  be  tolerably  well  to  do. 

Mr.  Wingo.  You  would  call  him  a  landlord  down  there? 

Mr.  Mobley.  Oh,  no.     We  have  wealthy  men:  you  know  that. 

Mr.  Wingo.  I  mean  as  a  class? 

Mr.  Mobley.  Yes;  he  would  be  tolerably  well  to  do.  You  sug- 
gested something  more  there,  of  course,  what  was  suggested  here  just 
now,  but  my  mind  has  grown  a  little  confused  over  it.  I  suggested 
to  loan  that  money  according  to  the  population,  so  much  each  year. 
Now,  that  does  bring  up  a  thought  I  have  omitted.  It  is  a  thing  our 
organizations  has  talked  about  a  good  deal  and  I  am  one  who  can 
safely  speak  for  a  lot  of  other  men.  There  is  no  egotism  in  that. 
Those  things  come  up  for  conference  in  our  conventions.  And  they 
are  farmers,  too.  It  is  suggested  that  this  loan  ought  to  be  made  in 
such  a  restricted  way  that  the  man  who  makes  that  application, 
swears  to  it,  that  he  is  an  actual  operator  and  tiller  of  the  soil.  He 
might  employ  supplemental  labor,  but  he  himself  must  be  an  actual 
operator  and  tiller  of  that  soil  and  that  loan  stands  as  long  as  he 
operates  and  tills  it  or  his  successor  operates  and  tills  it:  and  when 
he  ceases  to  operate  it.  or  his  successor,  the  loan  becomes  due  right 
away. 

Mr.  Bulkley.  Do  you  believe  in  limiting  the  amount  any  one  bor- 
rower could  get  out  of  this  system  ? 

Mr.  Mobley.  Yes;  I  do. 

Mr.  Bulkley.  At  what  point  would  you  place  that  limit? 

Mr.  Mobley.  Well,  I  would  not  place  that  limit  over  $1,250.  I 
would  place  it  at  $1,000. 

Mr.  Bulkley.  You  think  $1,000  would  be  sufficient? 

Mr.  Mobley.  Yes;  I  do.  Some  of  them  have  suggested  a  man 
might  borrow  money  to  spend  foolishly.  If  he  could  borrow  a  good 
deal  of  money  he  might  spend  it  foolishly;  but  the  man  who  has 
pressing  necessities  and  borrows  inside  of  the  limit  of  those  pressing 


710  RURAL    CREDITS. 

necessities  he  is  going  to  take  care  of  that  money  a  whole  lot  better. 
I  know  that  right  in  my  own  experience. 

Mr.  Wingo.  Your  idea  would  be  to  lend  the  money  to  actual  tillers 
who  own  farms  and  the  small  farmer? 

Mr.  Mobley.  Yes. 

Mr.  Wingo.  And  limit  it.  say,  to  $1,000  on  the  theory  that  the  small 
farmer  is  the  class  that  ought  to  be  relieved,  and  his  economic  needs 
are  such  as  to  justify,  under  the  general  welfare  theory,  aid  of  this 
kind,  and  you  think  the  $1,000  would  meet  the  maximum  necessities 
of  that  class  of  men? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Platt.  Suppose  this  system  was  adopted,  why  shouldn't  a 
farm-land  bank,  if  it  has  large  enough  capital,  make  a  loan  of  $20,000 
on  a  1,000-acre  farm,  for  instance,  to  a  man  who  owns  it  and  is 
operating  it  personally? 

Mr.  Mobley.  I  know  now,  from  the  ordinary  viewpoint,  I  guess 
that  would  be  all  right;  but  from  the  viewpoint  that  Ave  look  at  it, 
it  is  like  this :  This  is  a  measure  to  give  help,  real  help,  to  those  who 
really,  genuinely  need  it.  Yrou  can  talk  paternalism  and  benef actions 
all  you  please.  We  look  at  this  thing  from  that  standpoint,  and  the 
man  who  has  $20,000  worth  of  property  looks  to  me  to  be  pretty 
well  able  to  look  to  the  commercial  banks  for  his  help. 

Mr.  Wingo.  Isn't  that  true  in  our  country? 

Mr.  Mobley.  I  know  that  is  true  in  our  country. 

Mr.  Wingo.  And  the  man  who  needs  $2,000  or  $3,000  in  the  opera- 
tion of  his  farm  can  ordinarily  take  care  of  it  with  a  commercial 
bank? 

Mr.  Mobley.  Yes,  sir;  he  can  get  money  at  8  per  cent  right  there 
in  Arkansas. 

Mr.  Wingo.  These  statistics  given  us  by  Mr.  Thompson  showing 
the  average  interest  on  farm  loans  in  Arkansas  was  about  8  per  cent ; 
isn't  it  a  fact  that  he  based  his  average  on  the  insurance  loans  and 
such  as  these  for  which  they  get  8  per  cent;  and  isn't  it  a  fact  that 
this  class  of  men  you  are  referring  to  can  not  usually  get  that  mone}% 
but  those  loans  are  made  to  the  men  who  have  the  large  plantations? 

Mr.  Mobley.  In  almost  all  cases;  yes.  And  I  will  give  you  a  name. 
E.  Hall,  of  Scotland,  got  one  of  the  department  letters,  and  he  an- 
swered it,  and  the  same  week  he  answered  that  letter  he  went  to  town 
to  negotiate  a  loan  and  a  premium  was  exacted  of  him  on  that  loan 
that  was,  anyhow,  10  per  cent — the  premium  outside  of  the  interest. 
I  think  I  report  it  as  he  told  it  to  me. 

Mr.  Seldomkidge.  Have  interest  rates  been  growing  higher  or 
lower  in  your  State  during  the  last  8  or  10  years?  Has  there  been 
any  variation  in  the  interest  rate? 

Mr.  Mobley.  It  is  hard  to  say  whether  they  have  or  not,  but  I  be- 
lieve they  have. 

Mr.  Sr.LDoM ridge.  Is  there  a  lack  of  money  being  offered  for  farm 
loans? 

Mr.  Mobley.  Yes. 

Mr.  Seldomridge.  It  is  more  difficult  to  secure  money;  it  is  becom- 
ing more  and  more  difficult? 

Mr.  Morley.  Yes,  sir;  for  farm  loans  there  is  never  much  money 
going  around  in  Arkansas  except  at  high  rates. 


EUEAL   CREDITS.  711 

Mr.  Seldomridge.  What  is  the  average  term  of  farm  loans  under 
present  conditions? 

Mr.  Wixgo.  You  mean  land  loans  or  personal? 

Mr.  Seldomridge.  Land  loans.  How  long  can  you  borrow  money 
for  now  on  farm  mortgages? 

Mr.  Mobley.  The  most  of  us  borrow  on  one-year  term  and  renew. 

Mr.  Seldomridge.  They  give  a  new  mortgage  every  year' 

Mr.  Mobley.  Yes. 

Mr.  Seldomridge.  And  how  much  does  it  cost  to  make  a  mortgage 
there  ? 

Mr.  Mobley.  I  have  made  one  pretty  near  every  year,  and  I  have 
not  figured  it. 

Mr.  Seldomridge.  Do  you  have  to  furnish  an  abstract  of  title? 

Mr.  Mobley.  Yes. 

Mr.  Seldomridge.  Are  you  charged  a  lawyer's  fee  in  furnishing  it  ? 

Mr.  Mobley.  Yes;  for  examination. 

Mr.  Seldomridge.  Have  you  any  idea  as  to  what  that  expense  is? 

Mr.  Mobley.  The  lawyer's  fee  amounts  to  about  $1,  the  acknowlr 
edgments  50  cents,  and  the  recording  fee  about  $1  and  $1.25.  It  all 
amounts  to  $6  to  $10. 

Mr.  Seldomridge.  Do  you  ever  have  to  pay  any  commission  or  do 
others  have  to  pay  a  commission? 

Mr.  Mobley.  Not  on  these  one-year  loans  I  am  talking  about  now 
in  the  locality  I  live  in.  The  gentleman  I  mentioned  is  living  down 
south  and  east  of  me ;  he  had  to  offer  to  give  a  commission  or  a  good 
premium,  which  would  be  the  same  thing.  There  are  some  places 
where  you  have  to  pay  a  premium  and  some  places  where  you  do  not. 
It  is  always  a  good  stiff  rate  of  interest  and  the  man  who  does  the 
borrowing  pays  all  the  expense,  whatever  it  is. 

Mr.  Seldomridge.  There  is  a  growing  tendency  of  money  becoming 
scarce  on  good  land  security,  with  no  reduction,  as  far  as  you  know, 
in  the  expense  of  obtaining  it? 

Mr.  Mobley.  Not  only  a  growing  tendency,  but  actually  is,  and  it 
is  continuing;  and  the  only  hope  we  have  is  through  something  like 
this,  as  far  as  the  people  I  know  of. 

Mr.  Seldomridge.  The  average  rate  of  interest,  you  said,  is  8  per 
cent  ? 

Mr.  Mobley.  Oh,  no.  I  said  Mr.  Thompson's  average  rate  of  in- 
terest was  8  per  cent. 

Mr.  Win  go.  Yes;  it  was  Mr.  Thompson  he  said  who  made  that 
statement. 

Mr.  Mobley.  Let  me  tell  you  the  average  rates  of  interest  as  ascer- 
tained at  our  State  convention.  We  have  a  membership  of  23.000 
farmers,  who  elect  delegates.  Their  finance  committee  prepared  a 
report  as  to  the  long-time  interest  rates  on  loans,  and  it  was  found 
to  be  between  10  and  1H  per  cent. 

Senator  Hollis.  Do  you  suppose  the  men  who  gave  those  statistics 
included  commissions  and  lawyers'  fees? 

Mr.  Mobley.  We  did  not  ask  that.  I  think  not.  No;  it  is  this 
way.  "Where  those  fees  are  charged  our  men  look  on  it  as  a  neces- 
sary evil  that  does  not  belong  to  the  loan,  but  just  belongs  to  the  one 
who  negotiates  it.  We  can  not  help  that,  and  so  we  pay  it  and  don't 
consider  it. 


712  KURAL   CREDITS. 

Mr.  Wingo.  Referring  to  the  increasing  demand  for  money  there, 
the  reason  for  that  is  the  extraordinary  development  and  the  in- 
creasing demand  for  money  for  our  purposes  is  greater  than  the  in- 
crease in  the  volume  of  capital  that  is  in  the  State. 

Mr.  Mobley.  I  am  going  to  answer  that  question  this  way:  That 
may  be  it,  but  I  am  not  competent  to  answer  that. 

Mr.  Wingo.  I  say,  that  is  one  of  the  reasons? 

Mr.  Mobley.  We  recognize  a  growing  tendency  out  there  to  want 
to  borrow  long  money  tor  farm  purposes  at  a  low  rate  of  interest 
that  is  reasonable,  but  it  gets  no  better.  I  know  that ;  but  as  to  why 
money  is  scarce,  and  things  like  that,  of  course,  I  know  that  the  State 
is  developing  some — very  much  in  some  localities — and  that  calls 
for  money,  and  that  might  have  something  to  do  with  the  stringency. 

Mr.  Platt.  Suppose  the  supply  of  loanable  capital  in  Arkansas 
would  be  considerably  increased ;  would  the  prevailing  monopoly  pre- 
vent the  lowering. of  rates  below  the  going  rates  to  bankers? 

Mr.  Mobley.  I  will  answer  you  frankly.  I  believe,  if  you  would 
organize  a  bank  under  this  bill  12585,  that  the  present  banking  inter- 
ests down  there  would  control,  either  directly  or  indirectly. 

Mr.  Platt.  Suppose  some  entirely  outside  capital  came  down 
there  and  organized  some  banks? 

Mr.  Mobley.  Here  is  the  point  on  that :  When  they  came  down 
there  they  would  say,  "Well,  these  other  bankers  are  making  that 
money,  and  why  not  us  ?  "    That  is  the  way  I  look  at  it. 

Mr.  Wixgo.  Well,  you  think,  Mr.  Mobley,  do  you  not,  if  some  aid 
was  given  so  as  to  furnish  investment  capital,  that  would  lower  the 
demand  that  now  presses  on  the  local  supply  of  money? 

Mr.  Mobley.  Oh,  yes ;  if  you  increase  the  supply  of  money.  Then, 
instead  of  it  being  the  one  who  wants  to  borrow  seeking  the  bank 
who  has  it  to  loan,  the  man  who  has  it  to  loan  seeks  the  borrower. 
That  will  be  it. 

Mr.  Platt.  I  am  trying  to  bring  out  whether  the  monopolist 
forces  are  such  that  the  people  could  not  go  to  these  new  banks  and 
be  a  borrower  because  they  would  not  be  allowed  ? 

Mr.  Mobley.  There  would  be  some  who  could.  But  I  said  there 
would  be  half  of  our  people  it  can  be  safely  said  would  be  under  the 
domination  from  these  other  sources  so  strong  that  unless  some  direct 
aid  is  given  it  will  take  a  good  while  for  them  to  be  helped. 

Mr.  Platt.  Suppose  there  was  direct  aid;  wouldn't  it  all  go  to 
the  storekeepers  ultimately? 

Mr.  Mobley.  I  did  not  quite  understand  that. 

Mr.  Platt.  Suppose  the  Government  loans  to  the  people  direct 
who  are  now  financed  by  the  storekeepers,  won't  the  storekeepers  get 
it  all  away  from  them,  ultimately? 

Mr.  Mobley.  That  brings  up  a  mighty  big  question.  Mr.  Platt. 
and  I  am  going  to  answer  it  the  best  I  can.  It  is  almost  in  line,  as 
I  understand,  with  the  suggestion  that  if  we  gave  all  the  people  a 
lot  of  money  whether  there  would  not  be  a  few  people  who  would 
get  it  all.  after  a  while  It  is  true  they  would,  and  that  is  my  answer. 
I  have  studied  on  that  a  long  time,  and  I  came  pretty  near  being  a 
Socalist ;  but  I  am  not.  I  got  my  cue  on  that  by  studying  economics, 
and  I  got  my  cue  right  in  line  with  your  question.  The  economist 
says  there  is  land,  capital,  and  labor  used  in  production,  and  I  woke 
up  to  the  fact  that  all  the  land,  capital,  and  labor  you  can  get  under 


RURAL  CREDITS.  713 

this  condition  I  spoke  to  you  about  would  not  amount  to  much  if  a 
man  did  not  have  the  proper  knowledge,  energy,  and  industry  to 
take  care  of  it.  That  is  my  answer  to  the  question.  If  he  had  the 
proper  knowledge,  energy,  and  industry,  they  would  not  get  it ;  but 
if  he  did  not  have  these  qualifications  they  would.  And  that  would 
apply  no  matter  whether  you  pass  any  one  of  these  laws  or  not. 

Mr.  Wingo.  Take  one  of  those  men  who  is  improvident  and  unable 
to  take  care  of  himself,  and  that  same  result  would  flow  from  any 
kind  of  a  system? 

Mr.  Mobley.  Certainly. 

Mr.  Seldomridge.  Do  you  not  think,  Mr.  Mobley.  if  there  was  a 
machinery  of  the  Government  that  would  in  some  way  value  the  land 
and  manage  the  bonds  issued  on  land  in  your  State  that  those  bonds 
would  sell  for  a  much  lower  rate  of  interest  than  the  farmers  are  now 
paying  to  individuals  and  loaning  companies;  and  that  fact  would 
have  a  tendency  to  release  the  grip  of  those  who  control  the  financial 
dominating  power  in  your  State  at  the  present  time  ? 

Mr.  Mobley.  Yes;  if  the  sale  was  regulated  also  so  as  not  to 
create  too  great  a  demand  for  money. 

Mr.  Seldomridge.  And  you  think  that  those  people  who  have 
control  of  the  money  at  the  present  time  would  be  forced  to  come 
down  in  their  charges? 

Mr.  Mobley.  My  belief  that  that  would  be  the  result  is  the  reason 
I  am  here. 

Mr.  Platt.  What  rate  of  interest  do  the  landlords  pay? 

Mr.  Mobley.  I  think  about  8  per  cent — 7  and  8  per  cent — some- 
thing like  that. 

Mr.  Platt.  Is  there  any  money  loaned  in  Arkansas  at  less  than  8 
per  cent  to  amount  to  anything? 

Mr.  Mobley.  Not  that  I  know  of. 

Mr.  Wingo.  If  you  will  pardon  me,  right  there:  I  used  to  get 
loans  for  my  clients  from  the  Colonial  and  the  United  States  Mort- 
gage Co.,  a  British  concern,  large  loans  over  $1,500.  for  8  per  cent. 

Mr.  Mobley.  He  said  below  8  per  cent. 

Mr.  Wingo.  That  is  the  lowest  I  know  of  within  my  own  part  of 
the  State.  I  think  if  you  take  eastern  Arkansas,  the  large  planta- 
tion owners  sometimes  possibly  get  money  for  7  per  cent ;  but  as  a 
rule  those  large  plantation  owners  are  men  who  have  other  business 
interests.  They  themselves  are  often  very  large  stockholders  in  the 
banks.  As  a  matter  of  fact,  they  often  organize  the  banks  and  pre- 
scribe the  policies  for  them. 

Mr.  Mobley.  I  have  one  other  item  I  want  to  speak  to  you  about, 
and  that  is  the  length  of  time  of  the  loans.  I  have  heard  a  great 
many  inquiries  about  the  length  of  them,  and  I  realize  that  a  good 
15  to  19  year  loan — I  believe  I  realize  it  would  bring  a  lower  rate  of 
interest  than  a  35-year  loan.  Now,  I  would  stand  for  a  15  to  19  year 
loan  with  the  amortization  plan,  with  a  representative  of  the  Gov- 
ernment to  watch  after  either  the  appreciation  or  depreciation  of  the 
security,  to  be  loaned  only  to  actual  bona  fide  tillers  of  the  soil,  or 
to  their  successors,  due  when  it  comes  into  the  hands  of  a  speculator 
and  not  over  19  years  for  the  length  of  a  loan  and  not  under  5  years 
for  the  shortest  period,  with  just  as  nearly  direct  Government  aid  as 
you  can  possibly  give  us.  I  believe  you  would  more  nearly  reach  out- 
class of  people  with  that  plan  than  any  other. 


714  RURAL   CREDITS. 

Then  another  idea.  I  have  heard  of  (he  bank  bill,  a  Government 
State  central  bank,  and  I  want  to  say  if  a  law  like  this  Moss  bill  is 
passed,  I  believe  it  would  practically  result  in  that  in  my  State. 
You  would  have  one  or  two  of  the  banks  there  handling  all  of  the 
business  of  this  kind. 

Mr.  Bulklet.  Do  you  mean  to  suggest  there  is  some  objection  to  a 
Longer  term  of  amortization? 

Mr.  Mobley.  No,  sir.  I  may  say  this:  That  in  figuring  for  the 
lowest  possible  rate  of  interest  I  believe — I  am  just  putting  that 
"  Me  " — I  believe  a  19-year  loan  would  bring  a  better  rate  of  interest 
than  a  35-year  loan. 

Mr.  Wingo.  You  mean  a  lower  rate  of  interest? 

Mr.  Mobley.  A  lower  rate  of  interest. 

Mr.  Bulkley.  The  provision  of  the  Moss  bill,  as  I  understand,  is 
that  the  loan  may  be  as  long  as  35  years,  and,  by  agreement  with  the 
borrower,  may  be  a  shorter  term? 

Mr.  Mobley.  Yes;  by  agreement  with  the  borrower.  You  can 
leave  it  that  way.  Make  that  from  5  to  35  years.  Now,  I  thought 
about  that  last  night.  If  you  make  it  from  5  to  35  years,  here  would 
be  the  result — that  I  would  negotiate  for  a  10,  15,  or  20  year  loan, 
and  somebody  else  would  negotiate  for  a  shorter  loan  and  the  bonds 
could  not  be  related  to  those  lengths  of  loans  in  the  interest  that  they 
would  draw.    Do  you  get  my  point  ? 

Mr.  Bulkley.  I  am  not  sure  that  I  do. 

Mr.  Mobley.  I  believe  it  is  true  that  a  19-year  loan  would  bring 
a  lower  rate  of  interest  than  a  35-year  loan,  and  your  bonds  would 
largely  be  issued  against  the  35-year  loans  and  I  would  have  to  pay 
that  interest. 

Mr.  Bulkley.  Why  do  you  say  19-year  loans  would  bring  a  lower 
rate  of  interest  ? 

Mr.  Mobley.  I  am  only  speaking  from  my  experience.  A  reason- 
able loan  for  us  brings  a  better  rate  of  interest  than  a  longer  loan. 

Mr.  Bulkley.  That  is  a  single  loan? 

Mr.  Mobley.  Yes,  sir. 

Mr.  Bulkley.  Now.  we  are  proposing  a  bond  issue  which  would 
cover  a  large  number  of  loans. 

Mr.  Mobley.  I  understand. 

Mr.  Bulkley.  And  you  know  it  is  often  an  element  of  strength  in 
bonds  that  they  have  a  long  time  to  run.  People  are  investing  in 
bonds  for  the  purpose  of  disposing  of  the  money  on  long  time,  so 
that  they  will  not  be  troubled  with  reinvesting. 

Mr.  Mobley.  For  those  who  are  actually  in  the  investment  busi- 
ness that  would  be  true:  hut  I  do  not  believe  it  would  be  true  of 
investment  of  orphans'  and  trust  funds  but  for  such  as  life  insurance 
funds. 

Mr.  Platt.  That  is  just  where  it  is  true,  I  think,  that  they  invest 
orphan  funds  in  such  bonds  as  much  as  possible  so  that  they  won't 
h:r  <>  to  be  changing. 

Mr.  Mobley.  T  realize  that  is  true  with  reference  to  quick  chang- 
ing. Of  course,  T  realize  that,  but  I  would  not  think  35  years  would 
be  :i  .'.'Odd  loan  for  an  orphan. 

Mr.  Platt.  T  think  those  are  pretty  long  loans  myself,  and  much 
lonerer  than  there  is  a  demand  for. 

Mr.  ScunnER.  May  T  ask  Mr.  Mobley  a  question? 


RURAL   CREDITS.  715 

Mr.  Bulkley.  If  Mr.  Mobley  has  no  objection. 

Mr.  Scudder.  As  I  understand  it,  Mr.  Mobley,  the  point  you 
wished  to  make  clear  regarding  "  Governmental  aid  "  might  be  illus- 
trated about  as  follows:  Owning  and  occupying  a  cultivated  and 
unencumbered  farm  worth  $2,500,  you  say  in  effect  to  the  Govern- 
ment, "  Lend  me  $1,250,  or  $1,000,  taking  a  mortgage  as  security 
for  this  well-margined  loan."  The  Government  answers,  "  No ;  that 
can  not  be  done;  there  is  no  provision  in  our  system  of  finance  for 
such  a  transaction."  In  reply,  you  then  point  to  the  fact  that  your 
brother,  who  is  a  dry  goods  merchant  in  the  adjoining  town  and 
owning,  say,  a  stock  of  merchandise  worth  $2,500,  can  obtain  ac- 
commodation to  the  extent  of  even  three  and  four  times  the  value  of 
his  moveable  property  through  a  Government-made  "  commercial 
credit  system,"  and  that  you  are  asking  no  favor  when  demanding 
that  some  such  Government  aid  be  given  to  the  "  agricultural  in- 
terests "  of  the  country.    Isn't  this,  Mr.  Mobley,  about  the  size  of  it? 

Mr.  Mobley.  That  it  what  I  said,  in  a  general  way,  by  reasoning 
from  analogy.  If  it  applies  in  a  general  way  to  one,  it  ought  to 
apply  to  all. 

Mr.  Scudder.  Mr.  Chairman,  I  believe  the  point  made  by  the 
farmers  of  this  country  is  well  taken;  and  unless  our  Government 
actually  lends  a  hand  in  some  such  way  as  that  suggested  by  my 
previous  testimony,  i.  e.,  by  either  a  guaranty  or  actually  investing 
in  these  bonds  (just  as  our  big  savings  banks  invest  large  portions  of 
their  deposits  in  50-year  and  other  long-term  bonds)  those  particular 
subdivisions  of  our  citizenship  known  as  farmers  and  cattle  raisers 
will  continue  to  be  dissatisfied  with  a  governmental  financial  ar- 
rangement which  for  50  years  has  discriminated  against  their  inter- 
ests in  favor  of  the  merchant  and  the  manufacturer.  The  Govern- 
ment should  provide  the  farmer  with  some  equal,  reasonable  accomo- 
dation or  rather  "  credit  aid." 

Mr.  Moblev.  That  is  just  what  I  said  in  my  testimony.  I  think 
the  Government  ought  to  do  that. 

Mr.  Scudder.  In  this  connection  the  Postal  Savings  Funds  could 
be  materially  increased  if  the  Government  allowed  a  better  interest 
rate  on  the  savings  of  the  people.  The  only  reason  in  the  world  why 
farm  mortgages  haven't  been  considered  "  liquid  assets "  in  this 
country,  Mr.  Chairman,  is  because  the  whole  subject,  including  the 
"  amortization "  proposition,  has  been  neglected  and  has  been  en- 
tirely left  out  of  our  general  financial  plan.  There  can  be  no  expla- 
nation other  than  that  this  collateral,  the  very  best  security  in  the 
world,  has  been  denied  a  place — in  fact  has  been  ignored  by  our 
great  Nation — in  its  balance  sheet  of  useable  assets.  Who  would 
take  from  me  as  security  that  which  my  own  Government  has  either 
rejected  or  ignored? 

The  world  over,  it  has  been  recognized  for  more  than  a  century 
that  farm  mortgages  when  operated  on  the  "  amortization  plan " 
become  the  best  kind  of  collateral.  And  bonds  issued  against  them, 
with  all  the  proper  safeguards,  are  recognized  not  as  "slow"  but 
as  liquid  "  or  "  quick  "  assets.  Mr.  Chairman,  I  venture  the  ascer- 
tion  that  if  this  inequality,  this  omission  of  the  American  farm 
mortgage  from  the  woof  and  warp  of  our  financial  system,  is  cor- 
rected and  agriculture  is  thus  once  placed  in  its  rightful  fiscal  posi- 
tion,  the   final   results   will    prove   even  more   satisfactory,   from    a 


716  RURAL   CREDITS. 

purely  money  standpoint — leaving  out  the  economical  benefits,  which 
will  be  incalculable — than  anything  ever  yet  demonstrated  as  the 
outcome  of  Government  credit  aid  to  the  mercantile"  side  of  our 
Nation's  life.  Take  the  old-country  record  of  1,000  such  farm  loans 
under  the  amortization  plan,  and  the  record  of  1,000  mercantile  loans 
under  the  usual  three,  four,  and  six  months'  system,  with  the  usual 
renewals,  covering  a  period  of  25  years,  and  what  is  their  history? 
At  the  end  of  that  time  the  farmer  will  have  fully  paid  out.  while 
many  merchants  will  still  be  using  that  credit  aid  originally  given. 
or  at  least  a  portion  of  it.  And  meanwhile  at  least  50  per  cent  more 
of  failures  in  the  mercantile  than  in  the  agricultural  "  1,000  bor- 
rowers "  will  have  taken  place.  Quite  true,  the  Government  has 
lost  nothing  by  these  mercantile  failures,  no  matter  how  great  the 
"  credit  inflation "  has  been,  and  sometimes  this  inflation  goes  as 
high  as  20  to  1  in  the  mercantile  and  industrial  world.  The  "  losses  " 
are  always  borne  by  that  system  of  "  aggregate  banking  capital " 
which  always  stands  between  the  Government  and  the  merchant. 
who  ofttimes  has  been  borrowing  many  times  his  working  capital. 

Likewise,  Mr.  Chairman,  the  Government  can  be  adequately  pro- 
tected by  some  aggregate  capital  standing  as  a  further  pledge  for  the 
final  liquidation  of  the  farmer's  loan;  although  such  capital  need  not 
be  so  very  great,  because  it  is  most  improbable  that  so  large  a  security 
margin  as  50  per  cent  could  be  entirely  wiped  out  of  existence  in  a 
growing,  prosperous  land  such  as  we  are  blessed  with.  There  is  no 
such  severe  fluctuations,  after  all,  in  improved  farms  occupied  by  their 
owners  as  the  fluctuations  taking  place  every  day  on  articles  which 
form  the  basis  for  mercantile  credit.  Mr.  Chairman,  I  feel  very 
deeply  that  something  should  be  done  promptly  and  in  an  efficient, 
practical  way  to  check  the  very  evident  backward  and  demoralizing 
movement  now  going  on  in  this  country,  from  "  farm  occupancy 
through  actual  ownership "  to  "  farm  occupancy  through  the  land- 
lord." In  my  judgment,  as  great  and  important  a  task  confronts 
you  as  that  which  came  before  your  Committee  of  the  Whole  last 
summer;  and  in  accomplishing  this  work  I  beg  of  you  not  to  forget 
the  "  personal-credit "  side  of  this  question,  which  need  not  be  at- 
tached to  the  mortgage  plan,  but  can  and  should  be  simultaneously 
provided  for  by  you,  because  in  some  States  it  is  the  more  important 
of  the  two. 

Mr.  Mobley.  That  is  our  contention. 

(Thereupon,  at  4.20  o'clock  p.  m.,  the  committee  adjourned  until 
to-morrow.  Thursday,  March  12,  1914.  at  10.30  o'clock  a.  m.) 


THURSDAY,   MARCH    12,    1914. 

United  States  Senate, 

Washington,  D.  C. 

The  subcommitees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Henry  F.  Hollis  presiding. 

Present:  Representatives  Stone,  Seldomridge,  Weaver.  Ragsdale, 
Woods,  and  Piatt. 

Present  also:  Senators  John  W.  Weeks,  James  A.  O'Gorman,  and 
Thomas  P.  Gore. 

Senator  Hollis.  The  committee  will  come  to  order.  We  will  hear 
you,  Mr.  Morris. 

STATEMENT  OF  ARTHUR  J.  MORRIS,  OF  NORFOLK,  VA. 

Senator  Hollis.  Will  you  please  state  your  name,  residence,  and 
occupation  or  business  ? 

Mr.  Morris.  Arthur  J.  Morris;  a  member  of  the  law  firm  of 
Morris,  Garnett  &  Cotton,  Norfolk,  Va.,  and  president  of  the  Indus- 
trial Finance  Corporation  of  New  York,  and  Fidelity  Corporation 
of  America,  of  Norfolk. 

Senator  Hollis.  Tell  us  a  little  about  the  Industrial  Finance  Cor- 
poration, if  you  please. 

Mr.  Morris.  The  Industrial  Finance  Corporation  of  New  York  is 
a  corporation  that  has  recently  been  completed  for  the  purpose  of 
taking  over  the  Fidelitj^  Corporation  of  America,  which  was  origi- 
nated a  few  years  ago  at  Norfolk,  Va.,  for  the  purpose  of  developing 
the  Morris  plan  of  industrial  banking.  Without  going  into  the  de- 
tails at  the  specific  moment  of  what  the  Morris  plan  of  industrial 
banking  is,  for  the  immediate  present  it  is  sufficient  to  state  that  the 
Morris  plan  of  industrial  banking  is  a  system  by  which  credit  is 
afforded  the  industrial  classes  of  the  cities.  In  a  word,  it  does  in 
America  very  much  the  same  work  that  the  banks  of  populari,  the 
people's  banks,  do  in  the  cities  of  Italy,  and  the  Schulze  Delitsche 
banks  do  in  the  cities  of  Germany. 

Senator  Hollis.  What  evils  is  it  intended  to  correct? 

Mr.  Morris.  The  Morris  plan  is  intended  to  correct,  as  far  as  prac- 
ticable, the  loan-shark  evil  in  the  cities,  and  the  present  existing  mis- 
apprehension that  prevails  in  the  minds  of  the  laboring  classes  with 
respect  to  capital.  One  of  its  fundamental  purposes  is  to  teach  the 
laboring  classes  of  this  country  habits  of  frugality,  the  value  of 
systematized  thrift,  by  placing  thereupon  such  a  premium  as  would 
afford  a  specific  basis  for  credit. 

The  Morris  plan  of  banks  was  intended  to  be  to  the  wage  earner 
what  the  national  banks  are  to  the  men  of  commerce. 

Senator  Hollis.  Are  you  the  originator  of  the  Morris  plan? 

Mr.  M;  rsis.  Yes,  sir. 

7L7 


718  RURAL   CREDITS. 

Senator  Hollis.  And  it  is  named  for  you  ? 

Mr.  Morris.  It  is  called  the  Morris  plan  after  my  efforts.  The 
plan  was  originated  by  me  and  developed  in  an  association  with  my 
law  firm,  consisting  of  Messrs.  Theodore  S.  Garnett.  jr.,  and  Preston 
S.  Cotton,  now  of  Norfolk,  Va.  The  name  was  rather  un fortuitous, 
having  been  designated  in  the  beginning  in  some  newspaper  articles 
by  that,  and  gradually  assumed  that  designation. 

mator  Hollis.  Now,  Mr.  Morris,  if  you  will,  give  us  the  informa- 
tion that  will  do  us  the  most  good,  please. 

Mr.  Morris.  In  the  course  of  my  study  of  industrial  banking, 
which  began  about  1901.  I  soon  found  that  the  avenues  of  my  investi- 
gation necessarily  included  the  European  experience.  As  a  result  of 
my  study  of  the  subject  matter  in  Europe  I  necessarily  came  in  con- 
tact with  the  experience  respecting  land  credits.  In  some  instances 
the  land  credits  were  the  beginning  of  an  evolution  that  ended  in  in- 
dustrial credits,  as  well  as  in  other  cases  the  industrial  credits  in  the 
urban  community  began -the  evolution  in  the  line  of  mortgage  credits. 
According  to  my  view  the  two  are  sufficiently  linked  together  as  to- 
be  unwise  and  decidedly  inexpedient  not  to  obtain  such  a  benefit  as 
would  accrue  by  the  correlation  of  the  two. 

To  be  practical,  I  mean  by  that  that  in  this  country,  as  has  been  the- 
experience  abroad,  the  key  to  the  successful  development  of  any 
system  of  land  banks  must  necessarily  depend  upon  the  availability 
or  the  marketabilit}^  of  the  land-mortgage  debentures.  In  other 
words,  the  proceeds  from  the  land-mortgage  debentures  must  bear 
the  same  analogous  relationship  to  the  land-mortgage  banks  as  the 
ordinary  deposits  do  to  a  commercial  bank,  and  unless  the  land 
mortgage  is  issued  properly,  secured  properly,  marketed  properly, 
and  its  liquidity  insured,  its  marketability  for  proper  banking  basis 
insured,  the  usefulness  of  any  land-mortgage  bank  or  any  system 
of  rural  credits  would,  in  my  opinion,  be  so  far  limited  as  to  fail  in 
the  purpose  for  which  it  was  intended. 

Therefore,  the  first  question  to  my  mind  that  confronts  the  com- 
mittee, one  arduous  task,  is  the  question :  Where  is  the  money  coming 
from  to  develop  a  system  of  land-mortgage  banks?     Is  that  right? 

Senator  Hollis.  I  think  the  committee  feels  that  very  strongly, 
and  we  hope  you  can  help  us. 

Mr.  Morris.  In  this  connection  just  let  us  briefly  refer  to  the 
similar  inquiry  with  respect  to  other  banking  systems.  In  the  realm 
of  commerciaf  banking  the  capital  of  the  various  banks  is  provided, 
as  we  know,  by  private  subscriptions.  The  resources  with  which  the 
individual  banks  multiply  their  avenues  of  effort  are  furnished  by 
the  deposits  very  largely.  In  the  realm  of  commercial  banking 
these  deposits  come  from  the  people  who  are  served  by  the  banks. 
We  therefore  find,  in  a  consideration  of  land-mortgage  credits,  the 
absence  of  the  last  condition. 

I  mean  by  that  the  farmers  who  are  going  to  be  particularly  served 
by  a  proper  system  of  land-mortgage  banks  can  not  be  expected  to 
furnish,  through  any  system  of  deposits,  or  through  purchase  of 
land-mortgage  debentures,  sufficient  funds  to  insure  the  financial 
success  of  such  a  large  undertaking  as  a  system  of  land-mortgage 
banks.  In  this  anomolous  position  the  issue  before  us  is  decidedly 
different  from  the  commercial  bank,  therefore  we  can  recur  to  the 
question  "Where  is  the  money  coming  from?"     In  my  opinion  it 


RURAL   CREDITS.  719 

would  be  unwise  to  expect  to  acquire  this  money  from  any  sources 
that  would  in  any  manner  limit  or  impede  the  progress  or  develop- 
ment of  any  present  system  of  finance.  It  is  not  fair  to  the  com- 
mercial-banking system,  for  example,  at  the  present  time,  at  the 
threshold  of  perhaps  its  best  and  most  scientific  development,  to 
expect  commercial  deposits,  to  any  large  extent,  to  be  invested  in  land- 
mortgage  debentures,  and  thereby  furnish  any  part  of  this  rural- 
credit  capital. 

The  farmers,  as  before  stated,  who  are  going  to  be  accommodated, 
are  borrowers  in  the  main  and  will  not  be,  to  any  large  extent,  de- 
positors. Therefore,  my  idea  of  the  subject  is  that  this  money  is 
coming  from  that  virgin  field  that  has  not  yet  been  tapped  in  this 
country,  except  in  a  most  superficial,  paradoxical  fashion.  I  refer 
to  the  savings  and  the  earnings  of  the  industrial  classes  of  America. 

Senator  Hollis.  Before  you  go  on  with  that,  Mr.  Morris,  I  wish 
you  would  discuss  the  advisability  of  permitting  these  land  banks 
to  accept  deposits  subject  to  check. 

Mr.  Morris.  In  my  opinion  it  would  be  one  of  the  most  unwise 
things  you  could  do  for  the  following  reasons:  First,  if  you  start  the 
land  bank  and  permit  them  to  accept  deposits  subject  to  check,  the 
natural  tendency  of  most  bankers  will  be  to  develop  that  phase  of 
the  business  at  the  expense  of  the  other  business  for  which  the  insti- 
tution was  primarily  designed.  Any  banker  knows  from  his  own 
experience  that  the  rapid  turnover  of  funds  through  liquid  trans- 
actions in  commercial  loans  that  would  be  necessary  to  preserve  the 
liquidity  and  the  safety  of  deposits  is  more  attractive  and  perhaps 
more  profitable ;  and  to  permit  a  land  bank  to  engage  in  this  business 
would,  in  my  opinion,  soon  have  the  effect  of  developing  this  busi- 
ness at  the  expense  of  the  purposes  for  which  it  was  designed. 

Secondly,  it  would  get  in  competition  with  banks  of  discount 
and  other  commercial  institutions  of  a  similar  character,  national 
and  State. 

Thirdly,  it  would  not  be  very  long,  in  my  opinion,  before  the  ex- 
igencies of  the  moment  would  cause  these  banks  to  put  these  deposits 
in  land  mortgages,  expecting,  of  course,  to  rediscount  them;  but 
in  the  event  their  expectations  were  not  readily  realized  they  would 
find  themselves  with  a  large  amount  of  deposits  subject  to  check, 
and  that  would  make  the  bank  unsafe  and  unattractive. 

I  have  examined  the  provision  in  the  Moss-Fletcher  bill  limiting 
deposits  to  50  per  cent  of  the  capital,  and  I  even  doubt  the  advisa- 
bility of  entertaining  that  suggest i en. 

Senator  Hollis.  Right  there,  Mr.  Morris,  do  you  believe  that  a 
deposit  department,  limited  to  50  per  cent  of  the  capital,  could  be 
made  profitable  enough  to  pay  for  the  bookkeeping  and  clerical 
end  of  it  ? 

Mr.  Morris.  Absolutely  not.  It  is  involving  ai  institution  that 
could  be  kept  simple  and  stable  without  accomplishing  any  result 
that  would  justify  the  complications;  and  it  is  very  doubtful  in  my 
mind  if  it  could  be  even  maintained. 

Senator  Hollis.  I  would  like  to  ask  you  whether  you  think  it 
would  be  possible  to  originate  a  system  of  land-mortgage  banks  that 
would  not  need  an  ordinary  banking  offic-s  and  would  not  need  to 
be  open  during  banking  hours;  that  is,  'Un  more  on  the  system  of 
the  building;  and  loan  associations  ? 


720  EURAL   CREDITS. 

Mr.  Morris.  I  infer  that  your  question  is  one  of  physical  procedure 
rather  than  a  banking  principle. 

Senator  Hollis.  Yes.  It  is  a  question  af  reducing  the  expense  of 
a  small  bank. 

Mr.  Morris.  In  my  opinion  a  land  bank  can  be  run  very  cheaply. 
I  am  constitutionally  opposed,  perhaps  by  reason  of  my  experience 
with  our  industrial  banks,  to  upstairs  offices  and  locations  that  are 
not  dignfied  and  open  and  aboveboard.  I  believe  that  when  people 
have  a  banking  transaction  which  involves  a  credit  and  character 
and  reliability  and  reputation,  whatever  the  class,  whether  it  be  a 
farmer,  a  merchant,  or  a  laborer,  it  ought  to  be  in  an  institution 
that  is  dignified,  but  inexpensively  run.  A  land  bank  could  do  away 
with  all  the  marble  trimmings  and  mahogony  appurtenances  there- 
unto belonging  and  could  be  run  very  cheaply.  We  have  scientifically 
reduced  our  operating  expenses,  speaking  of  the  Morris  plan  of 
banks,  so  that  in  no  case  will  they  exceed  3  per  cent  of  the  entire 
volume  of  loans. 

Senator  Hollis.  Tell  us  in  a  general  way  what  sort  of  equipment 
you  have. 

Mr.  Morris.  In  our  industrial  banks  we  usually  rent  a  place  that  in 
floor  space  would  be  about  20  to  25  by  100  feet.  We  usually  divide 
it  up  into  three  compartments  or  rooms,  one  part  of  which  is  a  re- 
ceiving and  paying  space,  the  other  part  a  waiting  space,  the  third 
part  a  committee  room,  where  the  discount  committee  meets. 

The  total  rent  would  average  less  than  $2,000.  In  some  cities, 
where  the  inhabitants  number  100,000  people  or  thereabouts,  the  rent 
will  hardly  average  more  than  $1,200  per  annum.  The  committee 
will  find  the  Morris-plan  bank  in  Washington,  if  they  would  like  to 
look  at  it. 

Senator  Hollis.  Give  us  the  location  of  it. 

Mr.  Morris.  The  location  of  the  Morris-plan  bank  at  Washington 
was  formerly  at  Twelfth  and  G  Streets.  It  has  been  moved.  It  is 
now  between  H  and  I.  They  were  compelled  to  move  because  the 
building  on  which  they  had  a  lease  was  torn  down.  I  do  not  believe 
the  cost  of  operating  a  land  bank  would  be  as  much  as  that  of  oper- 
ating an  industrial  bank,  if  properly  and  carefully  worked  out. 

Senator  Hollis.  When  I  diverted  you,  Mr.  Morris,  you  were  just 
getting  to  the  subject  of  obtaining  access  to  the  savings  of  the  thrifty 
industrial  worker.    Now,  if  you  will,  go  on,  please. 

Mr.  Morris.  In  my  opinion.  I  do  not  believe  this  country  has  devel- 
oped the  saving  among  the  industrial  classes,  and  when  I  use  the 
term  "  industrial  classes  "  I  am  using  it  rather  generically.  I  mean 
by  that  the  wage  earner,  the  very  small  merchant,  the  artisan,  and 
the  little  fellow.  1  do  not  believe,  as  I  started  to  say,  that  this  coun- 
try has  developed  or  encouraged  their  saving  as  other  countries  have 
done. 

Senator  Hollis.  In  New  England  and  New  York,  as  you  know,  we 
have  a  great  many  mutual  savings  banks,  which  have  very  large  de- 
posits. Do  you  believe  that  in  New  England  and  New  York  that  a 
great  deal  more  can  be  done  in  that  line? 

Mr.  Morris.  I  do;  and  1  will  show  you  why  in  a  moment. 
However,  in  this  connection  I  will  say  that  in  New  York  City  ap- 
proximately 30  per  cent  of  tho  combined  savings  of  America  are  on 
deposit  in  savings  banks,  most\  mutual;  in  fact,  entirely  mutual,  I 


RURAL   CREDITS.  721 

think.  From  the  last  report  on  the  subject  approximately  $7,000,- 
000,000  are  on  deposit  in  the  savings  banks  of  this  country.  I  think 
I  would  be  conservative  if  I  said  that  approximately  95  to  97  per 
cent  of  the  people  that  own  deposits  can  not  get  a  dollar's  worth  of 
credit  from  the  institution  they  support. 

Senator  Hollis.  Well,  if  they  will  pledge  their  savings  bank  books, 
they  can  in  New  England. 

Mr.  Morris.  In  some  States  if  they  pledge  their  savings-bank  books 
they  can,  but  in  the  majority  of  States  even  in  that  event  they  can 
not. 

Senator  Hollis.  That  strikes  me  as  quite  remarkable.  I  do  not 
see  why  they  can  not. 

Mr.  Morris.  The  reason  why  they  can  not  is  also  simple,  if  you 
consider  it.  The  majority  of  laws  governing  savings  banks,  which 
are  practically  statutory  banks,  compel  them  to  invest  their  funds  in 
a  limited  class  of  securities,  most  all  of  which  are  not  liquid.  Now, 
if  they  were  compelled  to  loan  money  to  any  large  extent  on  their 
pass  books,  they  would  soon  find  that  the  demand  for  loans  would 
resemble  a  run  on  the  bank. 

Senator  Hollis.  If  they  were  compelled  to  issue  them  by  statute, 
that  would  be  possible;  but  if  it  was  left  to  the  discretion  of  the 
bank  officials  to  loan  as  much  as  they  have  current  and  can  properly 
loan,  it  makes  an  entirely  safe  and  rather  profitable  investment.  I 
know  in  the  bank  I  am  connected  with  that  it  is  very  profitable. 

Mr.  Morris.  Absolutely.  You  do  not  want  any  better  investment. 
Even  then,  it  would  be  a  very  small  accommodation  to  the  depositor, 
because  in  the  majority  of  cases  if  a  depositor  wants  to  borrow 
money  on  his  pass  book  and  he  can  not  borrow  it  from  the  savings 
bank,  he  will  withdraw  it  and  lose  the  interest.  The  point  I  want 
to  make  is  a  man  who  has  been  a  steady  and  habitual  depositor  in 
a  savings  bank  probably  for  years  and  consumes  his  savings  de- 
posits, and  then  desires  a  limited  amount  of  credit  consistent  with 
his  earning  capacity,  and  for  which  he  could  give  good  security,  or 
at  least  safe  security,  the  very  bank  he  has  assisted  in  supporting 
all  his  life  can  not  accommodate  him. 

Senator  Hollis.  You  are  entirely  right.  On  my  last  visit  to  New 
England  a  conductor  on  a  railroad  train,  a  man  earning  at  least 
$100  a  month,  wanted  to  borrow  money  of  the  New  Hampshire 
Savings  Bank,  in  which  he  had  a  deposit  of  $10,000,  drawing  in- 
terest, and  he  could  not  borrow  $1,000  on  his  note  without  putting 
up  his  savings-deposit  book  as  collateral.  It  shows  there  is  abso- 
lutely no  connection  between  the  savings  bank  and  the  depositor  as 
there  is  between  a  commercial  bank  and  its  depositor.  That  illus- 
trates the  point. 

Mr.  Morris.  Absolutely. 

Senator  Weeks.  I  do  not  see  any  objection  to  that.  The  con- 
ductor has  no  commercial  credit.  Not  having  any  commercial 
credit,  and  not  being  in  a  commercial  business,  if  he  wanted  to  bor- 
row money  he  ought  to  put  up  collateral.  The  collateral  he  has  is 
his  savings-bank  book..  That  is  a  business  transaction.  He  ought 
not  to  object  to  that. 

Mr.  Morris.  Suppose  his  money  was  in  a  savings  bank.     In  the 
majority  of  States  they  would  not  even  lend  him  money  on  his  pass 
37031—14 16 


722  RURAL   CREDITS. 

book.  Then  be  goes  around  to  the  commercial  bank  and  offers  to 
put  up  his  pass  book  as  collateral,  and  the  first  question  that  the 
commercial  banker  asks  him  is,  ki  Do  you  deposit  here?  "  If  he  says 
he  does  not,  they  do  not  accommodate  him. 

Senator  Weeks.  That  is  not  true  of  the  mutual  savings  banks,  as 
far  as  I  know.    It  certainly  is  not  true  in  Massachusetts. 

Mr.  Morris.  No;  in  Massachusetts  they  can  borrow  on  their  pass 
books. 

Senator  Weeks.  You  spoke  of  the  bank  which  these  men  have 
been  supporting.  They  have  not  been  supporting  the  bank;  the 
bank  lias  been  helping  them  to  support  themselves,  because  a  mutual 
savings  bank  makes  no  money;  it  simply  pays  its  operating  expenses 
and  the  depositors  get  the  benefit. 

Mr.  Morris.  That  is  true,  but  in  the  majority  of  States  you  will 
find  that  they  can  not  even  borrow  on  their  pass  books. 

Senator  Hollis.  That  is,  the  statutes  prohibit  it? 

Mr.  Morris.  The  statutes  prohibit  savings  banks  loaning  on  their 
pass  books  in  a  large  majority  of  the  States. 

Senator  Hollis.  We  have  diverted  you  again.  We  want  to  have 
you  begin  where  you  left  off. 

Mr.  Morris.  In  other  words,  how  long  would  men  of  commerce 
patronize  their  banks  and  deposit  in  them  if  legitimate  credit  within 
proper  limits  were  not  afforded  ?  The  fact  that  the  industrial  classes, 
therefore,  in  the  past — before  the  installation  of  the  Morris  plan 
banks — having  enjoyed  no  credit  and  their  earning  capacitjr  has  not 
heretofore  been  either  capatilized  or  recognized  by  financial  institu- 
tions in  this  countiy,  to  my  mind  is  having  the  effect  on  their  saving 
propensities.  Also  securities,  for  example,  that  are  issued  in  large 
denominations,  largely  bonds  of  $1,000  each,  seldom  less  than  $500, 
and  only  recently — in  the  last  year  or  two — in  denominations  as 
small  as  $100,  which  may  be  designated  as  baby  bonds,  have  never 
been  offered  on  any  material  scale  to  the  wage  earner  or  to  the  small 
investor.  In  France,  for  example,  it  has  been  stated  by  experts  that 
the  French  peasant  is  as  familiar  with  the  price  and  value  of  bonds 
of  small  denominations,  usually  $20,  as  he  or  she  is  with  the  fashion 
or  price  of  shoes.  Their  institutions  over  there,  the  Credit  Foncier, 
for  example,  that  distributes  securities  in  small  denominations, 
largely  $20  each,  in  the  aggregate  sum  of  millions  per  annum.  In 
fact  the  Bank  of  France,  in  1912,  is  reputed  to  have  made  discounts 
and  loans  to  the  small  wage  earner  and  peasants  of  France  aggregat- 
ing $500,000,000,  the  average  loan  of  which  did  not  exceed  $20  (or 
100  francs),  and  nearly  one-third  of  their  business  or  over  $1,000,- 
000,000  worth  of  loans  were  made  the  average  of  which  did  not  ex- 
ceed $160. 

The  point  I  wish  to  impress  upon  the  committee  is  that  abroad  the 
small  man  is  furnished  credit  facilities,  saving  opportunities,  and  in- 
vestment opportunities.  He  is  encouraged  to  save;  he  is  taught  if 
he  is  frugal'  he  can  get  proper  credit;  that  if  he  needs  $50  or  $100  or 
$150  or  $200,  or  whatever  limited  amount,  as  the  case  may  be,  for 
urgent  and  required  purposes,  he  does  not  have  to  go  to  a  loan  shark 
on  the  fourteenth  story  of  a  building,  but  he  can  go  to  his  bank  and 
get  it.  He  can  get  it  at  a  rate  of  interest  that  is  economical  and  that 
will  compare  favorably  with  the  opportunities  afforded  men  of  com- 
merce.    What  is  the  result?     The  result  is  that  the  army  of  wage 


RURAL   CREDITS.  723 

earners,  or  at  least  people  of  small  means  and  small  requirements, 
have  built  up  such  a  system  of  finance  abroad  that  they  furnish  a 
great  part  of  the  capital  to  develop  just  such  systems  of  finance  as 
we  are  confronted  with  this  morning. 

For  example,  the  People's  Banks  of  Italy,  last  year  financed  sub- 
contractors and  small  artisans  to  such  an  extent  that  the  loans  made 
to  the  small  subcontractors  of  Italy  represented  one-third  of  the  en- 
tire financing  of  the  railroad  construction  of  Italy  given  for  that 
period  of  one  year. 

The  Morris  plan  of  industrial  banking  is  endeavoring  to  do  this 
in  this  country.  Now.  if  a  system  of  industrial  banks  is  built  up 
in  America,  and  people  are  encouraged  to  save,  and  the  aggregate 
savings  will  exceed  the  large  amount  already  on  deposit  in  savings 
banks,  land  debentures  properly  issued,  properly  secured,  and 
through  such  a  sj'stem  that  would  insure  both  their  liquidity,  espe- 
cially for  collateral  purposes  in  these  industrial  banks,  which  would 
make  them  attractive  investments  for  the  industrial  classes,  and  that 
virgin  reserve  of  capital  could  thereby  be  tapped,  and.  in  my  opin- 
ion, if  the  details  are  properly  worked  out  these  land-mortgage 
debentures  can  be  sold  among  the  industrial  classes  of  America  to 
such  an  extent  that  the  aggregate  amounts  will  supply  a  very  large 
part  of  the  capital  required  to  make  the  land-mortgage  problem  a 
success.  I  have  in  mind  the  practical  details  of  how  this  should  be 
brought  about.    That  answers  your  question,  however,  does  it  not? 

Senator  Hollis.  You  say  you  haven't  it  in  mind  I 

Mr.  Morris.  I  say  I  have  it  in  mind,  but  I  do  not  know  whether 
you  want  me  to  go  into  that. 

Senator  Hollis.  Yes:  that  is  what  we  want.     I  wish  you  would. 

Mr.  Morris.  Before  I  go  into  the  practical  details  of  how  such  an 
evolution  can  be  accomplished,  let  us  revert  for  the  moment  to  the 
part  that  the  present  municipal  bonds  or  the  present  railroad  securi- 
ties or  other  generally  accepted  security  plays  in  the  ordinary 
finance  and  banking  in  this  country. 

The  majority  of  large  investors  buy  these  securities,  first,  because 
they  have  a  listed  market  value,  and.  secondly,  because  they  can  be 
used  for  collateral  purposes  on  most  any  occassion  and.  of  course, 
because  they  are  safe,  otherwise  they  would  not  have  the  foregoing 
qualities.  Land-mortgage  debentures  must  be  give::  the  same  at- 
tributes. In  addition  to  being  perfectly  safe  and  sound  they  must 
be  available  for  collateral  purposes  for  the  big  man  in  his  national 
bank,  for  the  little  man  in  his  industrial  bank.  I  have  never  yet 
known  of  any  security  that  in  the  majority  of  instances  did  not  have 
the  ready  market:  that  yni  could  always  use  it  at  a  bank  for  col- 
lateral or  similar  purposes. 

Senator  Hollis.  Conversely,  they  will  not  take  it  at  a  bank  unless 
it  has  a  ready  market,  I  suppose. 

Mr.  Morris.  Yes;  and  the  converse  is  equally  true.  Therefore,  the 
first  thing  to  be  perfectly  worked  out  is  a  system  under  which  these 
land-mortgage  debentures  are  going  to  be  issued.  I  hesitate  to  go 
into  the  details  of  this  for  fear  that  I  would  either  indulge  in  repeti- 
tion of  what  the  committee  has  already  had,  or  that  I  may  be  burden- 
ing them  with  some  ideas  that  they  may  or  may  not  desire  t<:  hear. 

Senator  Hollis.  I  wish  you  would  go  into  that  fully.  Mr.  Morris. 


724  RURAL   CREDITS. 

Mr.  Morris.  In  the  first  place,  I  believe  that  in  order  to  get  the 
investing  public  of  America  to  put  their  money  in  land-mortgage 
debentures,  whether  the  large  investor  or  small  investor,  the  entire 
plan  must  be  analogous  to  our  present  banking  system.  .  In  other 
words,  the  man  that  buys  a  land-mortgage  debenture  must  be  made 
to  feel  that  he  is  buying  something  that  is  just  as  good  as  any  other 
security,  and  the  antipathy  or  the  reticence  that  has  heretofore  been 
felt  regarding  farm  mortgages  by  what  might  be  termed  the  usual 
liquid  investor  niiist  be  eliminated.  The  way  to  eliminate  that  is  to 
bring  the  land-mortgage  debenture  into  being  under  a  system  that 
will  compare  favorably  with  our  present  banking  system.  To  do 
that,  in  my  opinion,  it  is  necessary  to  establish  at  Washington  a 
bureau  of  farm-land  banks  that  at  least  have  a  similar  relationship 
as  the  Federal  Reserve  Board  does  to  the  national  banking  system. 

Senator  Hollts.  What  would  you  say  to  putting  that  under  the 
direct  charge  of  the  Federal  Reserve  Board  to  work  out  as  they  want 
to,  or  establishing  a  bureau  under  their  charge? 

Mr.  Morris.  I  was  going  to  suggest  that  a  bureau  be  established  to 
be  known  as  the  Federal  bureau  of  land  banks,  or  some  such  similar 
name.  I  figure  it  is  a  detail  to  be  worked  out  whether  it  requires  a 
separate  bureau  or  whether  it  could  be  incorporated  within  the  duties 
of  the  Federal  Reserve  Board.  I  can  not  at  the  moment,  without 
having  given  that  suggestion  the  proper  thought,  see  why  the 
Federal  Reserve  Board,  with  a  land-bank  bureau,  would  not  accom- 
plish many  of  the  things  which  I  have  in  mind. 

Senator  Hollis.  That  is,  it  would  give  it  dignity  and  standing? 

Mr.  Morris.  That  would  give  it  dignity  and  stability  right  from 
the  beginning. 

Senator  Hollis.  And  it  would  eliminate,  perhaps,  the  jealousy 
that  many  farmers  and  friends  of  farmers  have  of  commercial  banks, 
that  they  have  the  inside  track? 

Mr.  Morris.  Yes:  it  would  accomplish  that,  and  accomplish  it 
quickly. 

I  will  not  undertake  to  go  into  the  details  of  what  should  be  the 
duties  of  such  a  bureau,  because  I  would  like  to  work  that  out  in  more 
careful  detail,  but  the  general  outline  of  its  structure  would  be  to 
exercise  a  supervisory  and  controlling  influence,  similar  to  the  Fed- 
eral Reserve  Board,  and  not  permit  any  regional  land  banks,  which 
I  Avill  describe  in  a  moment,  to  issue  any  land-mortgage  debentures 
until  the  required  information  properly  certified  to  under  oath  has 
been  presented  to  the  bureau  and  the  certificates  permitting  the  re- 
gional land  bank  to  make  the  issue  was  allowed. 

Senator  Hollis.  Would  you  not  advise  having  the  board  place  its 
indorsement,  not  in  the  sense  of  financial  responsibility  of  the  deben- 
ture, but  indorsement  that  it  had  complied  with  all  the  regulations 
and  was  approved  on  the  security  itself? 

Mr.  Mourns.  Absolutely,  to  such  an  extent  that  the  bureau  would 
have  to  watch  over  all  the  land-mortgage  debentures,  each  one  of 
which  would  bear  certification  from  the  bureau  or  its  duly  authen- 
ticated representative  appointed  for  that  purpose. 

Still,  following  the  Federal  reserve  act  in  its  analogy,  a  sufficient 
number  of  regional  land  banks  should  be  established,  and  the  mini- 
mum or  maximum  number  of  them  is  another  detail  which  requires 
careful  and  scientific  consideration.  !  uld  say  offhand  not 


BUBAL   CEEDITS.  725 

less  than  10  and  perhaps  15  or  20.  These  banks  should  be  of  fairly 
good  size,  if  practicable  not  less  than  $1,000,000  each,  and  certainly 
not  less  than  $500,000.  I  would  prefer  the  former  to  the  latter. 
Then,  under  the  statutes — and  I  might  say  by  way  of  interpolation 
that  all  these  ideas  can  be  worked  out  under  the  present  Fletcher- 
Moss  bill  as  a  basis.  In  other  words,  from  my  examination  of  the 
Fletcher-Moss  bill  it  has  many  good  parts  to  it  that  could  be  used  as 
a  foundation  basis  for  creating  the  act  necessary  to  carry  into  effect 
the  ideas  here  expressed,  and  I  intended  to  come  here  to-day  with  a 
revision  of  the  Fletcher-Moss  bill  so  far  completed  as  would  carry 
into  effect  all  the  ideas  that  I  here  express,  but  unfortunately  I  have 
not  been  able  to  complete  that  undertaking. 

Senator  Hollis.  Will  you  complete  it  and  send  it  to  the  committee? 
It  would  be  of  great  value  to  the  committee. 

Mr.  Morris.  To  answer  that  quest ion:  I  will  say  that  I  will  do  my 
best. 

Mr.  Platt.  Would  not  the  necessity  for  all  that  examination  and 
certification  between  the  mortgagor  and  the  investors  interfere  with 
the  making  of  the  mortgage  and  delay  him  in  getting  the  money? 

Mr.  Morris.  I  do  not  think  so.  I  will  bring  that  out  in  a  moment, 
when  I  get  the  contour  of  the  plan  in  the  record.  I  believe  it  could 
be  worked  out  very  simply. 

Mr.  Platt.  If  the  Federal  Reserve  Bureau  has  to  certify  them  in 
order  to  satisfy  investors,  it  looks  to  me  like  it  would  be  a  long  time 
before  a  man  could  get  his  money,  and  one  or  two  crop  seasons  might 
go  by. 

Mr.  Morris.  That  might  be  so  if  the  Federal  Eeserve  Bureau  had 
to  conduct  the  investigation,  but  my  idea  is  that  the  local  unit  banks, 
which  I  have  not  }Tet  described,  would  of  course  conduct  the  investi- 
gation and  determine  whether  they  would  make  the  loan.  Then  if 
the  unit  bank  made  the  loan,  it  would  see  before  making  the  loan 
that  the  conditions  imposed  by  the  Federal  Eeserve  Bureau  in  order 
to  issue  land-mortgage  debentures  against  that  mortgage  were  per- 
formed. They  would  in  turn  satisfy  the  regional  land  bank  that  that 
had  been  done,  and  simply  a  certificate  showing  the  execution  of 
those  conditions  would  be  filed  with  the  Federal  Reserve  Bureau, 
which  would  ministerially  grant  the  right  to  the  regional  bank  to 
issue  the  land  mortgage  debentures ;  the  idea  being  that  it  would  be 
largely  a  supervisory  work.  But  the  purpose  of  it  is  to  prevent  a 
repetition  of  the  experience  of  the  eighties  with  the  land-mortgage 
debentures. 

Mr.  Platt.  Would  the  local  land-mortgage  bank  take  the  risk  and 
advance  the  money  to  the  farmer? 

Mr.  Morris.  Oh,  yes;  they  could  do  that.  The  only  reason  in  the 
world  the  local  unit  bank  would  be  taking  is  to  guarantee  that  they 
are  complying  with  the  fundamental  conditions.  That  would  be  nec- 
essary to  get  a  land-mortgage  debenture  issued  against  them.  The 
mortgage  itself  could  be  made. 

Mr.  Platt.  And  the  money  advanced? 

Mr.  Morris.  And  the  money  advanced  at  once,  but  the  capacity  of 
the  local  bank  to  rediscount  that  mortgage  at  the  regional  bank  and 
obtain  their  funds  from  the  land-mortgage  debentures  would  depend 
upon  their  carrying  out  the  conditions.  That  I  believe  is  necessary 
to  repose  in  these  land-mortgage  debentures  absolute  security    They 


726  RURAL  CREDITS. 

in  turn  will  bring  about  their  liquidity  which  these  debentures  ought 
to  have  in  order  to  readily  market  them. 

Mr.  Woods.  What  is  your  objection  to  having  a  regional  bank  in 
each  State? 

Mr.  Morris.  I  have  thought  of  that  and  it  was  my  first  idea  to  have 
a  regional  bank  in  each  State,  but  I  am  afraid  that  it  will  make  too 
many,  and  I  am  afraid  it  will  be  difficult  to  get  each  one  of  them 
of  sufficient  capital  to  make  the  guaranty  behind  these  land-mort- 
gage debentures  strong  enough.  You  see  there  would  be  forty-odd 
banks,  and  if  you  cut  up  these  regional  banks  into  that  large  number 
I  fear  3^011  would  have  to  have  them  too  small  in  capital. 

Mr.  Jones.  Mr.  Morris,  we  have  in  a  great  many  of  our  States, 
as  you  of  course  are  aware,  a  much  larger  area  than  many  European 
countries. 

Mr.  Morris.  Yes,  sir. 

Mr.  Jones.  And  yet  in  all  of  those  European  countries  there  are 
literally  thousands  of  successful  land-mortgage  banks. 

Mr.  Morris.  That  would  refer,  would  it  not,  to  the  unit  banks? 

Mr.  Jones.  Yes. 

Mr.  Morris.  The  unit  bank  would  take  care  of  that,  would  it  not? 
I  have  no  objection  to  the  number  of  unit  banks,  but  my  idea  is  to 
concentrate  to  a  reasonable  degree,  largely  on  account  of  size  and 
strength,  the  bank  that  guarantees  the  debentures  and  issues  them. 

Mr.  Jones.  You  are  touching  upon  a  point  there  that  has  been  pre- 
sented in  the  last  few  days.  Have  you  read  what  is  called  the 
minority  report  of  the  American  commission  and  what  that  report 
recommends  ? 

Mr.  Morris.  Xo;  I  have  never  read  the  minority  report.  I  read 
the  report  signed  by  Senator  Fletcher.     Is  that  the  majority  report? 

Mr.  Jones-  That  is  the  report  of  the  United  States  commission. 

Mr.  Morris.  Yes;  I  have  read  that. 

Mr.  Jones.  The  American  commission,  the  larger  body,  divided. 

Mr.  Morris.  Yes ;  I  know  that. 

Mr.  Jones.  The  majority  made  no  recommendation,  because  those 
who  controlled  the  majority  were  members  of  the  United  States  com- 
mission. 

Mr.  Morris.  Yes,  sir. 

Mr.  Jones-  They  deferred  to  the  United  States  commission,  but  a 
minority,  who  were  not  members  of  the  United  States  commission, 
felt  some  severe  critcisms  could  be  made  of  the  unit-bank  system 
without  federation,  and  they  have  presented  a  minority  report  and 
the  last  two  or  three  days  have  had  hearings  before  this  committee. 

.Mr.  Morris.  No;  I  have  not  read  the  report,  I  am  sorry  to  say. 

Mr.  Jones.  You  are  bordering  so  close  to  what  their  recommenda- 
tions are  I  was  wondering  whether  it  was  possible  that  we  could 
have  influenced  you  in  any  way  or  whether  our  ideas  independently 
seemed  to  be  working  toward  the  same  direction. 

Mr.  Morris.  No;  I  have  never  read  that  report  and  have  never 
seen  it. 

Mr.  Jones.  And  you  have  never  talked  to  anyone  in  regard  to  it  ? 

Mr.  Morris.  No;  I  never  have. 

Mr.  Platt-  You  do  not  think  that  the  complication  of  State  laws 
in  regard  to  taxes,  registration  of  title,  and  one  thing  and  another, 


RURAL   CREDITS.  727 

would  interfere  with  having  units  larger  than  States?  The  bonds 
would  have  to  be  issued  in  State  series,  would  they  not? 

Mr.  Morris.  Just  what  do  you  mean  by  State  series? 

Mr.  Platt.  I  mean  the  bonds  of  one  State  would  not  be  worth  as 
much  as  the  bonds  of  another  State,  because  of  the  laws  interfering, 
for  instance,  on  foreclosures? 

Mr.  Morris.  Of  course,  we  are  confronted  in  this  country,  under 
our  dual  S3rstem  of  government,  in  studying  this  question  with  sev- 
eral practical  difficulties,  one  of  which  you  have  just  indicated.  One 
of  them  is  lack  of  uniformity  of  registration  and  lack  of  uniformity 
in  tax  laws.  I  am  hoping  that  a  bill  will  be  worked  out  that  will, 
in  respect  to  taxation  under  Federal  legislation,  make  it  uniform. 

Mr.  Platt.  That  is  what  I  wanted  to  bring  out. 

Mr.  Morris.  I  believe  it  is  an  absolutely  essential  thing  to  do. 
you  have  just  got  to  do  that. 

Senator  Hollis.  On  the  other  hand,  until  this  is  done — and  it 
will  take  a  long  time  to  get  uniformity  in  the  various  States — your 
idea  is  to  have  these  central  units  which  you  have  described  look  into 
the  validity  of  the  titles  and  tax,  so  that  when  they  put  their  stamp 
of  approval  on  it  people  will  know  that  those  conditions  have  been 
complied  with? 

Mr.  Morris.  The  regional  bank,  not  the  unit. 

Senator  Hollis.  Yes ;  the  regional  bank. 

Mr.  Morris.  That  is  right— the  regional  bank.  My  idea  is  to  have 
an  agent  at  every  unit  bank,  some  man  designated  there  that  will 
probably  be  the  representative  in  the  State  of  the  regional  land  bank. 
So  that  it  may  be  that  expense  can  be  saved,  but  I  do  hope  that  if 
any  system  of  this  land  is  concluded,  that  every  State  will  cooperate 
sufficiently  to  get  together  on  the  best  registration  and  exemption 
from  taxation  system,  and  these  land-mortgage  debentures  under 
Federal  supervision  will  solve  the  largest  part  of  the  tax  question. 

I  was  talking  to  Gov.  Glynn,  of  New  York,  on  Monday,  and  they 
are  just  as  much  concerned  over  the  matter  up  there  as  you  gentle- 
men are  here  in  the  Federal  end  of  it,  and  I  know  they  are  going 
to  do  every  thing  they  can  to  cooperate  with  the  proper  system. 

Mr.  Platt.  All  mortgages  in  New  York  State  are  exempt  from 
taxation  on  payment  of  one-half  per  cent  recording  fee. 

Mr.  Morris.  I  understand  the  recording  or  transfer  tax  concludes 
the  taxation  of  the  mortgage? 

Mr.  Platt.  Would  that  answer  the  general  purpose?  It  is  very 
unlikely  that  States  can  be  gotten  absolutely  to  repeal  their  laws  on 
the  taxation  of  mortgages  unless  something  of  that  sort  takes  its 
place,  I  should  think. 

Mr.  Morris.  Of  course  that  is  entirely  a  matter  that  the  commis- 
sion will  have  to  contend  against  who  is  going  to  have  that  in  charge. 
In  other  words,  if  you  expect  to  bring  about  any  uniform  legislation 
in  the  States  there  ought  to  be  either  an  organization  committee  or  a 
commission  that  will  be  charged  with  the  duty  to  get  behind  each 
State  and  get  this  thing  done. 

Mr.  Platt.  The  Moss  bill  provides 

Mr.  Morris.  That  does  not  undertake  to  do  this. 

Mr.  Platt  (continuing).  That  it  shall  not  go  into  effect  fully 
that  the  security  shall  not  be  made  available  for  trust  funds,  etc.,  in 


728  RURAL   CREDITS. 

States  where  mortgages  are  not   exempt  from  taxation  and  where 
the  recording,  etc.,  is  not  satisfactory. 

Mr.  Morris.  Yes;  I  remember  that, 

Mr.  Platt.  Do  you  think  that  would  accomplish  the  purpose? 
Would  that  bring  sufficient  pressure  to  cause  the  States  to  change 
their  laws? 

Mr.  Morris.  You  are  asking  me  a  very  hard  question  as  to  what 
would  be  the  effect  in  the  States  of  a  provision  of  that  character. 
It  requires  largely  a  prognostication  answer.  I  believe  it  will  have 
a  very  strong  effect,  because  I  believe  the  farmers  of  those  States 
that  want  to  get  the  benefit  of  this  bill  are  going  to  get  behind  the 
legislature  and  say,  "  Now.  3-011  can  not  get  the  benefit  of  this  law 
unless  you  comply  with  the  conditions  provided."  I  believe  that  will 
have  a  very  strong  effect.  As  to  what  would  accomplish  the  desired 
result,  I  would  not  undertake  to  prognosticate. 

Senator  Hollis.  This  at  least  is  here,  Mr.  Morris,  that  if  you  have 
these  districts  larger  than  one  State,  each  district  institution  would 
have  a  State  expert  who  could  pass  on  all  State  loans  that  were 
made  a  basis  for  bonds. 

Mr.  Morris.  Each  regional  bank  would  have  a  department  very 
similar  to  the  legal  department  of  the  Industrial  Finance  Corpora- 
tion. Every  time  we  organize  an  industrial  bank  in  a  State  at  the 
present  time  our  legal  department  has  worked  out  all  the  details  re- 
lating to  that  particular  State.  They  have  made  a  study  of  it  and 
know  exactly  the  kind  of  charter  that  is  required  and  the  by-laws 
and  the  incorporation  lawTs  that  are  necessary. 

Mr.  Platt.  If  Mr.  Moss  was  here,  he  would  proceed  to  say  you  were 
going  to  get  the  overhead  charge  on  those  bonds  so  high  that  the  rate 
of  interest  would  not  be  very  much  lowered  to  the  farmers.  That  is 
his  chief  objection,  as  I  understand  it,  to  the  State  unit  banks. 

Mr.  Morris.  The  State  unit  banks? 

Mr.  Platt.  Yes. 

Mr.  Morris.  Don't  you  think  it  would  be  less  for  12  or  20  of  them 
than  it  would  be  for  40  or  50  of  them  ? 

Mr.  Platt.  I  should  think  it  might  be,  provided  you  did  not  have 
to  spend  too  much  money  to  investigate  State  laws. 

Mr.  Morris.  They  will  not  have  to  do  that,  because  a  Federal  en- 
abling statute  will  create  the  institutions,  and  the  only  thing  to  be 
investigated  are  the  exemptions  under  the  enabling  statute.  The  ex- 
emption exempting  land-mortgage  debentures  from  taxation  and  the 
other  exemptions  will  only  have  to  be  inquired  into  to  the  extent  they 
might  come  in  conflict  with  State  laws,  and  that  will  really  be  a 
single  proposition — a  first-instance  proposition.  After  it  is  done  in 
the  first  instance  and  they  are  regulated  by  the  legislatures  it  is  not  a 
iecurring  expense. 

Mr.  Platt.  That  is  true. 

Mr.  Ragsoale.  Is  it  your  idea  that  these  various  banks  that  are 
to  be  established 

Mr.  Morris  (interposing).  You  are  referring  now  to  the  regional 
land  banks,  not  the  local  unit  banks? 

Mr.  Ragsdale.  The  regional  banks — shall  take  over  the  mortgages 
in  the  different  States  and  then  they  are  to  issue  their  bonds  against 
these  mortgages? 

Mr.  Morris.  That  is  correct. 


RURAL   CREDITS.  729 

Mr.  Ragsdale.  Would  it  not  be  better,  as  a  matter  of  fact,  instead 
of  issuing  these  bonds,  issuing  bonds  in  State  series,  that  the  bonds 
covering  one  State  be  secured  by  mortgages  in  the  particular  State  '. 

Mr.  Morris.  You  mean  to  segregate  the  mortgages  of  one  Slate 
and  issue  bonds  against  those? 

Mr.  Ragsdale.  Yes. 

Mr.  Morris.  And  not  interstate  the  segregation? 

Mr.  Ragsdale.  That  is  right. 

Mr.  Morris.  Is  that  what  you  mean? 

Mr.  Ragsdale.  My  idea  is,  the  wisdom  of  it :  it  seems  to  me  that 
it  would  be  better  in  the  long  run.  would  be  wiser,  to  allow  the  re- 
gional bank  to  loan  money  in  as  many  States  as  it  wished  to,  and  in 
issuing  bonds  against  mortgages  it  do  not 

Mr.  Morris  (interposing).  Let  me  interrupt  you,  Mr.  Ragsdale. 
The  regional  bank  under  the  plan  I  have  been  discussing  does  not 
lend  any  money. 

Mr.  Ragsdale.  It  only  guarantees. 

Mr.  Morris.  It  only  issues  debentures  against  mortgages  that  the 
unit  banks  have  previously  loaned  on. 

Mr.  Ragsdale.  Yes ;  but  where  does  it  get  the  money  from  ? 

Mr.  Morris.  From  the  sale  of  the  debentures. 

Mr.  Ragsdale.  If  it  does  that,  it  has  bought  in  the  security, 
hasn't  it? 

Mr.  Morris.  Oh,  yes.  It  has  bought  in  the  security;  at  least 
it  indorses  a  debenture  made  promptly  by  the  unit  bank  the  same  as 
the  Credit  Foncier  of  France. 

Mr.  Ragsdale.  Don't  you  think  it  would  be  better  to  absorb  the 
mortgages  itself  and  then  issue  bonds  against  those  mortgages? 

Mr.  Morris.  You  mean  to  cut  out  the  unit  bank,  practically? 

Mr.  Ragsdale.  Yes. 

Mr.  Morris.  It  would  not  be  practicable. 

Mr.  Ragsdale.  You  do  not  think  it  would  be? 

Mr.  Morris.  Positively  not.  You  can  not  expect  a  regional  bank — 
it,  for  instance,  can  not  pass  on  the  credit  of  a  man  somewhere  down 
in  Virginia. 

Mr.  Ragsdale.  Why  not? 

Mr.  Morris.  It  is  too  expensive. 

Mr.  Ragsdale.  Are  not  the  great  insurance  companies  and  the 
British-American  mortgage  companies  and  other  local  loaning  insti- 
tutions of  that  character  doing  that  very  kind  of  work  and  mate- 
rially reducing  the  interest  in  the  different  parts  of  the  State? 

Mr.  Morris.  You  mean  loan  agents? 

Mr.  Ragsdale.  Yes. 

Mr.  Morris.  They  are  doing  it  to  an  extent ;  but  if  you  start  that, 
I  think  you  might  have  a  repetition  of  the  1884  land-debenture 
schemes.  In  other  words,  I  am  opposed  to  any  more  agency  proposi- 
tions for  wrecking  these  institutions.  An  agent  who  starts  a  branch 
is  inculcated  with  the  idea  of  getting  a  branch  and  getting  his  com- 
mission. It  is  not  his  money  at  stake.  It  seems  to  me  very  much 
like  if  you  send  a  man  out  to  spend  your  money — it  is  not  his  money 
and  he  won't  be  as  careful  in  spending  it  as  he  would  if  it  was  his 
own.  Some  men  would  spend  your  money  with  greater  care  than 
they  would  spend  their  own;  but  it  is  the  exception  that  proves  the 
rule. 


730  RURAL   CREDITS. 

Mr.  Raosdale.  You  do  not  think  Government  supervision  would 
reduce  the  danger? 

Mr.  Morris.  Yes;  I  think  Government  supervision  would  reduce 
the  danger. 

Mr.  Ragsdale.  Don't  you  realize  there  is  some  danger  of  that  char- 
acter, no  matter  how  well  we  safeguard  it.  as  shown  by  the  local 
national  banks  that  handle  lines  of  credit  throughout  the  State? 

Mr.  Morris.  Yes.  You  have  to  depend  on  human  agency  in  any 
kind  of  a  proposition. 

Mr.  Ragsdale.  The  same  thing  would  apply  in  this  instance. 
Don't  you  think  the  establishment  of  local  banks  would  have  a 
tendency  to  decrease  rather  than  to  increase  the  effectiveness  of  these 
laws  \ 

Mr.  Morris.  I  do  not  know  that  I  quite  understand  the  question. 
Will  you  read  the  question? 

Mr.  Ragsdale.  My  idea  is  this:  Don't  you  think  they  would  be 
less  likely  to  secure  the  loans  from  local  banks  than  they  would 
from  a  regional  bank?  Who  is  going  to  supply  the  capital  of  the 
local  banks? 

Mr.  Morris.  That  would  be  a  matter  of  private  investment. 

Mr.  Ragsdale.  Don't  you  think  in  the  place  where  the  money  is 
most  needed  they  would  be  less  likely  to  raise  the  capital  there? 

Mr.  Morris.  Where  it  is  most  needed  they  would  be  less  likely 
to  raise  it? 

Mr.  Ragsdale.  Yes. 

Mr.  Morris.  I  do  not  quite  follow  that. 

Mr.  Ragsdale.  Isn't  it  the  history  of  the  country  now  that  the 
money  centers  are  sending  their  money  into  the  communities  where 
it  is  most  needed? 

Mr.  Morris.  Yes. 

Mr.  Ragsdale.  If  you  have  to  go  into  that  community  to  raise 
your  capitalization  for  the  bank,  don't  you  think  they  are  less  liable 
to  have  the  capitalization  that  is  necessary  to  sell  their  mortgages? 

Mr.  Morris.  They  do  not  sell  their  mortgages  there.  That  is  just 
the  distinction.  If  that  is  what  is  on  your  mind,  they  do  not  sell 
the  debentures  there.  The  regional  bank  will  sell  the  debentures 
where  they  have  the  best  market. 

Mr.  Ragsdale.  I  understand,  but  the  local  bank  has  first  to  make 
the  loan. 

Mr.  Morris.  The  local  bank  has  to  get  together  the  original  or 
inceptive  capital. 

Mr.  Ragsdale.  Yes;  and  it  is  going  to  depend  on  the  amount  of 
the  capital  it  has  to  get  the  credit  that  the  regional  bank  will  allow 
the  local  bank. 

Mr.  Morris.  Not  necessarily.  Of  course  there  will  be  a  maximum 
limit  of  10  or  15  times  the  capital  in  the  Moss  bill. 

Mr.  Ragsdale.  Just  disregard  the  Moss  bill.  The  regional  banks 
are  going  to  depend  for  their  loans  to  the  local  banks  on  the  capitali- 
zation of  the  local  banks? 

Mr.  Morris.  As  the  maximum  limit;  yes. 

Mr.  Raosdale.  They  are  going  to  depend  on  it  for  the  maximum 
limit  or  whatever  you  want  to  prescribe. 

Mr.  Morris.  Not  the  regional;  you  mean  the  local — the  unit  bank. 


RURAL   CREDITS.  731 

Mr.  Ragsdale.  But  the  regional  banks  are  going  to  lend  to  the 
local  banks  the  fiat  paper  from  which  to  get  capital  and  guarantee 
its  capital. 

Mr.  Morris.  That  is  correct. 

Mr.  Ragsdale.  And  therefore  in  the  communities  where  the  money 

is  the  most  needed — in  the  outlying  agricultural  communities  the 

banks  would  have  the  smallest  amounts  of  capital.    Is  not  that  true? 

Mr.  Platt.  Mr.  Ragsdale  seems  to  imply  the  capital  has  got  to  be 

raised  in  the  community  where  the  bank  is  located. 

Mr.  Morris.  That  does  not  necessarily  follow.  A  large  part  of  it 
will. 

Mr.  Ragsdale.  That  is  the  reasonable  deduction  for  any  institu- 
tion that  is  going  to  loan  on  land,  and  the  people  from  that  com- 
munity are  not  going  to  put  the  money  into  that  community  and 
have  the  local  people  govern  in  order  to  reduce  the  rate  of  interest. 

Mr.  Morris.  That  is  largely  true. 

Mr.  Ragsdale.  That  being  the  case,  in  the  agricultural  communi- 
ties where  the  money  is  mostly  needed,  won't  they  have  the  smallest 
capitalization  of  these  unit  banks  ? 

Mr.  Morris.  I  do  not  think  so. 

Mr.  Ragsdale.  Where  is  your  money  coming  from  ? 

Mr.  Morris.  I  think  there  are  funds  belonging  to  the  community 
now,  and  by  getting  a  place  provided  which  would  develop  the 
earning  capacity — I  should  say  where  the  institution  is  needed  most 
it  would  be  the  most  attractive  place  to  invest. 

Mr.  Ragsdale.  It  will  earn  the  most  money  and  be  the  most  at- 
tractive investment,  because  there  they  will  charge  the  higher  rate 
of  interest? 

Mr.  Morris.  Not  necessarily.  I  think  I  can  clear  you  up  right 
now  on  that.  The  fact  that  the  farmers  may  need  more  accommo- 
dation in  that  community  does  not  necessarily  mean  there  are  not 
other  people  in  the  community  who  are  not  farmers  who  will  supply 
the  capital  to  start  the  bank.  It  may  mean  you  will  have  more 
capital,  because  the  farmers  will  need  the  money  most  there;  but  it 
does  not  necessarily  mean  there  are  not  other  people  with  means  who 
will  supply  capital  for  this  unit  bank  if  it  is  a  good  investment. 

Mr.  Ragsdale.  But  would  not  those  people,  if  they  had  money  to 
invest,  make  direct  loans  on  the  real  estate  or  take  mortgages  them- 
selves, or  take  stock  or  deposit  it  in  a  bank  where  the  opportunity 
to  earn  is  much  greater  ? 

Mr.  Morris.  I  do  not  know.  I  believe  these  can  be  made  to  de- 
velop an  earning  capacity  which  would  compare  very  favorably 
with  the  national  banks.  Of  course  they  would  not  have  the  oppor- 
tunity a  national  bank  has  of  turning  the  money  over  5,  10,  or  20 
times.  For  instance,  if  I  invest  $100,000  I  could  only  make,  with 
that  $100,000,  $100,000  worth  of  mortgage  loans.' 

Mr.  Ragsdale.  In  what  system  ?    What  system  limits  it  to  that  ? 

Mr.  Morris.  I  said  if  I  would  individually  make  the  loan.  You 
were  asking  the  question  if  they  had  the  money,  why  wouldn't  they 
make  the  mortgages  direct  to  the  farmer  ? 

Mr.  Ragsdale.  Yes. 

Mr.  Morris.  My  answer  to  that  is  if  I  had  $100,000  and  loaned  it 
direct  to  the  farmer,  I  would  not  have  any  opportunity  of  loaning 
more  than  my  original  capital 


732  RURAL   CREDITS. 

Mr.  Ragsdale   (interposing.  Oh,  but  you  would. 

Mr.  Morris  (continuing).  Whereas  with  the  bank  doing  it,  the 
banks  operating  with  the  regional  bunks  can  immediately  issue  land- 
mortgage  debentures  against  it,  and  sell  them  in  the  open  market 
and  get  back  the  $100,000  and  reloan  it. 

Mr.  Ragsdale.  You  started  out  with  a  preface  that  is  not  true, 
because  the  capitalists  are  able  to  put  up  the  mortgages  and  dis- 
count them  and  keep  on  loaning. 

Mr.  Morris.  I  say  that  a  capitalist  would  not  have  that  opportu- 
nity as  a  bank  would  that  is  a  part  of  a  well-regulated  system:  but 
in  that  event,  if  the  individual  did  have  it,  he  would  be  merely  called 
an  individual,  whereas  he  would  be  in  the  identical  position  of  a 
bank  of  which  I  speak. 

Mr.  Ragsdale.  My  observation  and  experience  has  been  in  the 
communities  where  they  want  to  get  long-time  loans,  secured  by 
mortgages  on  real  estate,  that  the  individuals  who  have  money  enough 
to  loan  do  n<  t  want  to  see  the  rate  of  interest  reduced,  and  that  the 
reductions  of  the  rate  of  interest  on  loans  have  in  nearly  every  in- 
stance come  from  outside  parties  who  made  the  loans. 

Mr.  Morris.  Is  not  that  so  simply,  Mr.  Ragsdale,  because  they  have 
a  selfish  desire  to  enhance  the  value  of  the  money? 

Mr.  Ragsdale.  I  think  so;  but  why,  then,  should  they  want  to  go 
in  a  State  that  would  try  to  reduce  the  return  on  the  value  of  their 
money  ? 

Mr.  Morris.  I  think  necessity  would  intensify  their  opportunity— 
I  think  they  would  realize  they  had  to  do  it. 

Mr.  Ragsdale.  They  might  whenever  the  system  was  a  success; 
but  until  it  is  a  success  do  you  believe  that  they  will  come  in  and 
try  to  make  it  a  success? 

Mr.  Morris.  I  believe  they  would,  except  in  those  instances  where 
it  might  absolutely  be  in  conflict  with  the  individual's  business. 
Then  I  think  you  are  right.  I  do  not  think  they  would  do  it.  but  I 
think  they  would  be  in  the  hopeless  minority. 

Senator  Weeks.  Mr.  Morris,  you  were  outlining  your  ideas  of  the 
organization  which  should  be  arranged  for  the  carrying  out  of  this 
general  plan.     Will  you  go  on  now,  if  Mr.  Ragsdale  is  through. 

Mr.  Ragsdale.  I  am  through. 

Mr.  Morris.  I  believe  I  had  described  my  ideas  respecting  a  Fed- 
eral bureau  of  land  banks  and  that  then  there  should  be  a  certain 
number  of  regional  land  banks? 

Mr.  Jones.  You  have  spoken  of  lessening  the  expenses  of  operating 
by  having  that  clone  through  a  regional  bank,  or  lessening  the  ex- 
pense of  inspection.  The  same  point  was  asked  me.  As  Mr.  Piatt 
says,  Mr.  Moss  is  dwelling  upon  that  idea  that  by  forming  the  banks 
you  are  going  to  increase  the  expense  of  appraisement.  I  take  the 
position  it  is  going  to  decrease  the  expense  of  appraisement.  I  think 
that  was  your  position. 

Mr.  Morris.  I  do  not  think  there  is  any  doubt  about  it.  and  I  will 
show  you  why  T  think  so. 

Mr.  Jones.  You  had  begun  to  outline  it  when  you  were  diverted 
into  another  line  of  discussion. 

Senator  Weeks.  Suppose  you  go  en  from  that  place  \ 

Mr.  Morris.  On  the  question  of  expense,  every  mortgage  has  to 
have  at  least  one  appraisement.     That  would  be  done  by  the  unit 


RURAL  CREDITS.  733 

bank.  The  detail  of  the  present  system  would  be  so  arranged  that  at 
the  time  that  appraisement  is  made  a  resident  agent  of  the  regional 
bank  will  be  erne  of  the  original  committee  making  the  original  ap- 
praisement, an  original  appraiser,  so  that  when  the  appraised  value 
of  the  inceptive  mortgage  reaches  the  regional  land  bank,  for  its  con- 
sideration, it  will  be  sufficiently  authentic  for  the  regional  land  bank 
to  act  upon  the  record  as  it  then  appears.  Of  course  the  regional 
land  bank  will  be  sufficiently  informed  to  be  able  to  know  the  various 
localities  from  which  it  is  buying  mortgages,  and  if  any  material  dis- 
crepancy appears  upon  the  face  of  the  presented  record,  it  would  be 
apparent  to  the  committee  on  appraisements  of  the  original  land  banks. 
Assuming  that  the  mortgage  with  the  attendant  record  as  presented 
to  the  regional  land  bank  was  satisfactory,  they  would  in  turn  fill 
out  a  certain  certificate  and  present  it  at  Washington,  where  it  would 
be  ministerially  examined,  properly  verified,  and  a  certificate  per- 
mitting the  regional  bank  to  issue  land  mortgage  debentures  against 
a  series  of  mortgages  that  had  been  submitted  and  properly  certified 
would  be  issued  by  the  Federal  bureau. 

Now,  a  question  was  asked  me  before  whether  or  net  the  mortgages 
of  a  single  State  should  represent  a  particular  series.  I  do  not  think 
we  completed  that — whether  the  mortgages  of  a  single  State  should 
form  a  segregated  hypothecation  for  land  debentures.  Is  not  that 
the  idea  ? 

Mr.  Platt.  That  is  about  it;  yes. 

Mr.  Morris.  In  the  beginning  I  am  inclined  to  believe  this  would 
be  best,  certainly  more  conservative.  I  am  not  prepared  to  say,  how- 
ever, to  what  extent  their  marketability  would  be  affected  by  such  a 
segregation.  In  other  words,  I  can  foresee  where  the  market  price 
of  land  debentures  emanating  from  one  State  might  be  different  from 
those  emanating  from  another  State. 

Mr.  Platt.  Would  not  that  be  a  very  good  thing?  Would  not  that 
be  just  the  thing  that  would  put  pressure  on  the  legislature  of  that 
State  to  change  its  laws,  for  instance? 

Mr.  Morris.  It  would,  provided  the  laws  were  the  things  affecting 
the  market  value  and  not  the  land. 

Senator  Weeks.  Mr.  Morris,  would  not  that  be  almost  certainly 
the  case;  necessarily  in  a  developing  section  of  the  country  rates  of 
interest  must  be  higher  than  in  the  older  section  ? 

Mr.  Morris.  There  is  no  doubt  about  that.  My  own  view  of  the 
statistics,  as  well  as  the  scientific  view  upon  the  varying  interest  rates, 
is  that  you  are  bound  to  have  differences  in  the  interest  rates  which 
will  of  course  affect  the  marketability  of  the  bonds,  and  therefore  I 
am  inclined  to  believe  certainly  in  the  beginning  it  would  be  better  to 
segregate  the  mortgages  from  one  State  so  that  they  would  be  issued 
in  State  series. 

I  do  not  know  whether  I  am  uniform  in  my  treatment,  since  we 
have  digressed  into  various  phases  of  it.  but  I  think  I  had  not  quite 
finished  the  discussion  of  the  plan  by  failing  to  refer  to  the  unit 
banks.  Of  course,  if  the  regional  land  banks  are  provided,  they 
would  be  banks  of  debenture  issue.  The  unit  bank  would  be  the  local 
institution.  That  should  be  run  very  economically  and  their  busi- 
ness would  be  to  issue  the  original  mortgage. 

Under  such  a  plan  the  practical  question  that  first  presents  itself 
is  exact  lv  where  the  local  unit  bank  is  ffoing  to  make  its  money  and 


734  RURAL   CREDITS. 

where  the  regional  bank  is  going  to  make  its  return.  After  examin- 
ing some  of  the  excellent  information  that  has  been  presented  before 
this  committee,  I  am  frank  to  admit  it  is  a  very  difficult  question. 
I  am  going  to  presume,  however,  to  give  you  my  conclusions  for 
what  you  might  think  they  were  worth.  Let  me,  firstly,  say  don't 
try  to  give  the  farmer  too  cheap  money.  If  you  do,  you  will  en- 
deavor theoretically  to  accomplish  an  impracticable  object  or  result. 
Secondly,  do  not  divorce  the  price  of  money  from  the  laws  of  eco- 
nomics. In  many  foreign  countries,  for  example,  we  have  no  usury 
laws.  The  price  of  money  is  regulated  by  its  supply  and  demand. 
The  price  of  money  to-day  in  other  marts  of  finance,  even  in  this 
country,  is  largely  regulated  by  supply  and  demand.  Therefore 
any  legislation  enabling  a  proper  system  of  mortgage  credits  must 
be  sufficiently  flexible  and  elastic  to  conform  to  the  laws  of  economics 
respecting  the  laws  of  supply  and  demand,  with  the  incident  cost 
of  the  money.  Otherwise,  I  believe  the  system  would  be  sufficiently 
unscientific  as  to  inherently  be  limited  in  its  development. 

Now,  how  are  we  going  to  do  this?  To  be  concrete  and  practical, 
in  my  opinion,  there  should  be  a  commission  paid  by  the  farmer  to 
the  unit  bank.  A  maximum  should  be  placed  on  that  commission. 
Of  course,  the  farmer  will  have  to  pay  the  necessary  disbursements. 
I  mean  by  that  the  examination  fees  and  the  recording  fees  and 
similar  expenses.  It  will  be  entirely  up  to  the  States  to  get  together 
and  minimize  those  local  expenses  by  passing  the  proper  laws.  I 
believe  a  local  bank  can  make  enough  out  of  a  commission  to  make 
the  matter  sufficiently  profitable  to  attract  capital. 

As  a  lawyer  who  has  come  in  contact  with  mortgage  loans,  never 
charging  a  commission  of  more  than  2  per  cent,  and  who  has  always 
found  it  has  been  a  lucrative  department  of  a  law  practice,  I  be- 
lieve in  large  quantities  it  can  be  gotten  down  perhaps  as  low  as  1 
or  perhaps  a  maximum  of  2  per  cent.  These  are  details  that  I  am 
reluctant  to  place  a  final  limit  on  without  a  little  more  detailed  con- 
sideration of  their  requirements;  but  we  will  assume,  for  the  mo- 
ment, that  a  commission  not  exceeding  2  per  cent  and  disbursements 
is  charged  by  the  local  or  unit  bank.  Then  the  difference  in  rate  of 
interest  on  the  mortgage  and  the  rate  on  the  debentures  would  be 
the  profit  to  the  regional  bank.  I  am  not  opposed  to  the  Moss- 
Fletcher  provision  that  this  difference  should  be  limited  to  1  per 
cent.  I  believe  that  1  per  cent  would  in  all  probability  be  a  fair 
maximum. 

In  considering  this,  a  very  practical  question  has  presented  itself 
to  me,  as  to  what  kind  of  provision  should  be  imposed  to  take  care 
of  the  maximum  difference  between  the  original  mortgage  and  the 
debentures  and  the  state  of  market  or  market  price  that  may  or  may 
not  limit  the  sale  of  those  debentures.  For  example,  suppose  a 
farmer  desired  a  mortgage  from  a  unit  bank,  but  by  reason  of  the 
abnormal  condition  or  other  conditions  of  the  money  market  either 
of  the  locality  in  which  the  regional  bank  disposes  of  its  debentures 
or  even  of  a  broader  character,  the  sale  of  land  mortgage  debentures 
for  the  time  being  was  very  slow  and  the  regional  bank  said  to  the 
unit  hank  by  law  we  can  not  issue  any  discount  on  those  mortgages, 
we  are  limited  to  1  per  cent,  and  we  have  found  it  impracticable  in 
the  last  30  or  00  days  to  dispose  of  those  debentures  readily.  In 
fact,  in  order  to  keep  our  funds  satisfactorily  located,  we  have  had 


RURAL   CREDITS.  735 

to  sell  some  of  our  debentures  at  a  loss,  at  98,  for  example,  and  there- 
fore we  can  not  accommodate  you. 

Whereupon,  the  farmer  would  be  willing,  perhaps,  to  stand  the  2 
per  cent  discount,  it  being  only  a  single  instance.  How  could  the 
law  be  arranged  so  as  to  provide  for  that,  to  flexibly  arrange  for  the 
care  of  those  debentures,  and,  at  the  same  time,  impose  proper  limita- 
tions so  that  the  farmers  could  not  be  taken  advantage  of?  I  believe 
the  only  way  to  do  it  is  to  insert  a  provision  that  would  enable  the 
regional  banks  to  discount  the  mortgage  to  the  unit  bank  (it  is  in 
effect  to  the  farmer)  at  a  discount  that  would  preserve  the  equili- 
brium between  the  market  discount  required  for  the  marketability 
of  the  debentures.  If  some  such  provision  is  permitted,  it  will  always 
give  the  farmer  a  right,  in  lieu  thereof,  to  receive  from  the  regional 
bank  debentures  equal  to  the  mortgage. 

Mr.  Jones.  He  can  market  them  himself,  then,  if  he  can  find  the 
market  ? 

Mr.  Morris.  If  he  can  find  the  market,  let  him  market  them  him- 
self. In  other  words,  if  a  farmer  had  a  $100,000  mortgage  and  the 
regional  bank  says  it  won't  handle  that  mortgage  above  95,  and  the 
law  says  the  bank  can  not  do  it,  rather  than  prevent  the  farmer  from 
getting  the  money  on  account  of  the  pressing  condition  of  the 
market,  let  the  regional  banks  have  the  right  to  discount  at  95  or  have 
the  farmer  say,  "  Well,  if  you  can  not  do  better  than  that  give  me  the 
debentures." 

Mr.  Platt.  Is  there  any  advantage  in  trying  to  fix  a  rate  of  in- 
terest en  debentures  at  which  they  will  sell  at  par?  Why  not  fix  the 
rate  of  interest  and  let  them  take  their  course  in  the  market  and  sell 
for  just  whatever  they  will  sell  for? 

Mr.  Morris.  That  is  my  idea,  to  fix  the  rate  of  interest,  and  let  them 
sell  at  the  market.  But  the  present  bill  says  that  the  difference  can 
only  be  1  per  cent  and  that  they  must  be  discounted  at  par.  I  am 
afraid  that  may  choke  the  farmer  temporarily. 

Mr.  Platt.  That  is  the  average  plan  with  all  the  municipal  bonds, 
that  they  fix  the  rate  of  interest.  But  is  there  any  advantage?  If 
a  4  per  cent  bond  sells  at  90,  why  not  let  it  sell  at  90?  You  get  just 
as  much  out  of  it,  ultimately,  as  if  it  was  a  5  per  cent  bond  that  sold 
at  par? 

Mr.  Morris.  I  agree  with  you  there  ought  not  to  be  any  limit  on 
the  price  at  which  the  bond  should  be  discounted  or  sold ;  that  you 
should  have  to  submit  to  the  market  conditions.  And  they  will 
always  be  like  that.  So  that  if  a  regional  bank  for  any  reason  is 
attempting  to  take  advantage  of  the  unit  bank,  the  farmer  could 
go  right  in  and  put  a  check  on  it  and  say,  "  Give  me  my  debentures 
to  the  par  value  of  the  mortgage." 

Mr.  Platt.  As  a  matter  of  fact,  I  understand  farm-mortgage 
debentures  in  Europe  do  not  sell  at  par  a  good  deal  of  the  time,  but 
have  been  sold  around  90. 

Mr.  Morris.  Oh,  no;  they  sometimes  sell  below  90  and  sometimes 
they  sell  at  a  premium,  and  that  is  going  to  be  the  idea  over  here.  It 
would  be  entirely  dependent  on  market  conditions. 

Mr.  Ragsdale.  Then,  your  idea  is  no  matter  how  exacting  condi- 
tions might  be  at  the  time  these  mortgages  are  placed  with  the 
regional  bank,  that  under  no  condition  should  the  Government  ex- 
tend any  aid? 


736  RURAL   CREDITS. 

Mr.  Morris.  The  only  thing  I  have  been  able  to  work  out  with  re- 
spect to  Government  aid  is  that  the  Government  might  consider  seri- 
ously subscribing  25  to  50  per  cent  of  the  capital  of  the  regional 
land  banks. 

Mr.  Kagsdale.  That  is  the  limit  as  far  as  you  think  the  Govern- 
ment should  go  ? 

Mr.  Morris.  Yes,  sir. 

Air.  Ragsdale.  That  is,  the  long-time  securities  of  mortgages  should 
be  the  only  class  of  securities  that  should  be  tabooed  in  so  far  as 
assistance  on  the  part  of  the  Government  is  concerned? 

Mr.  Morris.  Well,  now,  when  you  ask  that  question,  when  you  say 
it  is  the  only  class  that  should  be  tabooed,  give  me  the  relation  that 
is  in  your  mind. 

Mr.  Ragsdale.  I  merely  say  in  relation  to  the  banking  and  cur- 
rency bill,  all  other  bonds  may  be  admitted  into  the  United  States 
Treasury  from  the  regional  banks,  as  I  understand  it,  and  the  Fed- 
eral Treasury  notes  issued  against  them. 

Mr.  Morris.  You  mean  certain  limited  commercial  paper  and  the 
like,  and  notes  issued  against  that? 

Mr.  Ragsdale.  I  think  all  kinds  other  than  long-time  farm  loans 
are  comprehended  in  it,  are  they  not? 

Mr.  Morris.  Not  all  kinds. 

Mr.  Ragsdale.  What  other  loans  are  not? 

Mr.  Morris.  My  recollection  of  the  bill 

Mr.  Platt  (interposing).  You  are  talking  about  notes;  not  bonds? 

Mr.  Ragsdale.  No  notes  secured  by  bonds  may  be  ? 

Mr.  Morris.  My  recollection  with  respect  to  bonds  is  only  a  very 
limited  schedule  of  them  are  used  and  then  only  for  specific  purposes. 

Mr.  Weaver.  You  do  not  claim  that  they  issue  currency  on  bonds, 
do  you,  Mr.  Ragsdale? 

Mr.  Ragsdale.  I  understand  that  the  regional  banks  may  purchase 
bonds;  yes. 

Mr.  Platt.  The  United  States  bonds? 

Mr.  Ragsdale.  Yes. 

Mr.  Platt.  From  these  other  national  banks  ? 

Mr.  Ragsdale.  Yes. 

Mr.  Platt.  Tt  has  not  anything  to  do  with  this  question. 

Senator  Weeks.  I  think  what  Representative  Ragsdale  has  in 
mind  is  whether  mortgages  of  this  kind  are  being  discriminated 
against  as  compared  with  other  forms  and  securities  with  which  the 
recent  law  deals.  Now.  I  think  he  will  find  when  ho  looks  that  up 
that  no  collateral  loan  would  be  rediscounted  by  the  regional  bank. 
That  was  especially  provided  for — to  provide  for  commercial  paper 
that  the  only  rediscounts  that  can  be  made  by  the  regional  banks 
are  rediscounts  of  commercial  paper  of  a  stipulated  character:  and 
I  do  not  understand  that  the  regional  banks  can  invest  in  any  other 
bonds  than  bonds  of  a  public  character. 

Mr.  Morris.  Only  certain  bonds  to  cover  a  certain  amount  of  their 
cash  reserve;  but  they  can  not  issue  Federal  notes  on  any  redis- 
eounted  bonds.    I  do  not  know  of  any. 

Mr.  Jones.  I  can  clear  up  that  situation. 

Senator  Weeks.  I  think  you  will  find  that  is  true. 

Mr.  Jones.  The  only  bonds  the  regional  banks  can  purchase  are 
Government  bonds,  and  that  provision  was  put  in  there  so  that  they 


RURAL   CREDITS.  737 

could  purchase  Government  bonds  and  issue  currency  against  them 
to  prevent  a  too  rapid  contraction  of  the  national-bank  currency  in 
case  the  national  banks  decided  not  to  come  into  the  system  and  be- 
gan to  retire,  which  would  contract  the  currency.  That  provision 
was  put  in  there  at  the  request  of  the  banks,  and  I  at  that  time  hap- 
pened to  be  the  spokesman  of  the  bank  who  asked  that  amendment. 
It  was  put  in  there  for  the  purpose  of  not  only  preventing  the  con- 
traction of  the  currency,  but  to  maintain  the  market  value  of  the  2 
per  cent  bonds,  so  that  the  regional  banks  might  purchase  those  bonds 
and  issue  currency  against  them.  But  they  have  not  the  right  to 
purchase  any  other  bonds. 

Mr.  Eagsdale.  Under  what  condition,  then,  may  the  industrial  and 
railroad  bonds  be  vised  by  the  national  bank  as  security  to  the  regional 
banks  ? 

Mr.  Morris.  They  can  not  be  used  for  rediscount  purposes. 

Mr.  Eagsdale.  As  security  for  currency? 

Mr.  Morris.  No,  sir. 

Senator  Weeks.  Oh,  no ;  that  can  not  be  done,  Mr.  Eagsdale. 

Mr.  Morris.  The  way  to  get  around  it,  a  national  bank  could  take 
a  note  and  treat  it  as  a  commercial  note  regardless  of  whether  it  is  a 
railroad  security  or  not,  and  then  attach  its  own  note,  with  its  own 
indorsement,  and  rediscount  that  commercial  paper,  but  that  has  ab- 
solutely no  relation  to  the  collateral  security  accompanying  it. 

Mr.  Eagsdale.  Theoretically  it  has  not. 

Mr.  Morris.  Actually. 

Mr.  Platt.  They  could  do  the  same  thing  with  a  note  secured  by 
mortgages. 

Mr.  Eagsdale.  No;  I  think  the  law  prohibits  a  mortgage  maturing 
over  five  years. 

Mr.  Platt.  No. 

Mr.  Morris.  It  has  nothing  to  do  with  the  rediscount.  Of  course 
any  one  maturing  over  six  months  would  come  within  the  limitation ; 
but  it  says  national  banks  can  lend  money  on  farm  notes  provided 
they  did  not  mature  over  five  years. 

Mr.  Eagsdale.  But  it  can  not  get  into  the  regional  banks  unless  it 
gets  into  the  national  banks. 

Mr.  Morris.  That  is  true. 

Mr.  Eagsdale.  And  therefore  they  have  provided  no  way  for  them 
to  get  into  the  system ;  and  as  I  understand,  there  is  no  way  for  them 
to  get  in  a  farm  note  of  any  kind  having  maturity  over  five  years 
from  date. 

Mr.  Jones.  In  the  regional  banks? 

Mr.  Eagsdale.  In  the  regional  bank  there  is  no  way  to  get  paper 
in  that  matures  over  five  years. 

Mr.  Morris.  No  national  bank  can  make  a  farm  mortgage  for  more 
than  five  years. 

Mr.  Eagsdale.  Therefore  if  it  can  not  pass  that  bank  it  can  not  get 
into  the  regional  banks. 

Mr.  Platt.  It  can  not  get  into  the  regional  bank  anyway  if  it  runs 
for  more  than  six  months. 

Mr.  Eagsdale.  It  can  by  way  of  collateral  to  a  bank's  note,  as  I 
understand  it. 

Mr.  Morris.  No  ;  it  could  not. 

37031—14 47 


738  RURAL   CREDITS. 

Mr.  Ragsdale.  It  is  a  difference  of  construction.  I  will  study  it  up 
again  and  see  if  I  am  mistaken.  I  may  be.  That  is  one  of  the  things 
I  fought  for  and  hoped  that  it  had  been  provided. 

Mr.  Morris.  Your  idea  is  a  bank  can  put  up  its  own  note,  accom- 
panied by  a  mortgage  note,  expiring  over  six  months? 

Mr.  Ragsdale.  Under  certain  conditions. 

Mr.  Morris.  No,  never.  That  would  destroy  the  limitation  of  the 
six  months. 

Mr.  Ragsdale.  Oh,  no:  that  is  not  by  way  of  a  rediscount  note.  It 
can  not  rediscount  a  paper  for  over  six  months. 

Mr.  Morris.  That  is  the  only  way  it  would  get  to  the  regional 
bank. 

Mr.  Ragsdale.  All  right;  I  will  look  it  up  this  afternoon,  and  I 
think  I  can  show  you  the  section  under  which  I  form  my  opinion, 
anyhow. 

Mr.  Morris.  I  may  be  wrong  about  it;  that  is  just  my  impression. 

Mr.  Jones.  You  spoke  of  the  capital  of  the  regional  banks  being 
open  to  popular  subscription  and  the  Government  taking  a  certain 
part.  How  would  the  balance  of  the  capital  be  made  up  ?  Had  you 
considered  whether  the  unit  banks  would  take  a  portion  of  the  capital 
of  the  regional  banks? 

Mr.  Morris.  I  think  a  provision  should  be  in  the  act  requiring  the 
unit  banks  to  take  a  minimum  percentage  of  the  regional  bank's 
capital. 

Mr.  Jones.  Ytou  would  then  prevent  unit  banks  from  operating 
unless  they  are  those  federated  with  the  regional  bank? 

Mr.  Morris.  Absolutely. 

Mr.  Platt.  Mr.  Morris,  on  the  point  you  were  speaking  a  while 
ago,  about  selling  at  par  value  and  the  rate  of  interest,  how  would  it 
do  to  fix  the  rate  of  interest  on  all  farm  debentures,  say,  at  5  per  cent? 

Mr.  Morris.  Make  it  uniform? 

Mr.  Platt.  Make  it  uniform  and  let  them  take  their  course  in  the 
market.  Then  in  one  State  they  would  sell  at  par,  in  another  per- 
haps at  90,  and  then  in  another  perhaps  at  80.  What  harm  would 
that  do?  Wouldn't  it  be  better  than  to  fix  a  rate  of  interest  for  the 
different  States? 

Mr.  Morris.  I  do  not  think  it  would  be  better ;  I  think  you  should 
let  the  rate  be  fixed  according  to  the  market  conditions. 

Mr.  Platt.  Why? 

Mr.  Morris.  I  can  see  some  very  good  reasons  for  it ;  but  in  the  be- 
ginning I  doubt  the  feasibility  of  it,  for  this  reason:  Suppose  you 
had  a  uniform  rate  in  some  localities  and  then  you  would  limit  the 
regional  bank  to  its  1  per  cent.  The  conditions  of  money  may  be 
such  that  it  is  unreasonably  cheap  or  unreasonably  high  in  a  par- 
ticular State  or  in  a  particular  locality  whence  the  original  mortgage 
emanates.  If  it  is  unreasonably  low  it  has  a  fictitious  value,  a  fel- 
low will  say,  where  he  takes  a  $100  mortgage  or  $100,000  mortgage, 
drawing  interest  at  5  per  cent,  say  in  Louisiana  or  Washington,  and 
it  can  not  be  sold  at  more  than  50;  I  am  afraid  that  it  would  affect  it. 
Financially  I  can  see  where  it  would  be  in  the  long  run  the  same 
thing  if  you  made  it  uniform  and  let  the  value  of  the  bond  be  de- 
pendent on  the  market. 

Mr.  Platt.  Would  not  it  be  a  good  deal  less  confusing?  For  in- 
stance, have  an  issue  of  bonds  for  the  State  of  Texas,  bearing  per- 


RUEAL   CREDITS.  739 

haps  8  or  9  per  cent,  and  an  issue  in  the  State  of  New  York  bearing 
4  or  44  or  5  per  cent  ? 

Mr.  Morris.  Yes. 

Mr.  Platt.  Now,  for  the  varying  States  you  have  varying  rates 
of  interest  on  your  bonds  ? 

Mr.  Morris.  Yes. 

Mr.  Platt.  In  your  effort  to  make  them  all  sell  for  par,  they 
would  not  sell  for  par  anyway. 

Mr.  Morris.  Not  positively. 

Mr.  Platt.  If  they  did  put  a  uniform  rate  of  interest  on  them, 
then  you  could  absolutely  measure  the  difference  between  the  values, 
by  the  market  value,  without  having  to  consider  anything  else. 

Mr.  Morris.  I  say  that  is  true  from  a  purely  theoretical  or  scientific 
viewpoint ;  and  whether  or  not  it  would  be  possible  to  do  that,  it 
occurs  to  me  assuming  a  great  deal.  For  instance,  it  has  not  been 
the  history  of  other  securities:  and  when  you  start  a  new  system  of 
finance,  is  it  not  more  conservative  to  be  guided  by  the  precedent 
offered  you  by  past  experience  than  to  start  and  make  innovations? 
You  might  use  the  same  argument  with  municipal  bonds.  Why  are 
not  they  the  same  rate?  Why  do  not  the  railroads  issue  bonds  with 
the  same  rate  ? 

Mr.  Platt.  Railroads  nowadays  do  not  try  to  sell  at  par. 

Mr.  Morris.  I  concur  in  your  former  statement  that  the  price  at 
which  these  land-mortgage  debentures  will  be  sold  will  depend  en- 
tirely upon  the  market. 

Mr.  Platt.  Do  you  think  it  will  be  possible,  in  case  they  are  certi- 
fied by  a  bureau  in  the  Federal  Reserve  Board,  to  have  them  listed 
somewhere  where  they  would  have  a  regular  market  ? 

Mr.  Morris.  I  think  eventually  they  would  be  listed ;  I  certainly  do. 

Mr.  Platt.  Would  the  New  York  Stock  Exchange  or  some  other 
stock  exchange  list  them  ? 

Mr.  Morris.  I  do  not  know  about  the  possibility  in  the  beginning. 
That  is  a  question  of  business  judgment.  I  am  inclined  to  think 
that  perhaps  the  sooner  listed  the  better  it  would  be. 

Mr.  Jokes.  They  are  all  listed  abroad  ? 

Mr.  Morris.  Yes ;  they  are  all  listed  abroad. 

Mr.  Jokes.  That  protects  the  farmer  from  being  taken  advantage 
of,  because  he  knows  what  the  market  it  ? 

Mr.  Morris.  I  am  in  favor  of  their  being  listed. 

Mr.  Platt.  I  should  think  they  would  have  to  be  listed  in  order 
to  get  a  ready  market  value? 

Mr.  Morris.  To  give  a  stable  and  ready  value. 

After  the  unit  banks  are  organized,  as  I  stated,  then  the  question 
of  Government  aid  is  a  very  difficult  question,  and  I  would  approach 
the  subject  with  a  great  deal  of  reticence.  I  am  in  principle  opposed 
to  a  government  subsidizing  any  industry  or  financial  undertaking 
of  this  or  other  character.  At  the  same  time,  if  the  opinion  of  the 
committee  is  that  the  Government  should  aid  this  undertaking,  it 
occurs  to  me  the  most  practical  avenue  for  their  aid  is  to  take  a 
substantial  part — not  less  than  25  and  perhaps  not  more  than  50  per 
cent — of  the  capital  of  the  regional  banks,  because  I  think  they  ought 
to  be  of  substantial  size  and  strength. 

Mr.  Platt.  Do  you  think  it  would  be  more  difficult  to  raise  the 
capital  for  the  regional  banks  than  it  would  be  for  the  unit  banks? 


740  RURAL   CREDITS. 

Mr.  Morris.  I  do  not  think  there  would  be  any  serious  difficulty 
raising  the  capital  for  the  local  banks,  because  they  will  not  have  to 
be  exceptionally  large;  but  I  think  for  the  local  banks  as  much 
local  capital  as  is  available  ought  to  be  obtained  on  account  of  local 
management.  However,  there  is  no  fundamental  reason  in  my  mind 
why  the  Government,  if  it  should  prefer,  should  not  take  a  part  of 
the  local  capital,  or  if  they  should  prefer  to  take  a  part  of  the 
regional  capital;  and  should  it  develop  it  is  harder  to  raise  capital 
for  the  local  bank  than  the  regional  bank,  why,  they  should  not 
subscribe  locally  as  distinguished  from  regionally.  I  think  that  is 
more  a  question  of  the  necessity  of  the  hour,  and  the  act  may  be 
drawn  to  give  the  Government  the  right  to  do  either  or  both. 

Mr.  Platt.  If  the  locals  are  required  to  subscribe,  say,  10  per 
cent  of  the  capital  of  the  regional,  would  not  that  furnish  the 
capital  ? 

Mr.  Morris.  No ;  I  do  not  think  it  would. 

Mr.  Bulkley.  Mr.  Morris,  when  you  say  you  think  capital  would 
be  readily  subscribed  for  local  banks,  you  mean  assuming  that  they 
are  federated  into  State  regional  systems,  don't  you? 

Mr.  Morris.  Oh,  yes. 

Mr.  Bulkley.  What  do  you  think  about  subscriptions  to  the 
capital  of  the  local  bank  as  provided  in  the  Moss  bill  without  any 
federation  ? 

Mr.  Morris.  I  think  that  would  depend  entirely  upon  the  per- 
sonal equation  behind  it. 

Mr.  Bulkley.  Speaking  generally,  over  the  whole  country.  Do 
you  think  we  could  count  on  that  ? 

Mr.  Morris.  I  doubt  it  very  seriously;  but  I  think  even  if  you 
were  to  get  the  capital  I  believe  the  development  of  the  whole  under- 
taking would  be  largely  minimized  by  the  failure  to  sell  the  deben- 
tures of  those  little  banks.  In  fact,  I  might  here  state  that  I  am 
opposed  to  any  bank  as  small  as  that  permitted  by  the  Moss-Fletcher 
bill.  I  do  not  think  they  ought  to  be  any  different  from  the  mini- 
mum capital  required  of  national  banks — $25,000 — and  I  think  in 
that  connection,  also,  that  the  number  of  these  banks  that  are  allowed 
to  be  chartered  under  this  act  should  be  subject  to  the  discretion  of 
this  Federal  bureau,  so  that  there  would  not  be  too  many. 

Mr.  Bulkley.  What  do  you  mean  by  too  many? 

Mr.  Morris.  I  think  there  can  be  too  many. 

Mr.  Bulkley.  What  is  your  test  ? 

Mr.  Morris.  The  test  is  the  business  would  be  cut  up  so  that  no 
one  of  them  could  make  a  good  thing  out  of  it.  Just  like  to-day 
the  Comptroller  of  the  Currency  will  not  allow  a  national  bank  to 
be  chartered  in  a  community  if  the  comptroller  says  he  thinks  there 
are  enough  banks  already  established  to  afford  facilities  for  the 
people  of  that  community.  As  Burke  says,  "  in  union  there  is 
strength."  If  you  get  too  many  banks  in  a  community,  unquestion- 
ably, I  think,  it  is  a  bad  policy. 

Mr.  Platt.  You  do  not  think  those  little  banks  could  be  organ- 
ized and  run  as  building  associations  are,  simply  by  opening  a  room 
on  a  second  floor  and  keeping  open  once  a  week  or  something  like 
that? 

Mr.  Morris.  I  do  not.  I  think  they  must  be  run  very  economi- 
cally, and  I  think,  as  I  stated  in  my  earlier  testimony — I  do  not 


RUEAL   CREDITS.  741 

know  whether  you  were  here — they  can  not  be  run  as  building  and 
loan  associations.  The  most  successful  building  and  loan  asso- 
ciations now  have  ground-floor  headquarters,  and  are  open  mighty 
near  every  day  in  the  week;  but,  as  compared  to  these  institutions, 
I  believe  they  can  be  run  with  similar  minimum  expense ;  but  I  doubt 
the  possibility — like  some  building  and  loan  associations  are  run  in 
Baltimore,  for  example,  of  having  them  open  on  Saturday  night 
and  keeping  open  for  two  or  three  hours. 

Mr.  Platt.  That  is  the  way  they  are  run  in  my  home  town.  They 
open  once  or  twice  a  month,  I  think;  and  we  have  one  with  assets 
of  over  $1,000,000. 

Mr.  Morris.  Where  is  that,  may  I  ask?  I  think  it  depends  on  the 
communities. 

Mr.  Platt.  Poughkeepsie.  I  think  it  has  lately,  however,  taken 
an  office  on  the  ground  floor  and  keeps  open  most  of  the  week. 

Mr.  Morris.  Poughkeepsie  is  a  larger  city  than  Norfolk,  Va.,  and 
to  my  knowledge,  four  or  five  or  six  building  and  loan  associations 
right  in  Norfolk,  Va.,  have  ground  headquarters  and  keep  open 
every  day  in  the  week,  and  loan,  each,  over  a  million  dollars  per 
annum. 

Mr.  Platt.  They  have  not  a  savings  bank  with  $15,000,000  along 
side  of  them? 

Mr.  Morris.  No;  they  have  not. 

Mr.  Platt.  You  think  these  will  have  to  be  real  banks,  then,  with 
banking  quarters? 

Mr.  Morris.  I  do  not  think  they  ought  to  be  expensive  institutions 
at  all ;  I  think  they  can  be  run  very  similar  to  the  industrial  banks. 

Mr.  Jones.  Mr.  Morris,  would  you  limit  the  amount  of  bonds  that 
the  regional  bank  would  issue  in  proportion  to  its  own  capital? 

Mr.  Morris.  In  proportion  to  its  own  capital? 

Mr.  Jones.  Yes;  or  would  that  be  based  on  the  amount  of  the 
aggregate  securities  from  the  collective  banks? 

Mr.  Morris.  I  think  the  amount  of  the  mortgages  from  the  unit 
banks  should  be  limited. 

Mr.  Jones.  And  float  their  bonds  on  them  to  the  extent  of  fifteen 
times 

Mr.  Morris.  Fifteen  times  is  pretty  good. 

Mr.  Jones.  Now,  my  opinion  is,  unless  you  put  up  a  capital  in 
the  same  ratio  in  the  regional  bank,  the  regional  bank  is  not  going  to 
be  able  to  float  the  bonds. 

Mr.  Morris.  That  may  be  true. 

Mr.  Jones.  Against  the  aggregate  amount  of  those  collective  se- 
curities ? 

Mr.  Morris.  No;  I  do  not  think  they  ought  to  be  limited. 

Mr.  Jones.  They  should  not  be  limited  in  proportion  to  the 
capital  ? 

Mr.  Morris.  No. 

Mr.  Jones.  The  minority  in  making  its  report  left  blank  whether 
they  should  limit  the  amount  or  not,  realizing  there  was  a  scientific 
calculation  that  had  to  be  made. 

Mr.  Platt.  In  the  State  bank ;  not  the  regional  bank. 

Mr.  Morris.  Any  limit  would  have  to  be  one  established  in  a  prac- 
tical scientific  proportion  so  that  the  practical  accomplishment  would 
not  be  impeded.     Of  course,  I  do  not  think  one  can  ever  make  a 


742  RURAL   CREDITS. 

mistake  by  putting  some  maximum  on  a  banking  institution's  lia- 
bilities, but  it  will  have  to  be  very  elastic. 

Mr.  Platt.  The  aggregate  of  the  collective  securities  received  by 
unit  banks  would  be  the  basis  of  the  limit  in  your  mind,  then? 

Mr.  Morris.  That  is  right. 

Mr.  Plait.  And  the  amount  of  bonds  that  the  regional  could 
issue  ? 

Mr.  Morris.  Of  the  amount  of  bonds  that  the  regional  could 
issue ;  that  is  correct. 

Now,  I  would  do  this:  I  want  to  get  this  clear  in  your  mind,  that 

1  think  that  the  outstanding  amount  at  any  one  time  should  have  a 
scientific  table  of  limitation  put  upon  it. 

Mr.  Platt.  Would  not  that  automatically  be  regulated  I 

Mr.  Morris.  It  would,  of  course,  by  the  resources  and  their  facili- 
ties for  selling  their  debentures. 

Mr.  Platt.  By  the  amount  the  unit  banks  would  send  in? 

Mr.  Morris.  That  is  true;  and  the  limitation  imposed  on  the  unit 
banks. 

Mr.  Platt.  At  the  same  time  you  would  furnish  the  regional  bank 
with  some  additional  capital? 

Mr.  Morris.  Its  corporate  capital,  which  should  have  a  minimum 
sufficiently  large  for  the  purpose. 

Mr.  Platt.  Yes;  and  the  regional  is  going  to  make  all  the  differ- 
ence between  the  interest  rate  of  the  mortgage  and  the  interest  the 
bond  pays.  Won't  the  regional  bank  have  a  great  deal  more  chance 
to  make  a  profit  than  the  individual  banks? 

Mr.  Morris.  No;  because  I  believe  the  present  bill  limits  it  to  1 
per  cent;  they  are  issued  on  a  1  per  cent  basis.  That  is  the  present 
bill.  And  I  believe  that  amount  sufficient.  In  other  words,  the 
amount  of  gross  profits  of  the  regional  bank  would  largely  be  limited 
to  1  per  cent  of  the  face  value  of  the  mortgages  discounted,  and  the 
local  banks  can  get  2  per  cent  commission ;  and  I  believe  you  will  find 

2  per  cent  is  about  a  fair  commission. 

Mr.  Platt.  You  would  limit  the  banks  entirely  to  a  mortgage  busi- 
ness or  allow  them  to  take  some  deposits? 

Mr.  Morris.  I  would  limit  them  entirely  to  a  mortgage  business; 
certainly  at  the  beginning. 

Mr.  Platt.  Both  State  and  local? 

Mr.  Morris.  Yes,  sir.  I  gave  extended  reasons  in  the  earlier  part 
of  my  statement  why  that  should  be. 

Now,  I  have  just  attempted  to  give  a  brief  outline  of  the  system 
of  rural  credits  through  a  national  bureau,  regional  banks,  and  unit 
banks,  having  in  mind  to  carry  out  a  system  that  would  be  reasonably 
analogous  to  the  Federal  reserve  system.  As  to  who  shall  constitute 
that  Federal  Reserve  Board  and  what  present  employees  of  the  Gov- 
ernment's official  outfit  should  be  ex-officio  members.  I  believe  the 
committee  could  determine  that  better  than  I  could  suggest.  But  I 
have  in  mind  it  should  be  linked  up  very  strongly,  similar  to  the 
Federal  Reserve  Board,  so  that  the  Government  will  have  a  proper 
part  to  say  in  it,  a  very  strong  say — not  the  control  of  it. 

Before  leaving  this  subject,  however,  I  think  I  should  call  atten- 
tion to  the  fact  that  to  my  mind  the  Government  is  not  going  to  com- 
plete its  obligations  to  the  American  people  and  satisfy  completely 
its  party  pledge  if  they  confine  their  entire  efforts  to  banking  facili- 


RURAL   CREDITS.  743 

ties  for  men  of  commerce  and  for  the  farmers  and  leave  out  the  labor- 
ing man.  I  think  it  should  be  considered  just  as  important,  even 
more  so,  to  provide  in  this  act,  in  addition  to  long-time  mortgage 
loans,  a  provision  that  will  enable  the  man  in  the  city  who  is  to-day 
without  any  banking  facilities  except  what  the  Morris-plan  banks 
offer  and  the  few  philanthropic  societies  that  are  not  of  any  very 
large  importance.  There  is  one  notable  exception  to  that,  the  Provi- 
dent Loan  Society  of  New  York,  which  does  entirely  a  pawn  business, 
making  an  average  loan  of  $33,  and  which  did  a  business  in  1913  of 
over  $13,000,000. 

Mr.  Woods.  What  rate  of  interest  do  they  get  ? 

Mr.  Morris.  One  per  cent  a  month ;  and  I  have  no  doubt  they  do  a 
great  deal  of  good,  although  it  is  limited  to  loans  on  pawns.  And  I 
repeat  this  act  should  have  a  department  entitled  "  industrial  credits" 
or  "  industrial  banks." 

It  might  be  interesting  to  this  committee  to  know  that  our  firm 
of  Morris,  Garnett  &  Cotton  have  been  working  on  this  system  for 
some  years.  Three  or  four  years  ago  we  started  the  first  bank  that 
operated  under  the  Morris  plan  in  Norfolk,  Va.,  with  $20,000  capi- 
tal. The  first  year  we  made  loans  of  about  $60,000,  and  last  year,  in 
the  one  institution,  made  loans  (the  average  amount  of  which  did 
not  exceed  $100)  of  more  than  a  million  of  dollars. 

Senator  Weeks.  Now,  tell  the  committee  just  exactly  how  you  did 
that  business,  Mr.  Morris  ? 

Mr.  Morris.  I  will  come  to  that  in  a  minute,  but  I  want  to  explain, 
first,  that  since  that  time  the  Fidelity  Corporation  of  America,  which 
was  organized  for  the  purposes  of  developing  these  banks  throughout 
the  country,  has  organized  and  have  to-day  in  operation  14  or  15 
banks.  These  banks  last  year  did  an  aggregate  business  of  between 
$4,000,000  and  $5,000,000,  and  are  loaning  to-day  about  half  a  million 
a  month.  The  average  statistical  amount  loaned,  or  the  amount  of 
the  average  loan  from  our  statistics,  is  $100.  The  banks  are  making 
a  moderate  dividend,  running  anywhere  from  8  to  10  per  cent  on  the 
capital  employed,  and  the  older  ones  even  a  little  better  than  that; 
and  their  losses  have  been  less  than  a  tenth  of  1  per  cent.  They  have 
not  scratched  the  surface.  A  $7,000,000  corporation  has  just  been 
completed  in  New  York,  having  behind  it  men  from  New  York  and 
other  cities — men  that  represent  the  very  best  in  thought  and  in 
character  in  this  country — in  order  that  these  banks  might  be  multi- 
plied and  started  wherever  they  are  needed,  so  that  the  industrial 
classes  might  have  an  incentive  to  save  their  money  in  these  banks 
and  at  the  same  time  be  offered  proper  credit  facilities  consistent 
with  their  earning  power  and  character. 

Mr.  Woods.  What  rate  of  interest  do  you  pay  on  deposits  ? 

Mr.  Morris.  In  most  of  the  States  we  take  no  regular  deposits,  as 
I  will  explain  the  plan  in  a  moment.  We  issue  installment  savings 
certificates,  sold  on  a  weekly  plan — what  would  be  analogous  to  a 
weekly  deposit — bearing  4  per  cent  and  in  some  instances  5,  and  the 
paid-up  certificates,  which  are  paid  in  multiples  of  $50,  have  paid 
5  per  cent,  and  in  a  few  instances  even  6.  The  loans  are  made  at  the 
legal  rate  of  interest  in  the  respective  States,  and  each  borrower  is 
required  to  take  a  savings  certificate  on  which  he  pays  a  stipulated 
amount  weekly  for  52  weeks,  and  which  he  pledges  as  collateral  and 
on  which  he  gets  no  interest. 


744  EUEAL   CREDITS. 

Mr.  Platt.  It  is  pretty  nearly  the  building  and  loan  association 
plan? 

Mr.  Morris.  It  is  similar  in  a  few  particulars,  but  not  identical 
at  all. 

We  start  a  bank  with  a  corporate  capital  and  then  increase  our  re- 
sources in  a  way  analogous  to  a  bank.  We  issue  two  kinds  of  savings 
certificates.  One  is  known  as  a  paid-up  or  class  B  certificate,  issued 
in  multiples  of  $50,  and  usually  bearing  interest  at  5  per  cent  and  in 
smaller  communities  even  6  per  cent,  with  interest  evidenced  by  semi- 
annual coupons  attached.  Those  certificates  are  only  subject  to  three 
conditions:  One,  that  they  are  withdrawable  on  GO  days'  notice; 
second,  that  the  bank  reserves  the  right  to  redeem  them  also  on  60 
days'  notice.  The  first  condition,  I  should  say,  is  that  they  can  be 
withdrawn;  that  the  bank  reserves  the  right  to  require  60  days'  no- 
tice in  the  event  of  withdrawal  and  the  bank  can  retire  them  on  60 
days'  notice  to  the  holder,  if  they  multiply  faster  than  we  have  need 
for  the  funds;  and  in  case  of  stringency  the  bank  reserves  the  right 
to  limit  the  withdrawal  in  any  one  month  to  the  amount  of  weekly 
receipts,  so  that  there  can  not  be  any  run  on  it. 

Senator  Weeks.  Ycu  organize  under  the  laws  of  the  States? 

Mr.  Morris.  We  organize  under  the  laws  of  the  States. 

Senator  Weeks.  Under  the  general  law  ? 

Mr.  Morris.  Usually  in  some  States  under  the  banking  law  and  in 
some  under  the  mortgage  loan  and  investment  law  and  in  others  as 
general  investment  companies. 

Senator  Weeks.  The  capital  must  be  paid  in  ? 

Mr.  Morris.  Capital  must  be  paid  in. 

Mr.  Jones.  And  what  you  desire  is  to  have  some  national  legisla- 
tion permitting  the  organization  of  them  ? 

Mr.  Morris.  I  was  going  to  suggest  that  in  a  moment. 

Mr.  Jones.  Independent  from  the  farm-land  bank? 

Mr.  Morris.  No ;  as  a  part  of  the  bill. 

Mr.  Jones.  You  would  conduct  the  two  banks  in  one? 

Mr.  Morris.  Oh,  no ;  you  could  not  do  that ;  but  I  would  just  have 
separate  subdivisions  under  the  head  of  "  industrial  banks." 

Mr.  Jones.  I  was  sure  that  was  your  idea,  but  I  just  wanted  to  get 
that  in  the  record. 

Mr.  Morris.  A  great  many  people  can  not  save  in  multiples  of  $50, 
and  for  those  we  issue  a  certificate  known  as  class  C  certificates  on 
which  they  pay  $1  a  week,  and  at  the  end  of  50  weeks  it  is  convertible 
into  a  paid-up  certificate  of  the  first  kind  and  subject  to  withdrawal 
in  cash  with  accrued  interest. 

Now,  if  a  man  wants  to  borrow  money  he  files  application  for  a 
loan  and  we  always  require  that  he  satisfy  the  cashier  there  is  an 
economic  necessity  for  the  loan. 

Senator  Weeks.  What  kind  of  a  man  would  you  make  these 
loans  to? 

Mr.  Morris.  I  can  tell  you  of  the  actual  experience.  I  would  say, 
generally,  that  we  make  loans  to  three  classes — the  small  wage 
earners,  the  little  merchants,  and  the  small  contractors,  the  little 
fellow  who  needs  anywhere  from  $25  to  a  few  hundred  dollars. 

Senator  Weeks.  You  require  him  to  make  a  financial  statement? 

Mr.  Morris.  I  am  going  to  explain  exactly  what  we  require  him 
to  do. 


BUKAL  CREDITS.  745 

Mr.  Woods.  What  length  of  time  do  you  give  ? 

Mr.  Morris.  We  make  most  of  those  loans  for  one  year.  He  has 
to  file  an  application  for  his  loan  and  state  in  his  application  for 
what  purpose  he  needs  the  money ;  what  he  is  doing ;  his  assets  and 
liabilities ;  to  give  references ;  and  to  state  where  he  is  employed  and 
how  long  he  has  had  his  position.  A  detailed  statement  has  been 
worked  up  from  a  very  scientific  study  of  the  whole  situation,  as 
well  as  experience. 

Just  to  go  back  and  answer  a  former  question,  as  to  what  class 
)f  people  we  make  these  loans  to,  I  will  read  a  few  we  have  loaned 
to  in  the  Atlanta  bank:  Clerks  in  railroads,  clerks  in  banks,  clerks 
in  post  offices,  grocery  stores,  soda  fountains,  cigar  stands,  painters, 
salesmen,  stenographers,  bookkeepers,  switchmen,  housekeepers, 
boarding-house  keepers,  mechanics,  railroad  firemen,  railroad  agents, 
lawyers,  engineers,  insurance  agents,  tailors,  collectors,  dressmakers, 
telegraphers,  proprietors  of  business,  general  office  managers,  railroad 
conductors,  ladies  maids,  as  well  as  lady  foremen,  dentists,  doctors, 
preachers,  subcontractors,  trained  nurses,  car  inspectors,  street  car 
conductors,  cabinetmakers,  instructors,  circulation  managers,  meat 
cutters,  city  policemen,  manufacturers,  washerwomen,  day  laborers, 
soda  sellers,  confectioners,  bridge  patrollers,  lubricators,  etc. 

Senator  Weeks.  Now,  Mr.  Morris,  under  what  condition  would 
you  loan  to  a  person  not  engaged  in  any  commercial  business  and 
who  was  dependent  on  a  daily  or  weekly  or  monthly  wage? 

Mr.  Morris.  Take,  for  example,  a  city  policeman.  Will  that  give 
you  an  example  ? 

Senator  Weeks.  Yes;  I  think  that  will  answer. 

Mr.  Morris.  A  policeman  came  to  one  of  the  banks  at  one  time 
and  wanted  to  borrow  $150.  We  told  him  he  would  have  to  make  out 
the  required  statement  and  show  he  needed  the  money  and  furnish 
us  two  indorsements.  Of  course  you  understand  if  they  own  these 
B  or  C  certificates  that  is  all  they  need  to  pledge  as  security,  without 
any  indorsements.  The  thing  he  said  when  he  started  to  fill  out  the 
application  was  "  I  am  only  a  common  policeman,  earning  $85  a 
month ;  I  can  not  give  you  two  names  on  my  note."  We  asked  him 
what  he  wanted  with  the  money,  and  he  said  he  had  three  children 
that  had  been  sick  with  the  diphtheria  and  he  had  just  lost  two  of 
them,  and  he  wanted  to  pay  a  doctor  $50,  a  drug  store  and  a  under- 
taker's bill  $50,  and  he  owed  a  grocery  bill  of  $50,  in  all  $150.  He 
had  been  unfortunate  enough  to  have  borrowed  money  from  a  loan 
shark  and  was  paying  10  to  20  per  cent  a  month  to  him. 

Senator  Weeks.  Let  me  ask  you :  If  it  had  not  been  a  case  of  per- 
sonal distress  or  family  distress  would  you  have  loaned  him  the 
money  ? 

Mr.  Morris.  I  will  show  you  in  a  minute  who  we  loaned  it  to, 
and  that  will  answer  your  question.  We  asked  him  if  he  could  not 
get  two  other  policemen  to  indorse  his  note,  and  he  said,  yes,  he  could 
get  all  the  policemen  he  wanted.  He  got  the  chief  of  police  and  a 
police  sergeant  and  lieutenant,  so  he  had  perfectly  good  indorsers. 
Then  we  found  out  that  the  grocer  would  go  on  his  note  to  the  ex- 
tent of  his  debt,  provided  his  check  was  sent  direct  for  $50,  and  the 
doctor  would  go  on  his  note  to  the  extent  of  his  debt,  and  so  on. 
Each  one  of  them  asked  the  same  question  if  they  would  get  the 


746  RURAL   CREDITS. 

money  direct,  and  we  said,  u  Yes."    And  that  fellow  had  $250  worth 
of  indorsements. 

So  that  man.  or  any  other  man  of  good  character,  could  borrow  a 
sum  of  money  not  more  than  10  per  cent  of  his  annual  earning 
capacity,  if  he  gets  two  people  to  vouch  for  him,  one  usually  in  his 
own  walk  of  life,  if  he  needs  the  money. 

Mr.  Woods.  That  is  the  point;  he  needed  the  money.  Would  you 
let  him  have  it  if  it  was  not  a  case  of  human  necessity  \ 

Mr.  Morris.  Oh,  yes.  I  will  give  you  some  of  the  reasons  we  loan 
the  money  for,  if  that  will  answer  your  question.  We  have  some  very 
interesting  statistics  on  that.  I  do  not  want  to  burden  you  with  too 
much. 

Mr.  Bulkley.  Oh,  no;  this  is  just  the  kind  of  information  we 
want. 

Mr.  Morris.  In  Atlanta,  the  first  year,  out  of  1.200  loans  made, 
over  1,100  were  to  take  them  out  of  the  hands  of  loan  sharks.  By  an 
actual  computation  they  were  saved  over  $75,000  in  excess  interest. 

Mr.  Woods.  Were  those  loans  originally  made  because  they  had 
been  extravagant  or  because  they  had  had  misfortune? 

Mr.  Morris.  Because  they  needed  the  money  either  from  misfor- 
tune or  other  circumstances. 

Mr.  Ragsdale.  You  did  not  necessarily  go  into  the  cause  of  the 
necessity;  the  only  feature  that  presented  itself  to  you  was  a  real 
necessity  ? 

Mr.  Morris.  Yes.  The  cashier  interrogates  them  to  know  what 
it  is  needed  for.  The  necessity  may  be  superinduced  by  necessity 
of  extravagance.  If  it  is  superinduced  by  extravagance  and  they 
are  satisfied  the  fellow  realizes  he  has  made  a  mistake  it  is  all  right, 
we  make  the  loan  to  him. 

Mr.  Jones.  Does  it  finally  result  in  making  him  more  prudent  if 
you  bring  him  out? 

Mr.  Morris.  Frequently  40  to  50  per  cent  become  savers.  That 
is  what  I  was  going  to  bring  out. 

(Thereupon,  at  1  o'clock  p.  m.,  a  recess  was  taken  until  2.30  o'clock 
p.  m.) 

AFTER   RECESS. 

The  subcommittee  reassembled  at  the  expiration  of  the  recess. 
ADDITIONAL  STATEMENT  OF  ARTHUR  J.  MORRIS— Resumed. 

Mr.  Bulkley.  Now,  Mr.  Morris,  if  I  remember  right  you  were 
going  to  explain  to  us  the  relationship  which  you  would  suggest  be- 
tween industrial-credit  banks  and  rural-credit  banks. 

Mr.  Morris.  As  I  stated  this  morning,  to  my  mind,  the  first  prob- 
lem before  the  committee  in  working  out  the  proper  system  of  rural 
credits  is  to  supply  the  money. 

Assuming  that  the  details  of  the  dissemination  of  that  money,  as 
they  will  be  worked  out,  will  be  along  lines  heretofore  suggested,  or 
along  lines  which  I  suggested  this  morning,  the  source  of  supply 
of  that  money  is  an  important  consideration.  The  provision  in  the 
Moss-Fletcher  bill,  and  in  some  of  the  other  bills,  making  the  land- 
mortgage  debentures  legal  investments  for  fiduciaries  and  savings 
banks,  and  insurance  companies  and  the  like,  to  my  mind,  is  very 


KUKAL   CREDITS.  747 

important.  That  should  be  preserved  and  will  enable  them  in  the 
beginning  to  afford  some  character  of  market  for  these  land  deben- 
tures as  issued. 

I  believe,  however,  in  the  ultimate  analysis  the  best  source  of 
supply  is  from  the  industrial  savers  of  this  country. 

Now,  if  a  particular  system  of  industrial  banks  is  encouraged  in 
the  beginning,  that  will  afford  credit  facilities  to  the  industrial 
classes;  we  put  by  those  facilities  a  premium  upon  thrift  that  will 
encourage  the  industrial  classes  of  this  country,  as  abroad,  to  become 
better  savers.  If  that  is  accomplished — and  it  is  already  being  ac- 
complished— those  same  banks  should  offer  for  sale  to  the  industrial 
classes  of  this  country  these  land-mortgage  debentures.  They  should 
be  issued  in  small  denominations — $50  and  $100. 

These  industrial  banks,  at  least  those  that  are  now  in  operation, 
known  as  the  Morris  plan  banks,  keep  in  touch  with  their  savers 
and  borrowers,  and  have  a  system  by  which  the  names  and  addresses 
of  all  their  savers  and  borrowers  are  kept  together. 

And  these  land-mortgage  debentures  are  offered — these  industrial 
banks  will  offer  to  their  patrons  the  opportunity  to  purchase  these 
land-mortgage  debentures  in  small  denominations.  They  will  at  the 
same  time  say  to  their  patrons,  '•'  If  you  have  not  the  money  with 
which  to  purchase  the  security,  we  will  lend  37ou  (on  whatever  plan 
such  industrial  banks  is  being  operated),  say,  50  per  cent  to  75  per 
cent  of  the  purchase  price,"  so  that  they  can  buy  these  land-mortgage 
debentures  on  such  satisfactory  terms  as  are  consistent  with  their 
earning  capacity. 

At  the  same  time  these  industrial  banks  will  receive  these  land- 
mortgage  debentures  as  collateral  security  for  loans  to  the  industrial 
classes,  and  in  that  way  the  small  saver  will  be  able  to  utilize  a  land- 
mortgage  debenture  identically  as  a  large  saver  or  richer  man  utilizes 
municipal  or  railroad  securities  at  his  bank;  and  in  my  opinion,  in 
the  aggregate,  results  could  be  accomplished  through  that  medium  of 
endeavor  that  would  compare  favorably  with  similar  results  that 
have  been  accomplished  abroad,  notably  in  France. 

Therefore,  for  the  reasons  given  this  morning,  it  is  equally  im- 
portant, in  my  opinion,  that  the  industrial  banks  should  receive  some 
attention  as  well  as  the  question  of  agricultural  credits.  Does  that 
answer  your  suestion? 

Mr.  Btjlkley.  Yes.  Have  you  stated  all  that  you  want  to  about 
what  you  propose  to  put  in  the  pending  legislation  with  respect  to  the 
incorporation  of  industrial  banks? 

Mr.  Morris.  After  the  present  land-mortgage  bill  is  completed, 
or  while  it  is  being  completed — or  whatever  bill  is  to  form  the  basic 
structure  of  the  land  credit  system,  an  enabling  act  should  be  passed 
providing  for  the  incorporation  under  Federal  charter,  subject,  per- 
haps, to  the  supervision  of  the  same  bureau  as  was  contemplated  this 
morning — of  industrial  banks  for  the  wage  earners  in  urban  com- 
munities. 

These  banks  should  provide  a  corporate  capital  and  be  subject  to 
similar  restrictions  regarding  the  payment  and  the  amount  of  the 
corporate  capital  as  are  now  provided  for  national  banks.  They 
should  be  allowed  to  either  take  deposits  or  issue  savings  certificates 
of  investment,  both  in  paid  up  denominations  and  in  weekly  install- 
ments. 


748  KURAL   CREDITS. 

They  should  be  allowed  to  discount  notes,  covering  a  period  of  not 
more  than  one  year,  at  the  legal  rate  of  interest  in  the  State  in  which 
they  operate,  and  provision  should  be  made  whereby  it  would  be 
required  or  allowed  that  such  borrower  should  either  purchase  weekly 
certificates  of  investment  or  make  weekly  deposits,  either  on  account 
of  the  loan  or  on  account  of  a  collateral  saving  certificate  pledged 
as  security  for  the  loans. 

These  banks  should  probably  be  known  as  industrial  national 
banks,  subject  to  making  reports  either  to  the  Comptroller  of  the 
Currency  or  to  the  bureau,  whichever  is  determined  to  be  better.  I 
am  inclined  to  believe  that  it  will  probably  be  better  to  have  them 
report  to  the  bureau. 

Mr.  Woods.  Mr.  Morris,  what  would  be  your  objection  to  giving 
the  tenants  on  farms  the  same  advantages  as  those  you  would  give  in 
large  industrial  centers? 

Mr.  Morris.  Do  you  mean  with  respect  to  short-time  loan- 1 

Mr.  Woods.  Yes. 

Mr.  Morris.  The  question  of  short-time  loans,  as  distinguished 
from  long-time  mortgages? 

Mr.  Woods.  Yes;  and  the  savings  features  that  you  have  men- 
tioned ;  the  same  advantages  exactly  that  you  have  figured  on  giving 
the  city  people. 

Mr.  Morris.  None  at  all,  except  in  this :  You  should  bear  in  mind 
that  the  wage  earner  can  meet  a  liquidation  of  his  industrial  credits 
extended  to  him  on  a  weekly  basis,  which  enables  that  to  be  done 
with  reasonable  profit,  whereas  a  tenant  on  a  farm  can  hardly  pay 
more  often  than  twice  a  year.  However,  I  think  the  same  banks 
should  have  privileges  in  their  incorporation  that  would  enable  them 
to  take  care  of  the  tenant  as  well.  In  other  words,  so  that  they 
could  make  loans  on  this  weekly  plan,  and  on  a  monthly  plan,  and 
on  a  semiannual  plan. 

Mr.  Bulkley.  You  do  not  see  any  difficulty  about  the  same  insti- 
tution carrying  both  kinds  of  loans  ? 

Mr.  Morris.  Not  so  far  as  the  tenants'  short-time  loan  and  the 
industrial  wage  loans  are  concerned. 

Mr.  Bulkley.  That  is  what  I  meant. 

Mr.  Morris.  No;  of  course  your  present  Federal  reserve  act,  to 
my  mind,  solves  the  question  of  the  short-time  loan  for  the  farmer. 
But  this  would  be  a  supplement.  We  are  now  making,  in  Morris- 
plan  banks,  a  great  many  loans  to  farmers  and  tenants  on  farms. 
The  only  difficulty  is  that  it  is  rather  embarrassing  to  them  to  borrow 
under  the  Morris  plan,  because  of  the  weekly  return;  whereas,  if 
these  banks  were  allowed  to  take  deposits,  I  believe  that  the  industrial 
bank  in  a  community  would  probably  in  the  final  analysis  become 
the  institution  that  would  serve  the  short-term  credit  to  the  tenant. 

I  believe  the  development  of  those  industrial  banks  will  be  a  great 
supplement  to  the  present  system  of  savings  banks  in  this  country; 
and  then  you  will  have  the  savings  banks  and  the  industrial  banks 
as  your  mediums  through  which  to  dispose  of  your  land-mortgage 
debentures. 

Mr.  Bulkley.  Can  you  tell  us  how  far  it  is  now  possible,  under 
existing  law,  to  incorporate  banks  with  the  functions  that  you  have 
described  in  the  several  States? 


RURAL  CREDITS.  749 

Mr.  Morris.  Well,  of  course,  the  Morris  plan  is  now  operating  in 
several  States.  It  is  operating  in  Massachusetts,  Colorado,  and  Vir- 
ginia; it  is  about  to  operate  in  North  Carolina,  New  York,  Missouri, 
Georgia,  and  South  Carolina.  I  believe  that  is  all — also  Maryland 
and  the  District  of  Columbia. 

Mr.  Bulkley.  So  far  as  you  know,  it  is  generally  possible  that 
these  banks  can  be  organized  under  State  law? 

Mr.  Morris.  It  is  generally  possible,  but  not  under  such  condi- 
tions as  would  attract  capital  and  be  readily  organized  and  pro- 
mulgated. 

Mr.  Bulkley.  Will  you  explain  that  just  as  fully  as  possible — 
just  what  advantages  we  would  get  by  Federal  charter? 

Mr.  Morris.  Well,  in  the  first  place,  that  kind  of  banks,  if  oper- 
ated under  Federal  charter,  will  be  uniformly  known — for  instance, 
the  one  in  Washington  would  be  known  as  the  Industrial  National 
Bank  of  Washington,  D.  C.  The  one  in  Chicago  would  be  known 
as  the  Industrial  National  Bank  of  Chicago.  Another  one  would 
be  known  as  the  Industrial  National  Bank  of  St.  Louis. 

There  would  be  a  uniformity  to  the  undertaking  that  would  at- 
tract interest  and  stability. 

In  addition  to  that,  there  could  be  tax  provisions  that  would  not 
only  be  uniform,  but  more  economical.  Now,  these  institutions  are 
subject  to  the  varying  tax  laws  of  the  various  States.  One  State 
will  tax  an  industrial  bank  like  they  would  any  other  bank,  and 
another  State  will  not  tax  it  at  all.  And  in  these  particulars  it  is 
very  difficult  sometimes  to  meet  the  laws  of  the  respective  States  and 
at  the  same  time  have  the  business  done  in  such  an  economic  way  as 
would  afford  a  really  economic  facility  to  the  man  that  you  are 
seeking  to  benefit. 

In  addition  to  that,  you  could  have  your  savings  certificates  so 
uniform  that  they  could  be  used  in  one  city  and  be  interchangeable 
in  another  city.  You  could  also  arrange  so  that  the  land  mortgage 
debentures  which  you  disposed  of  could  be  handled  and  could  be 
received  as  collateral  from  one  city  to  another. 

It  would,  in  addition  to  that,  being  under  National  Government 
supervision,  have  the  same  degree  of  confidence;  it  would  inspire 
the  same  degree  of  confidence  as  national  banks  enjoy  compared 
with  State  institutions,  although  in  some  localities  the  State  insti- 
tutions enjoy  equal  confidence.  But  in  the  majority  of  instances 
the  national-bank  supervision  is  an  asset  and  an  incentive  to  the 
development  of  the  banks  operating  in  that  community. 

In  my  opinion,  as  an  aid  to  the  development  of  the  rural  credits, 
by  being  a  medium  through  which  the  land-mortgage  debentures 
could  be  disposed  of — in  my  opinion,  if  these  banks  were  operated 
under  an  enabling  Federal  act,  that  would  be  accomplished  much 
quicker  and  in  a  larger  degree  and  on  a  broader  scale,  amounting 
in  the  aggregate  to  a  far  more  satisfactory  result  than  if  left,  as 
now,  to  the  separate  States. 

Mr.  Bulkley.  Do  you  think  it  would  be  to  the  interest  of  those 
industrial  banks  to  sell  the  land-mortgage  bonds? 

Mr.  Morris.  Do  you  mean  to  the  financial  interests  ? 

Mr.  Bulkley.  Yes ;  or  any  other  interest  that  would  accept  them. 

Mr.  Morris.  I  think  it  could  be  worked  out  on  a  basis  by  which 
they  could  sell  them  at  a  commission;  make  it  worth  their  while. 


750  RURAL   CREDITS. 

At  the  same  lime  they  would  be  educating  the  industrial  public  to 
become  investors  in  a  security  that  would  operate  as  a  collateral 
for  loans  that  these  institutions  would  make  to  them,  thereby  elimi- 
nating the  necessity  for  indorsements. 

Mr.  Bulkley.  Well,  as  I  understand  it,  one  of  the  reasons  why 
you  suggest  that  we  should  set  up  the  industrial  bank  is  to  afford  a 
market  to  our  land-mortgage  bonds. 

Mr.  Morris.  That  is  right.  That  is  an  incidental  reason.  One  of 
the  most  important  reasons  why  you  should  do  it  is  that  it  is  just  as 
important  to  furnish  and  afford  the  city  laborer  or  wage  earner 
proper  credit  facilities  as  it  is  to  afford  the  man  of  commerce  or  the 
farmer  with  credit  facilities.  That  is  the  fundamental  reason. 
Then,  if  in  meeting  that  reason,  you  can  help  the  undertaking  that  is 
affording  the  farmer  credit,  and  vice  versa,  you  can  help  the  wage 
earner.  Why,  it  is  a  corelation  of  assistance  that  should  appeal  to 
Congress. 

Mr.  Bulkley.  Your  idea  is  that  it  will  help  the  wage  earner  to 
have  this  class  of  investment  brought  to  him  in  a  convenient  way 
through  these  banks? 

Mr.  Morris.  I  do  not  think  there  is  any  doubt  about  it.  You  take 
the  French,  and  they  are  more  saving  and  more  frugal  than  we  are. 
Why  is  that?  First,  because  they  can  get  legitimate  credit  for  their 
expenditures;  and  secondly,  that  they  are  savers  and  frugal,  because 
they  are  educated  to  buy  securities. 

Mr.  Bulkley.  Do  you  think  we  can  rely  on  the  self-interest  of 
these  banks  to  distribute  the  land-mortgage  bonds,  or  do  you  think 
we  ought  to  provide  in  the  law  that  they  shall  handle  the  bonds? 

Mr.  Morris.  I  do  not  believe  you  could  make  it  mandatory,  be- 
cause it  would  superinduce  financial  burden  on  the  bank  that  would 
involve  the  safety  of  the  bank.  There  might  be  some  localities  where 
an  industrial  bank  could  not  possibly  within  the  period  of  its  exis- 
tence handle  these  bonds.  I  am  satisfied  it  would  be  an  impracticable 
thing  to  make  it  mandatory. 

Mr.  Bulkley.  You  suggested  that  these  rural  banks  should  be 
federated  in  regional  units.  Do  you  make  the  same  suggestion  in  re- 
gard to  your  industrial  banks? 

Mr.  Morris.  No;  not  in  the  beginning. 

Mr.  Bulkley.  You  would  not  provide  any  such  thing  in  any  pres- 
ent law? 

Mr.  Morris.  I  think  that  ultimately  they  will  become  a  part  of  the 
national  banking  system.  The  only  reason  I  suggest  a  federation  of 
the  farm-land  banks  is  simply  on  account  of  the  issuing  bank.  I 
want  to  avoid  the  land-mortgage  debentures  being  issued  from  the 
units.  I  believe  that  is  impracticable,  and  fundamentally  so.  I  want 
to  see  these  land-mortgage  debentures  issued  from  a  regional  institu- 
tion of  sufficient  size,  strength,  and  importance  as  will  insure  first, 
their  safety,  and  second,  their  marketability.  That  is  the  only  oc- 
casion for  the  federation  of  these  land  banks  into  a  regional  bank. 
In  the  industrial  banks  that  is  not  necessary.  I  think  perhaps  after 
a  few  years'  experience  there  ought  to  be  an  arrangement  by  which 
the  industrial  banks  will  be  able  to  rediscount  their  bills  receivable 
at  a  regional  reserve  bank.  But  I  think  that  will  come.  I  think  that 
will  be  a  matter  of  evolution.  You  first  have  got  to  demonstrate  to 
this  countrv  as  we  have  demonstrated  in  the  Morris-plan  banks — 


RURAL   CREDITS.  751 

that  labor  and  character  can  be  safely  capitalized,  and  that  it  will 
afford  a  reasonably  profitable  security  for  banking  purposes. 

Mr.  Bulkley.  I  have  no  further  questions.  Have  you  anything 
more  that  you  wanted  to  develop  ? 

Mr.  Morris.  Representative  Piatt,  of  New  York,  raised  a  very 
interesting  question  this  morning  about  the  desirability  of  making 
these  land-mortgage  debentures  a  uniform  rate.  If  we  had  to  limit 
the  difference  between  the  regional  mortgage  and  the  debenture  rate 
to  1  per  cent,  a  regulation  making  the  debenture  rate  uniform  would 
necessarily  require  a  uniform  interest  rate  for  the  incipient  mort- 
gages. There  is  much  to  be  said  in  favor  of  this,  but  in  the  iinal 
analysis  I  believe  it  is  impracticable,  because  of  the  following  effect: 
For  example,  suppose  you  pass  a  law  requiring  the  mortgage  interest 
rate  to  be  uniform  and  a  mortgage,  for  example,  was  consummated 
in  Texas,  and  that  uniform  rate  was  6  per  cent  in  mortgages  and 
5  per  cent  in  debentures;  when  the  unit  bank  took  that  6  per  cent 
mortgage  to  the  regional  bank — and  we  will  call  it,  for  the  purpose 
of  simplicity,  a  rediscount,  whereas,  as  a  matter  of  fact,  he  takes  it 
there  for  the  purpose  of  having  land-mortgage  debentures  issued 
against  it — the  regional  bank  is  not  going  to  lose  sight  of  the  eco- 
nomic fact  that  money  in  that  State  is  worth  8  per  cent.  What 
would  be  the  effect?  The  effect  would  be  that  the  regional  bank 
would  immediately  undertake  the  sale  and  disposition  of  its  land- 
mortgage  debentures  at  a  sufficient  discount  for  the  entire  period  to 
insure  the  economic  rate  of  return  as  distinguished  from  the  legal 
rate,  or  the  rates  legalized  by  uniform  law.  And  what  would  be 
the  effect  of  that?  The  effect  of  that  would  be  that  you  would  find 
land-mortgage  debentures  selling  at  rates  30,  40,  50.  and  60  cents 
on  the  dollar,  according  to  the  time  and  length  of  the  mortgage. 
For  that  reason  I  doubt  the  wisdom  of  attempting  any  uniform  de- 
benture rate  which  implies  a  uniform  interest  rate,  because  the 
psychological  effect  on  the  investing  public  of  having  land-mortgage 
debentures  selling  anywhere  from  30  to  40,  50,  or  60  cents  on  the 
dollar  would  be  bad,  in  my  opinion,  whereas  if  the  rate  was  left  to 
the  State,  with  the  provision  that  it  can  not  exceed  a  legal  rate  and 
1  per  cent  less  for  the  debentures,  the  land-mortgage  debentures 
would  be  sold  at  such  price,  which  would  perhaps  not  be  uniform- 
some  of  them  would  be  below  par  and  some  above  par ;  but  the  differ- 
ences between  the  price  would  be  regulated  by  the  condition  of  the 
market  and  not  to  such  an  extent  as  would  reduce  the  par  value  to 
such  a  figure  as  would  make  it  more  or  less  an  unattractive  security. 

Mr.  Bathrick.  Mr.  Chairman,  may  I  ask  a  question? 

Mr.  Bulkley.  If  it  is  agreeable  to  Mr.  Morris,  certainly. 

Mr.  Morris.  Yes,  sir;  I  will  answer  any  question  I  can. 

Mr.  Bathrick.  You  seem  to  have  had  a  great  deal  of  experience 
in  these  banking  matters  and  to  have  given  it  a  great  deal  of  thought. 
Have  you  given  the  question  of  what  land-mortgage  debentures  would 
sell  at,  or  any  thought  to  what  the  rate  would  be  to  hold  them  at  par 
throughout  the  country? 

Mr.  Morris.  Yes ;  I  have  given  that  some  thought.  It  is  a  very 
difficult  question,  though,  to  think  out  a  satisfactory  answer.  Why  ? 
Because  the  price  of  any  security  is  dependent  to  such  an  extent  in 
this  country  upon  the  condition  of  the  market,  both  with  respect  to 
supply  and  demand,  of  money  as  well  as  security.     I  believe,  how- 


752  RURAL   CREDITS. 

ever,  that  security  around  5  per  cent  issued  under  such  a  system  of 
farm-mortgage  banking  as  has  been  described  this  morning,  sub- 
jected to  the  governmental  supervision,  as  has  been  indicated  this 
morning,  under  normal  conditions  would  approximate  par.  That  is 
as  near  as  I  can  give  you  an  answer,  and  you  must  take  that  answer. 
As  I  stated  to  one  gentleman  this  morning,  there  are  some  things 
within  the  purview  of  human  discernment  about  which  one  can  rea- 
sonabty  conclude,  and  there  are  other  things  that  are  so  far  beyond 
the  control  of  human  discernment  that  the  only  answer  you  can  give 
is  the  prognosis  of  it. 

Mr.  Bathrick.  The  fact  is  now,  I  believe,  that  some  municipal 
bonds  are  selling  for  more  than  5  per  cent,  are  they  not  ? 

Mr.  Morris.  Yes;  there  are  some  selling  for  more  than  5  per  cent. 

Mr.  Bathrick.  And  some  very  good  municipal  bonds,  too. 

Mr.  Morris.  Yes ;  very  good  ones  that  six  months  ago  sold  for  that. 

Mr.  Bathrick.  And  I  believe  some  railroad  bonds  have  been  offered 
at  6  per  cent,  have  they  not? 

Mr.  Morris.  Yes.  Then,  again,  j7eu  take  the  recent  issue  of  New 
York  State  bonds  that  yielded  a  fraction  over  4  per  cent,  they  sold 
at  a  premium.  It  depends  entirely  upon  the  conditions.  Suppose, 
for  example,  last  June  and  July  a  5  per  cent  security  was  offered  in 
this  country,  at  the  time  we  were  undergoing  an  unsettled  condition, 
before  the  passage  of  the  currency  bill,  and  the  financial  condition  of 
the  country  was  more  or  less  intensely  uncertain,  a  5  per  cent  de- 
benture would  have  had  a  very  difficult  market  at  that  time. 

Mr.  Bathrick.  I  believe  you  referred  to  Government  inspection 
as  one  of  the  means  of  establishing  a  market  and  giving  the  public 
greater  assurance  in  the  land-mortgage  bonds. 

Mr.  Morris.  This  morning  I  undertook  to  lay  out  a  plan  by  which 
a  Federal  bureau  would  be  established  respecting  the  land-mortgage 
banks  that  would  be  analogous  to  the  Federal  reserve  board  in  the 
system  of  commercial  banking,  and  that  Federal  reserve  bureau 
would  lay  down  certain  rules  and  regulations  under  which  regional 
banks  could  issue  land-mortgage  debentures,  and  before  a  regional 
bank  could  issue  land-mortgage  debentures  they  would  have  to  cer- 
tify to  the  bureau  at  Washington,  under  oath,  that  these  conditions 
had  been  complied  with,  and  these  debentures  would  be  registered 
and  certified  from  the  bureau  which  would  act  in  the  nature  of  a 
registrar. 

Mr.  Bathrick.  The  real  value  of  a  debenture  is  the  character  of 
the  land  upon  which  the  mortgage  is  based,  and  upon  which  the  de- 
benture is  based,  is  it  not? 

Mr.  Morris.  Yes. 

Mr.  Bathrick.  It  is  also  the  degree  of  care  with  which  the  ap- 
praisal of  the  farm  or  the  land  is  made,  is  it  not? 

Mr.  Morris.  Yes. 

Mr.  Bathrick.  Now,  any  Government  inspection  that  would  be 
thorough — speaking  of  Government  inspection — would  it  not  be 
necessary  for  the  inspector  to  know  what  the  character  of  this  land 
was  that  is  behind  the  mortgage  and  the  debenture  ? 

Mr.  Morris.  I  think  so;  and  I  provided  for  that  in  my  statement 
this  morning.    You  were  not  present,  I  believe. 

Mr.  Bathrick.  Now,  if  it  is  necessary  for  the  Government  inspec- 
tor to  know  the  character  of  the  land  that  is  behind  this  mortgage 


RURAL   CREDITS.  753 

and  debenture,  it  would  be  necessary  for  this  inspector  to  inspect 
the  land,  would  it  not? 

Mr.  Morris.  Yes;  I  provide  for  that  inspection  here.  I  suggested 
it  be  done  in  order  to  hold  down  expenses,  and  to  be  practicable 
and  not  have  too  much  red  tape  about  it,  that  each  regional  bank 
would  have  a  local  Federal  agent  properly  approved  that  would 
be  on  the  regional  appraisal  committee,  and  he  would  certify  to  the 
regional  bank,  which  would  in  turn  certify  to  the  bureau. 

Mr.  Bathrick.  A  bank  examiner  that  examines  a  national  bank 
goes  into  a  bank,  and  he  is  reasonably  familiar  Avith  the  securities 
which  that  bank  holds — that  is,  the  character  of  the  people  behind 
those  securities,  is  he  not — and  the  character  of  the  commercial  sta- 
bility behind  the  securities? 

Mr.  Morris.  I  would  not  say  that  he  is  at  all  times  closely  familiar 
with  the  people  behind  the  securities.  He  takes  the  word  of  the  men 
behind  the  bank  for  that.  The  bank  examiner,  after  he  has  called 
frequently  to  examine  the  bank  and  lias  seen  your  note  and  my  note 
there  too  often,  he  will  make  a  note  of  it,  and  when  he  comes  back,  if 
he  again  finds  those  two  notes,  he  will  say,  "I  saw  those  two  notes 
the  last  time,  and  I  see  them  this  time ;  how  long  have  you  been  carry- 
ing them?"  He  will  make  superficial  inquiries  of  that  character. 
But  with  regard  to  the  people  behind  the  majority  of  national-bank 
notes  he  would  not  know  that.  An  examiner  has  no  intimate  ac- 
quaintance with  them.  He  forms  a  general  idea  from  a  reasonable 
amount  of  proper  inquiry. 

Mr.  Bathrick.  Do  you  think  that  these  land-mortgage  debentures 
could  be  marketed  to  any  extent  in  Europe? 

Mr.  Morris.  Yes ;  I  think  a  good  many  of  them  could  be.  I  meant 
to  suggest  that  this  morning.  I  am  glad  you  brought  it  out.  I 
think  that  these  regional  banks  should  be  allowed  to  have  European 
branches.     That  should  be  embodied  in  the  act. 

Mr.  Bathrick.  In  order  to  market  these  securities  in  Europe  there 
would  be  required  a  certain  character  of  underwriting  to  be  done, 
would  there  not? 

Mr.  Morris.  You  mean  in  Europe? 

Mr.  Bathrick.  And  in  the  United  States. 

Mr.  Morris.  Not  if  the  regional  bank  had  its  own  branches  there. 
That  would  depend  entirely  upon  whether  they  did  it  through  under- 
writers in  America  or  whether  they  did  it  through  their  foreign 
branches.  In  some  countries  it  would  probably  pay  them  better  to 
do  it  through  underwriters  with  American  agents. 

Mr.  Bathrick.  Suppose  one  of  these  agencies  which  you  speak  of 
is  attempting  to  market  these  debentures,  what  would  you  consider  a 
reasonable  commission  for  so  doing? 

Mr.  Morris.  You  mean  an  underwriter's  agent  ? 

Mr.  Bathrick.  Yes.  Each  one  of  these  concerns  that  handle  these 
debentures  would  require  some  commission  to  handle  them,  would 
they  not? 

Mr.  Morris.  Yes,  sir ;  which  is  the  point  I  brought  out.  If  they 
were  selling  them  to  foreign  underwriters  without  having  their  own 
branch  over  there  they  would  necessarily  have  to  do  it  on  a  commis- 
sion basis.  If  they  had  their  own  branch  over  there  they  would  do 
it  themselves.     That  is  a  very  difficult  question  to  answer.     It  de- 

37031—14 48 


754  RURAL   CREDITS. 

pends  entirely  upon  the  time  when  these  debentures  are  offered  and 
the  amount,  but  I  should  say  anywhere  from  1  up  to  5  per  cent. 

Mr.  Bathrick.  As  commission? 

Mr.  Morris.  As  commission.  It  just  depends  entirely  upon  the 
time  and  conditions  of  affairs  and  the  manner.  If  the  agent  handled 
a  few  hundred  thousand  dollars  of  them  he  would  probably  want  5 
per  cent.  If  he  handles  several  million  dollars  he  would  probably 
be  glad  to  do  it  on  1  per  cent.  It  is  due  to  the  quantity  and  condi- 
tion of  the  market. 

Mr.  Bulkley.  Are  you  through  now,  Mr.  Bathrick? 

Mr.  Bathrick.  Yes. 

Mr.  Bulkley.  I  think  Mr.  Korbly  has  some  questions  he  would 
like  to  ask. 

Mr.  Korbly.  Do  you  contemplate  that  the  Morris-plan  banks  would 
give  accommodations  to  small  merchants? 

Mr.  Morris.  We  are  doing  that  now. 

Mr.  Korbly.  To  that  extent  you  are  somewhat  in  the  nature  of  a 
commercial  bank. 

Mr.  Morris.  To  that  extent,  yes;  except  that  commercial  banking, 
as  distinguished  from  industrial  banking,  might  be  defined  as  making 
loans  on  a  commercial  basis — 30,  60,  90  daj^s,  or  4  months.  Any  loans 
made  for  a  period  of  1  year  repayable  in.weekly  installments  has  more 
of  an  industrial  character,  whether  it  be  made  to  a  wage  earner  or 
whether  it  be  made  to  a  merchant ;  and  we  are  accommodating  many 
little  merchants. 

Mr.  Korbly.  And  a  farmer  who  does  not  own  any  land  can  get 
some  accommodation  under  the  Morris  plan  of  banking  as  now 
operated  ? 

Mr.  Morris.  Yes.     We  accommodate  a  good  many  farmers  now. 

Mr.  Korbly.  So  that  a  man  might  buy  cattle  or  equipment,  or 
have  money  for  his  operations? 

Mr.  Morris.  Yes.  The  only  difference  is  that  we  could  not  do  it 
under  our  plan  to-day,  except  to  a  superficial  extent,  because  under 
our  plan  a  borrower  has  to  become  the  purchaser  of  an  installment 
savings  certificate,  on  which  he  pays  2  per  cent  a  week.  If  he  bor- 
rows $100  he  purchases  two  savings  certificates  and  deposits  $2  a 
week  on  those  savings  certificates.  A  farmer  can  not  pay  in  weekly 
amounts. 

Mr.  Korbly.  Unless  he  is  dealing  in  butter  and  eggs. 

Mr.  Morris.  Unless  he  is  a  dairy  farmer,  or  some  similar  farmer; 
and  in  order  to  overcome  that  limitation  I  would  suggest  that  the 
act  provide,  in  the  enabling  of  industrial  banks,  that  they  should  be 
allowed  to  take  deposits,  so  that  from  these  deposits  they  can  handle 
the  short-time  loan  farmers,  under  4,  6,  8,  and  12  months. 

Mr.  Korbly.  That  suggests  the  question  I  really  wanted  to  come 
to,  the  central  question  in  my  series  of  questions,  whether  it  is  not 
just  as  important  to  provide  some  credit  or  banking  facilities  for 
that  class  of  farmers  who  own  no  land  as  it  is  to  provide  credit  for 
those  who  may  own  land,  as  for  industrial  people  in  the  cities. 
That  is  a  question  you  have  not  yet  touched  on.  I  was  out  part 
of  the  time  this  morning  while  you  were  talking. 

Mr.  Morris.  That  is  really  a  big  question — short-time  loans.  Of 
course,  your  Federal  reserve  act  has  made  some  provision  for  that 
and  for  certain  purposes  a  farmer  can  borrow  as  long  as  6  months. 


EUEAL   CREDITS.  755 

These  industrial  banks,  with  the  right  to  receive  deposits,  would 
also,  to  my  mind,  make  loans  of  that  character.  In  addition  to  that, 
there  is  not  any  reason  why  the  act  should  not  provide  and  enable 
cooperative  institutions  that  would  let  a  group  of  farmers  pledge 
what  we  call  a  community  of  indorsements.  That  will  probably  be 
the  result  as  soon  as  we  get  the  banks.  I  personally  do  not  believe 
that  the  cooperative  features,  as  successfully  developed  in  Europe, 
can  be  considered  as  a  feasible  instrument  in  this  country.  The  day 
may  come  when  cooperation  may  be  developed  in  America,  but  it 
has  not  come  yet.  Everybody's  business  in  this  country  is  nobody's 
business.  Besides,  there  is  an  American  feeling,  a  feeling  charac- 
teristic of  American  people — and  farmers  are  no  exception  to  that 
feeling — where  they  do  not  like  to  club  together  and  let  each  one 
know  the  other's  business.  I  have  studied  the  question  of  the  coop- 
erative unions  in  cities  and  among  manufacturing  plants,  and  while 
a  few  of  them  have  succeeded  in  a  small  way,  yet  in  a  majority  of 
instances  the  credit  union  or  cooperative  bank  in  the  cities  or  among 
the  farmers,  while  they  should  be  allowed  where  they  may  be  some 
locality  where  they  wiil  get  together,  and  while  you  do  it  you  might 
as  well  include  it,  because  it  can  be  very  simply  done,  permit  these 
cooperative  societies  to  be  organized,  but  in  so  far  as  their  developing 
into  a  satisfactory  result,  I  do  not  personally  believe  that  they  will 
do  it  for  years  and  years  to  come,  if  at  all. 

Mr.  Bulkley.  Mr.  Morris,  if  it  is  still  agreeable  to  you,  I  think 
Mr.  Thompson  would  like  to  ask  you  a  question. 

Mr.  Thompson.  Suppose  I  live  in  a  town  of  300  or  400  people, 
which  has  two  commercial  State  banks,  more  or  less  acting  privately, 
would  you  suggest  the  creation  of  a  third  bank  to  be  made  the  local 
unit  in  this  land-mortgage  system,  or  would  you  allow  one  of  the 
existing  banks  to  connect  up  in  some  way  to  the  system? 

Mr.  Morris.  In  a  community  of  400  or  500  people  ? 

Mr.  Thompson.  Yes. 

Mr.  Morris.  What  is  the  nearest  town  to  that  ? 

Mr.  Thompson.  What  is  the  nearest  town? 

Mr.  Morris.  Yes ;  what  is  the  nearest  town  to  that  ? 

Mr.  Thompson.  That  is  a  village. 

Mr.  Morris.  What  is  the  nearest  larger  point? 

Mr.  Thompson.  There  will  be  a  county  seat,  let  us  say,  18  or  20 
miles  away. 

Mr.  Morris.  How  large  is  the  county  seat? 

Mr.  Thompson.  Say  3,000. 

Mr.  Morris.  By  all  means  let  the  existing  bank  connect  up. 

Mr.  Thompson.  That  means,  then,  does  it  not,  that  you  would 
make  provision  in  the  law  whereby  existing  banks  could  connect  up 
with  the  land-mortgage  system? 

Mr.  Morris.  I  think  so. 

Mr.  Thompson.  In  what  way  would  you  make  that  arrangement? 

Mr.  Morris.  They  are  State  institutions? 

Mr.  Thompson.  Yes. 

Mr.  Morris.  I  would  incorporate  a  clause  that  any  existing  bank 
that  will  segregate  a  certain  amount  of  its  capital  and  otherwise  com- 
ply with  the  provisions  with  that  segregated  capital,  just  as  singly 
and  completely  as  if  it  was  an  independent  institution,  shall  be  legal- 


756  RURAL   CREDITS. 

ized  to  do  a  certain  business  in  conjunction  with  either  another  unit 
or  the  regional  bank. 

Mr.  Thompson.  Do  you  believe  that  a  great  many  existing  State 
banks  will  do  that? 

Mr.  Morris.  That  is  hard  for  me  to  answer,  because  I  am  not 
familiar  with  the  little  places.  I  can  tell  you  that  in  the  larger 
places  I  do  not  think  so,  because  there  would  not  be  any  gain  in  it. 
In  these  little  places  I  am  inclined  to  think,  theoretically,  they  would, 
because  they  are  looking  for  an  opportunity  to  expand  the  volume 
of  their  business,  and  any  bank  that  can  expand  the  volume  of  its 
business  on  other  people's  money  would,  to  my  mind,  be  glad  of  the 
opportunity,  and  such  a  connection  would  enable  them  to  get  that 
result.  Where  that  is  impractical  it  is  a  very  simple  matter  for  any 
one  bank  in  that  county  seat  to  make  one  of  these  banks  its  agent  just 
to  file  applications,  and  the  appraisal  committee  could  go  right  out 
there  and  look  at  it.  One  of  the  beauties  about  this  undertaking  is 
that  the  size  of  a  farm  mortgage  would,  as  a  general  rule,  be  sufficient 
to  permit  that  without  inconvenience  being  done. 

Mr.  Thompson.  As  a  practical  thing,  then,  you  believe  that  a  good 
many  banks  would  be  agents? 

Mr.  Morris.  Oh,  yes,  sir;  they  will  be  in  the  nature  of  agents. 

Mr.  Bulkley.  Have  you  covered  everything  that  you  have  in 
inind,  Mr.  Morris? 

Mr.  Morris.  I  just  wrant  to  emphasize  what  Mr.  Piatt  said  in  one 
of  the  hearings,  that  one  thing  we  have  got  to  do  is  to  take  personal 
property  all  over  the  country  and  make  it  an  instrument  of  credit 
of  all  kinds.  That  very  aptly  illustrates  what  I  mean  by  saying 
that  these  land-mortgage  debentures  must  be  liquid  in  the  hands 
of  everybody  whom  you  expect  to  buy  them,  and  you  can  not  expect 
to  confine  their  purchase  to  large  investors.  He  w7ill  say,  "  Oh,  I 
have  enough  securities  in  railroad  bonds  and  municipal  bonds.  They 
are  good  enough  for  me.  I  am  not  interested  in  these  farmers." 
You  need  to  make  them  so  that  plenty  of  other  people  who  are  inter- 
ested will  buy  them;  the  little  fellow  will  buy  them — the  little  saver, 
the  little  investor — and  the  way  to  make  him  buy  them,  in  my 
opinion,  is  to  give  to  him  the  same  facilities  in  his  hands  with  a 
land-mortgage  debenture  as  the  richer  man,  the  bigger  man,  has 
with  municipal  or  railroad  securities  in  his  bank.  It  seems  to  me 
that  is  an  important  phase  of  this  matter  that  you  can  not  overlook. 
I  can  not  remember  at  this  moment  the  exact  limit  of  period  in  the 
Fletcher-Moss  bill.  Will  somebody  prompt  me  on  that?  In  the 
Fletcher-Moss  bill  how  long  can  these  mortgages  be  made  for? 

Mr.  Platt.  For  35  years. 

Mr.  Morris.  That  is,  to  my  mind,  too  long.  I  have  felt  that  25 
years  is  long  enough  to  spread  that  over.  However.  I  suppose  the 
committee  has  enough  information  before  them  already  on  that 
point  to  determine  just  what  is  best. 

In  drawing  the  bill  every  precaution  must  be  taken  to  avoid  the 
repetition  of  the  eighties  and  up  to  the  panic  of  1894,  with  debenture 
schemes.  In  my  opinion  that  was  largely  superinduced  by  the  dele- 
gation of  too  much  authority. 

In  other  words,  it  was  the  old,  old  story  of  the  agent  far  more 
interested  in  making  his  commission  than  he  was  in  insuring  his  in- 
vestment, insuring  good  judgment,  and  properly  selecting  the  loans. 


RUEAL   CREDITS.  757 

In  view  of  the  ideas  that  were  expressed  this  morning,  I  believe  that 
that  could  absolutely  be  provided  against. 

Mr.  Bathrtck.  In  other  Avoids.  Mr.  Morris,  that  was  due  to  mis- 
management? 

Mr.  Morris.  Pure  and  simple;  but  it  was  the  kind  of  mismanage- 
ment that  will  ensue  in  a  majority  of  cases  unless  in  the  beginning  the 
oportunity  for  such  character  of  management  is  precluded. 

Mr.  Bulkley.  I  believe  Mr.  Jones  wants  to  ask  you  a  question. 

Mr.  Jones.  Mr.  Chairman,  there  are  two  or  three' questions  I  would 
like  to  ask  Mr.  Morris,  leading  up  to  interest  rates,  the  unification  of 
interest  rates.  He  touched  on  that,  and  there  is  a  point  or  two 
that  I  would  like  to  have  cleared  up  in  my  mind. 

Mr.  Morris  is  advocating  the  unifying  of  unit  banks  into  regions 
similar  to  what  the  minority  of  the  American  commission  is  advo- 
cating. He  has  extended  the  region  beyond  the  confines  of  different 
States,  whereas  the  minority  has  recommended  that  the  regions  be 
coterminous  with  the  States. 

Mr.  Morris.  That  is  the  State  regional  bank's. 

Mr.  Jones.  State  regional  banks;  for  reasons  set  forth  by  me 
in  my  statement,  very  elaborately,  a  day  or  two  ago,  in  this  hearing. 
You  know  the  Fletcher-Moss  bill  provides  that  bonds  floated  by  any 
land-mortgage  bank  shall  not  be  floated  at  a  rate  of  interest  lower 
than  1  per  cent;  or.  rather,  to  put  it  the  other  way,  that  they  shall 
not  charge  the  borrower  a  higher  rate  of  interest  than  1  per  cent 
above  wdiat  they  float  their  bonds  at.  Now.  how  do  you  believe 
that  can  be  made  practicable  if  you  establish  a  large  region?  Sup- 
pose you  were  to  follow  the  regional  banks  or  the  regions  established 
for  regional  Federal  banks,  and  the  territory  that  is  being  asked  by 
a  number  of  cities  should  be  put  in  one  region?  Particularly  have 
I  in  mind  Omaha,  in  its  claim  for  Nebraska,  part  of  Iowa,  Colorado, 
and  Utah.  Throughout  that  region  the  rates  of  interest  vary  very 
greatly.  Iowa  farmers  now  can  borrow  money  at  5  per  cent;  Wyo- 
ming farmers  pay  8  per  cent;  Colorado  farmers  pay  7  per  cent;  and 
the  Nebraska  farmers  pay  6  per  cent.  Now,  with  your  regional 
bank  made  up  of  units  throughout  all  of  these  States,  when  they  get 
their  loans  collected  together  and  are  going  to  issue  bonds  against 
the  collective  loans,  bearing  various  rates  of  interest,  how  could  they 
comply  with  the  provision  prohibiting  them  charging  over  1  per 
cent  above  that  of  the  bond? 

Mr.  Morris.  The  first  way  to  do  it  would  be  necessarily  to  have 
to  combine  together  a  sufficient  number  of  mortgages  of  a  uniform 
rate.  I  should  think  they  would  have  no  difficulty  in  doing  that 
with  respect  to  the  minimum  1  per  cent  difference.  In  other  words, 
suppose  they  had  several  varying  rates,  some  mortgages  at  .">  per 
cent,  some  at  6  per  cent,  and  some  at  8  per  cent;  I  do  not  imagine 
that  with  the  territory  as  large  as  you  suggest  there  would  be  any 
difficulty  in  their  getting  a  sufficient  number  of  7  per  cent  mortgages 
to  issue  a  6  per  cent  debenture  thereupon,  or  a  sufficient  number  of 
6  per  cent  mortgages  to  issue  a  5  per  cent  debenture,  if  I  under- 
stand your  question  correctly. 

Mr.  Jones.  I  think  you  have  understood  it  and  have  probably 
offered  a  solution. 

Mr.  Morris.  Let  me  just  amplify  that  a  little  further. 


758  EURAL   CREDITS. 

In  some  instances  where  that  might  be  impracticable  they  could 
get  enough  of  them  together  to  comply  with  the  minimum  cost  so 
that  the  1  per  cent  less  would  conform  to  the  law  with  respect  to 
the  maximum  and  still  leave  a  wider  margin  on  the  maximum  mort- 
gage. Another  thing  that  that  would  do — it  would  tend  to  encour- 
age uniformity.  If  a  regional  bank  finds  that  they  are  taking  a 
great  many  mortgages  at  varying  rates,  and  that  to  do  so,  it  was  more 
or  less  inconvenient  to  issue  against  them  land  mortgages,  deben- 
tures, they  would  soon  realize  the  necessity,  and  the  rather  practi- 
cal necessity,  of  getting  together  on  a  uniform  rate,  which,  I  think, 
would  operate  in  favor  of  the  farmer  rather  than  against  him. 

Mr.  Jones.  To  the  farmer  in  the  State  that  has  the  5  per  cent 
rate,  or  to  the  farmer  in  the  State  that  has  the  6  per  cent  rate? 

Mr.  Morris.  I  think  that  would  depend  entirely  upon  the  market 
for  the  debentures.  If  the}r  had  any  difficulty  in  getting  rid  of  the 
6  per  cent  debentures  the  7  or  8  per  cent  man  would  soon  find  him- 
self in  the  6  per  cent  class. 

Mr.  Jones.  You  say  it  would  have  a  tendency  to  make  a  uniform 
rate?     You  mean  by  that  the  rate  would  seek  a  level? 

Mr.  Morris.  I  do  not  mean  an  absolute  uniform  rate,  but  more 
uniformity  of  rate,  for,  in  other  words,  there  would  be  less  diver- 
gence between  the  mortgages.  A  regional  bank  in  a  section  like 
that  would  soon  find  itself  issuing  but  two  classes  of  debentures, 
either  fives  or  sixes,  and  they  would  finally  classify  the  various 
mortgages  in  one  of  those  two  classes.  My  main  reason  for  a  re- 
gional bank  that  is  not  limited  to  one  State,  as  explained  to  you 
outside  of  the  committee,  is  that,  in  my  opinion,  if  you  had  to  have 
40-odd  regional  banks  it  would  be  unwieldly;  you  would  have  sev- 
eral State  regional  banks,  if  we  might  call  them  that,  with  not  suf- 
ficient capital  to  be  large  and  strong  enough  to  accomplish  the  func- 
tion that  I  would  like  to  see  accomplished  by  a  bank  of  issue,  and 
when  I  saj7  a  bank  of  issue  I  mean  a  land  bank  of  debenture  issue. 

Mr.  Jones.  I  believe  you  said  this  morning  that  you  had  not  seen 
the  report  of  the  majority  of  the  American  commission? 

Mr.  Morris.  I  have  never  seen  it.  I  have  never  heard  of  it  until 
you  asked  me  this  morning.  I  would  like  to  see  it,  though.  I 
wTould  like  to  get  a  copy  of  it  before  I  leave  here. 

Mr.  Jones.  They  make  the  suggestion  that  after  the  States  have 
built  up  their  State  units  it  might  be  found  advisable  for  some  co- 
ordination of  the  State  units  through  some  selling  agency.  But  at 
the  start 

Mr.  Morris  (interposing).  I  do  not  know  that  I  quite  follow  that. 
Would  you  explain  that  a  little  more  fully?  Do  you  mean  inde- 
pendent of  the  State  regional  banks  ? 

Mr.  Jones.  Xo;  that  the  State  regional  banks  themselves  might 
federate  into  a  body  higher  up,  some  centralized  bod}',  to  sell  the 
bonds,  in  case  it  became  necessary  to  find  a  broader  field. 

Mr.  Morris.  I  think  that  is  a  matter  of  evolution. 

Mr.  Jones.  That  is  our  argument;  that  is  the  point  exactly  that 
we  make. 

Mr.  Morris.  If  I  was  not  afraid  of  being  too  far  ahead  of  the 
game  I  might  suggest  something  like  that.  I  have  that  in  the  back 
of  my  head. 


BUBAL   CBEDITS.  759 

Mr.  Jones.  That  is  exactly  the  point  that  the  minority  makes. 
They  felt  that  we  were  going  a  little  rapidly  to  suggest  too  much 
machinery  to  start  with,  but  we  did  feel  that  it  was  not  going  too 
rapidly  to  give  the  organization  of  these  centralized  State  banks 
reaching  out  through  the  States  until  they  had  built  up  sufficiently 
to  justify  reaching  a  broader  and  bigger  field.  I  question  in  my 
own  mind  whether  it  would  be  necessary  to  go  abroad  after  our 
banks  have  become  established,  especially  along  the  line  that  you 
suggest  or  that  the  minority  suggests,  to  find  a  market  for  our  land- 
mortgage  bonds.  I  believe  we  will  have  a  sufficient  home  market, 
just  as  Germany  has  established,  among  the  savings  and  industrial 
classes  and  trust  funds. 

Mr.  Morris.  I  think  that  depends  entirely  on  how  it  is  done.  If  it 
is  done  properly,  I  see  no  reason  why  that  result  should  not  be  ac- 
complished. 

Mr.  Jones.  And,  following  that,  the  minority  suggested  that  they 
go  no  further  than  the  State  organization  at  this  time  and  let  the 
future  take  care  of  itself  as  to  whether  we  need  to  go  a  step  higher 
in  our  organization  to  reach  a  broader  field. 

Mr.  Morris.  You  see  that  my  idea  of  regional  banks  goes  a  little 
further  than  your  idea — the  State  bank — does,  without  going  as  far 
as  a  single  central  institution.  I  think  it  would  be  unwise  to  do  that 
now.  In  the  first  place,  the  time  and  tendency  of  the  Avhole  feeling  is 
against  one  single  central  institution,  whether  it  be  a  commercial 
banking  system  or  farm  banks.  I  think  that  ought  to  be  a  matter  of 
evolution. 

Mr.  Jones.  We  had  no  idea  of  a  State  central  bank. 

Mr.  Morris.  I  do  not  mean  a  State  central;  I  mean  a  Federal 
central. 

Mr.  Jones.  We  call  it  a  federation  of  banks,  just  like  the  regional 
banks  have  been  established  for  the  national  banks. 

Mr.  Morris.  I  think  for  the  present  that  the  idea  for  a  Federal 
bureau  occupying  an  analogous  position  to  the  Federal  reserve  board 
is  all  that  would  be  required  in  that  connection  for  the  time  being. 

Mr.  Jones.  It  seems  to  me  you  do  federate  the  unit  banks  and  the 
regional  banks. 

Mr.  Morris.  Oh,  yes;  federate  the  unit  banks  and  the  regional 
banks  into  a  bureau,  subject  to  the  board's  supervision,  identically 
like  the  Federal  reserve  board  is  going  to  supervise  the  Federal 
reserve  banks.  Why  not  utilize  it?  If  it  is  right  and  scientific  and 
its  basis  is  sound,  as  we  all  believe  it  is  in  the  contour  of  its  struc- 
ture, now  is  the  time  to  use  it — right  in  this  matter. 

Mr.  Woods.  What  object  would  the  investor  have  in  purchasing  a 
bond  drawing  5  per  cent  when  he  could  secure  a  bond  drawing  7  per 
cent  backed  by  the  same  institution  ? 

Mr.  Morris.  Let  me  see  exactly  what  you  mean  by  "  backed  by  the 
same  institution.*' 

Mr.  Woods.  The  issuing  institution. 

Mr.  Morris.  You  mean  the  regional  bank?  They  would  guarantee, 
would  they  not? 

Mr.  Woods.  They  issue  them. 

Mr.  Morris.  They  issue  them.  Do  you  mean  if  they  issue  some 
fives,  some  sixes,  and  some  sevens? 

Mr.  Woods.  Yes. 


760  RURAL   CREDITS. 

Mr.  Morris.  My  answer  to  that  is  some  people  would  rather  have 
a  5  per  cent  debenture  based  on  an  Illinois  mortgage  than  a  G  or  7 
per  cent  debenture  based  on  the  mortgage  of  another  State. 

Mr.  Woods.  That  would  be  true  if  it  is  just  a  mortgage,  but  it  is 
guaranteed  by  the  same  institution.  I  do  not  think  you  would  find 
that  many  of  your  5  per  cent  bonds  would  find  a  market. 

Mr.  Morris.  You  may  say  the  same  thing  with  respect  to  railroad 
securities  and  municipal  securities. 

Mr.  Woods.  That  is  a  different  proposition  entirely ;  there  are  dif- 
ferent railroads  and  different  securities. 

Mr.  Morris.  Yes;  it  is  the  same  thing.  The  security  that  is  back 
of  the  bonds,  after  all,  is  the  land  behind  it.  You  must  not  lose  sight 
of  that. 

Mr.  Woods.  That  is  true;  but  if  these  railroad  securities  were 
guaranteed  by  the  Government  there  would  be  some  analogy. 

Mr.  Morris.  These  bonds  are  not  guaranteed  by  the  Government. 

Mr.  Woods.  They  are  guaranteed  by  a  large  institution  which 
makes  their  payment  sure. 

Mr.  Morris.  I  believe  it  is  an  impracticable  thing  to  try  to  make 
a  uniform  rate.     You  can  do  it. 

Mr.  Woods.  I  do,  too,  but  I  think  the  faith  of  the  institution  is 
much  preferable  and  would  be  more  successful. 

Mr.  Morris.  I  am  frank  to  admit  that  my  first  idea  was  a  State 
regional  institution,  but  the  more  I  thought  of  it  the  more  I  am 
afraid  that  you  will  have  too  many  of  them,  and  another  reason  I 
am  afraid  of  it  is  that  it  will  give  it  an  atmosphere  of  provinci- 
ality— a  Utah  regional  bank  will  issue  Utah  debentures,  and  if  that 
bank  can  not  sell  its  debentures  in  its  own  section,  and  it  goes  to 
New  York  City  with  them,  or  somewhere  else,  they  will  say,  "  Oh, 
they  have  a  Utah  regional  bank;  they  can  not  sell  them;  we  do  not 
want  it,"  where  if  you  have  one  regional  bank  covering  several  States, 
there  is  a  larger  market,  and  I  think  it  would  be  a  rather  unwise 
thing  to  limit  inherently  your  market  for  your  debentures.  For 
example,  debentures  issued  out  of  Utah  might  find  a  market  in  several 
States,  whereas  if  you  had  a  regional  State  issuing  bank,  just  as 
sure  as  the  night  follows  the  day  you  are  going  to  fail  in  your  pur- 
pose. At  least,  that  is  my  opinion.  People  will  get  a  psychological 
impression  that  this  institution  in  Utah  ought  to  sell  its  bonds  to  its 
Utah  friends,  and  if  they  can  not  sell  them  to  their  Utah  friends 
there  is  a  nigger  in  the  woodpile  somewhere,  and  we  do  not  want 
them. 

Mr.  Jones.  Mr.  Norris,  one  argument  that  occurred  to  the  minds 
of  the  minority  that  caused  them  to  confine  the  regions  to  the  State, 
was  on  account  of  the  different  State  lines  regarding  exemptions, 
homesteads,  land  titles,  and  many  other  things.  The  Fletcher- 
Moss  bill  provides  that  bonds  issued  by  land-mortgage  banks  may 
be  available  for  certain  specific  purposes,  such  as  postal  savings, 
trust  funds,  court  funds,  the  funds  under  the  control  of  the  courts, 
provided  that  those  States  have  met  certain  conditions  regarding 
registration,  exemption,  etc.  If  you  go  outside  of  the  States  you 
will  find  considerable  conflict.  One  State  may  have  complied  with 
all  of  those  conditions,  another  State  may  have  complied  with  a  por- 
tion of  them,  and  another  State  may  have  complied  with  none  of  them, 
and  all  within  the  same  region.     Now,  how  can  the  bonds  find  the 


RURAL    CREDITS.  761 

market  we  are  seeking  if  those  conditions  are  so  varied  regarding  the 
different  securities  that  are  offered  as  collateral? 

Mr.  Morris.  I  agree  with  you  that  those  conditions  may  affect  the 
marketability  of  these  debentures  in  a  particular  territory. 

Mr.  Joxes.  The  minorit}'  has  thought  that  out.  We  thought  very 
strongly  over  this,  and  spent  two  months  working  on  it,  and  if  we 
have  left  anything  unprovided  for  we  would  like  to  have  it.  That  is 
the  cause  of  my  legal  questions  t<>  yon.  to  see  if  we  were  wrong  in 
our  final  conclusions. 

Mr.  Morris.  I  believe,  for  example,  if  you  have  a  regional  bank 
covering  Virginia,  North  Carolina,  South  Carolina,  and  West  Vir- 
ginia, or  any  other  two  or  three  States,  and  under  the  Federal  law 
these  land  debentures  were  exempt  from  taxation,  and  were  made 
legal  investments  for  certain  specific  purposes  and  fiduciaries  on  con- 
dition that  the  registration  laws  of  the  States  from  which  they  are 
issued  had  done  so  and  so  and  so.  I  can  readily  see  that  in  some 
States,  where  these  State  laws  do  not  comply  with  the  provisions  of 
the  Federal  act  the  mortgages  in  those  respective  States  would  be 
more  or  less  circumscribed.  But  I  believe  that  is  one  matter  that 
the  legislatures  of  the  several  States  will  fall  in  line  on.  If  such  a 
banking  system  is  authorized  they  are  going  to  get  together;  they  are 
going  to  realize  the  necessity  of  doing  it,  just  like  the  national  banks 
have  all  fallen  in  line.  A  great  many  national  banks  had  their 
doubts  about  the  currency  bill,  and  some  of  them  said  they  would 
charter  under  State  law,  and  some  said  they  would  do  this  and  do 
that,  but  you  will  find  that  most  all  of  them  came  in  under  the  act, 
and  I  believe  that  would  be  the  result  in  this  case. 

Mr.  Jones.  Should  not  the  States  stand  upon  their  own  merits? 
If  one  State  makes  the  bonds  more  saleable  by  certain  provisions  of 
law,  should  it  not  have  the  advantage  of  the  rate  of  interest  which 
their  bonds  will  sell  for? 

Mr.  Morris.  They  would  have  it,  whether  you  would  confine  it 
to 

Mr.  Jones  (interposing).  Then  a  neighboring  State  that  had  not 
met  those  conditions  at  all,  should  not,  it  seems  to  me,  be  attached 
to  the  same  regional  bank  whose  credit  assists  that  neighboring  State 
to  float  its  bonds. 

Mr.  Morris.  Perhaps  the  regional  bank  will  not  take  them.  There 
is  nothing  in  the  law  that  is  going  to  make  it  mandatory. 

Mr.  Jokes.  They  should  have  a  regional  bank  that  would  take 
them,  or  else  the  operation  of  the  law 

Mr.  Morris  (interposing).  I  do  not  know  but  what  it  would  be  a 
good  idea  for  the  regional  bank  to  say  to  that  State,  "  We  are  per- 
fectly ready  to  handle  your  mortgages,  but  you  must  get  your  laws 
right."     I  think  that  is" probably  one  of  the  ways  to  help  get  it. 

Mr.  Woods.  In  some  States  the  constitutions  would  have  to  be 
amended,  and  those  things  are  not  easily  done. 

Mr.  Bathrick.  How  could  you  say,  Mr.  Morris,  that  if  yon  have 
a  regional  bank  covering  several  States  the  cost  of  money  may  be 
different  in  those  States? 

Mr.  Morris.  I  think  the  cost  might  be  cheaper  in  the  long  run:  I 
think  the  market  for  your  land-mortgage  debentures  would  be  con- 
siderablv  enhanced. 


762  KUEAL   CREDITS. 

Mr.  Bathrick.  Do  you  think  the  cost  of  money  might  be  different 
in  one  of  those  several  States  than  in  another  ? 

Mr.  Morris.  Possibly,  but  I  think  it  is  only  a  question  of  a  short 
time  when  it  will  probably  be  uniform. 

Mr.  Bathrick.  It  occurs  to  me  that  if  the  regional  bank  is  to 
guarantee  a  land  mortgage  at  5  per  cent  in  one  State  and  7  per  cent 
in  another,  that  it  would  not  guarantee  even  the  7  per  cent  unless 
it  was  a  good  mortgage,  would  it? 

Mr.  Morris.  I  think  not. 

Mr.  Bathrick.  That  being  the  case,  and  they  can  sell  bonds  at 
5  per  cent  in  one  State,  why  can  they  not  sell  bonds  at  5  per  cent  for 
this  7  per  cent  mortgage  State  ? 

Mr.  Morris.  That  would  depend  entirely  on  the  market.  If  they 
find  that  in  that  7  per  cent  State  they  can  sell  those  bonds  all  right 
and  there  is  no  prejudice  against  them — there  may  be  prejudice  in 
that  State  by  reason  of  its  lack  of  development  as  compared  with 
another  State — I  think  you  will  find  the  rate  decreased. 

Mr.  Bathrick.  Of  course  the  regional  bank  will  dispel  that  by 
reason  of  the  fact  that  they  are  guaranteeing  them. 

Mr.  Morris.  It  would  have  a  tendency  to  uniform  the  rate  and 
cheapen  the  price  of  farm  money. 

Mr.  Bathrick.  You  say  it  would  cheapen  the  price  of  farm  land? 

Mr.  Morris.  It  would  cheapen  the  price  of  farm  money.  Whereas, 
if  you  keep  it  in  one  State  each  neighboring  institution  may  feel 
that  each  State  regional  bank  ought  to  paddle  its  own  canoe,  and  I 
am  afraid  the  psycological  effect  would  be  that  each  State  regional 
bank  would  have  to  distribute  its  own  debentures,  and  after  all, 
finance  a  distribution  of  securities;  and  modern  finance  is  largely  a 
matter  of  temperment,  and  I  am  sure  my  friend,  Mr.  Jones,  will 
appreciate  that.  You  let  something  emanate  from  one  State,  some 
security,  where  they  have  not  the  proper  facilities  in  that  State  to 
handle  it,  and  let  it  go  into  another  State,  and  they  inquire  im- 
mediately, "Why  don't  you  handle  it  at  home?  "  You  might  with 
more  or  less  success,  but  it  does  not  create  the  right  atmosphere. 

Mr.  Bathrick.  You  think,  then,  eventually,  this  regional  bank, 
by  reason  of  its  guaranty  and  its  stability,  would  create  a  market 
and  a  uniform  rate  for  these  bonds  in  all  the  States  which  it  covered  ? 

Mr.  Morris.  I  think  so.  I  think  that  would  be  largely  the  evolu- 
tion of  this  system. 

Mr.  Bathrick.  How  long  do  you  think  it  would  take  that  to 
transpire? 

Mr.  Morris.  That  is  a  very  difficult  question  to  answer,  but  it  is 
not  so  far  in  the  future,  as  it  is  simply  a  question  of  getting  the 
market  educated  to  the  fact  that  a  mortgage  properly  appraised  in 
one  State  is  just  as  good  as  a  mortgage  appraised  in  another  State, 
even  though  the  development  of  one  may  not  be  as  far  advanced 
as  the  other,  and  they  will  take  that  into  consideration  when  they 
make  their  appraisement.  There  is  no  reason  why  a  mortgage  that 
is  good  in  Texas  is  not  just  as  good  as  a  mortgage  from  Illinois.  The 
only  reason  why  there  is  any  difference  in  the  interest  rate  is  that 
there  is  a  superficial  judgment  to  the  contrary.  A  regional  bank 
comes  along  and  it  includes  Texas  and  other  territory,  with  sufficient 
size  and  strength  and  capacity  behind  it,  so  that  when  they  certify 
a  mortgage  from  Texas  every  investor  knows  that  it  is  just  as  good 


RURAL   CREDITS.  763 

as  the  regional  bank's  certification  in  Illinois,  and  you  will  find  that 
the  rates  will  gradually  approach  uniformity.  That  is  dependent 
upon  the  regional's  ability  to  market.  They  may  have  a  live  wire 
in  the  Illinois  regional  bank  and  a  very  slow  one  in  the  Texas  re- 
gional bank,  and  if  he  sleeps  on  the  job  and  fails  to  float  his  land 
debentures  and  does  not  move  quick  enough,  you  will  find  that  the 
rate  will  not  be  the  same  as  the  live  wire,  who  drives  them  out  of 
the  field. 

Mr.  Bathrick.  You  are  aware,  I  presume,  that  the  only  reason  for 
any  Federal  legislation  on  the  proposition  at  all  is  the  conservation 
of  agriculture  and  the  perpetuation  of  our  food  supply. 

Mr.  Morris.  Yes;  that  is  the  underlying  fundamental. 

Mr.  Bathrick.  You  believe  that  power,  then,  will  tend  to  make 
uniform  interest  rates  all  over  the  country? 

Mr.  Morris.  Yes. 

Mr.  Bathrick.  Because  they  raise  food  in  the  West,  where  the 
rate  is  high,  as  well  as  in  the  East,  where  the  rate  is  low. 

Mr.  Thompson.  Mr.  Chairman,  may  I  ask  a  question? 

Mr.  Bulkley.  Yes,  if  Mr.  Morris  does  not  object. 

Mr.  Thompson.  My  question  has  a  direct  bearing  on  the  subject 
now  before  the  committee  and  on  the  position  that  Mr.  Morris  has 
taken ;  and  if  it  is  not  too  late,  I  would  like  to  present  it. 

A  statement  was  made  as  to  the  rates  of  interest  in  the  several 
States,  showing  a  discrepancy  or  variation  of  rates  between  Colo- 
rado, Idaho,  Nebraska,  and  Iowa,  and  then  that  statement  has  been 
followed  by  the  statement  that  it  would  be  desirable,  possibly,  to 
limit  the  interest  rates  in  order  to  avoid  wide  discrepancy  in  rate 
conditions.  I  was  going  to  ask  what  he  would  do  in  the  case  of  a 
State  like  Minnesota,  where  in  the  extreme  north-central  part  you 
would  have  mortgage  loans  varying  from  those  of  the  extreme  south- 
ern part  of  the  same  State  by  3  or  4  per  cent. 

Mr.  Morris.  Do  you  mean,  what  would  the  State  authorities  do 
in  those  cases  ? 

Mr.  Thompson.  Yes. 

Mr.  Morris.  That  is  up  to  my  friend  Mr.  Jones  to  answer. 

Mr.  Woods.  The  mortgage  rates  might  be  different,  but  the  taxa- 
tion is  the  same.     That  would  tend  to  clarify  that. 

Mr.  Morris.  Mr.  Jones,  how  would  you  handle  that  situation  in 
these  debentures  you  were  talking  about? 

Mr.  Jones.  We  have  the  same  conditions  in  Colorado.  Our  rates 
vary  from  2  to  3  per  cent  throughout  the  State.  It  is  much  easier 
to  liquidate,  however,  than  it  would  be  between  States,  and  I  have 
no  doubt  but  what  if  you  had  a  State  unification  of  land-mortgage 
units  the  rate  would  be  uniform  throughout  the  entire  State. 

Mr.  Morris.  Carry  that  a  little  further,  and  do  you  not  think  that 
if  you  had  two  or  three  contiguous  States  you  could  accomplish  the 
same  result? 

Mr.  Jones.  Yes;  if  you  could  get  the  uniform  laws  throughout 
those  different  States  regarding  the  bonds  of  which  I  spoke  a  moment 
ago,  the  same  as  you  can  get  them  in  one  State  covering  different 
counties. 

Mr.  Morris.  That  would  be  a  difficulty  that  would  have  to  be  over- 
come, but  I  believe  the  result  would  justify  the  effort. 


764  RURAL   CREDITS. 

Mr.  Jones.  As  I  understand  your  position  you  believe  it  would 
assist  in  accomplishing  that  result? 

Mr.  Mourns.  I  do.  Understand  me.  I  am  not  absolutely  opposed 
to  a  State  regional  bank,  but  in  practice  I  do  not  believe  you  are 
going  to  get  nearly  the  desired  result  that  you  would  oui  of  the 
regional  bank. 

Mr.  Platt.  You  are  up  against  State  constitutions  in  a  great 
man}'  cases. 

STATEMENT  OF  T.  CUSHING  DANIEL,  OF  WASHINGTON,  D.  C. 

Mr.  Bulkley.  Will  you  please  state  for  the  record  your  full  name, 
residence,  and  occupation  ? 

Mr.  Daniel.  My  name  is  T.  Gushing  Daniel ;  formerly  of  Virginia  ; 
now  of  Washington,  D.  C. :  1416  F  Street  is  my  city  address. 

Mr.  Bulkley.  Mr.  Daniel,  you  are  a  financial  writer,  are  you  not? 

Mr.  Daniel.  Yes;  before  presenting  my  views  to  your  committee, 
I  deem  it  only  proper  to  state  my  qualifications  for  so  doing. 

I  am  the  author  of  Keal  Money  versus  Bank  Credit  as  a  Substitute 
for  Money,  published  in  1911,  and  of  The  High  Cost  of  Living: 
Cause — Remedy,  published  in  1912,  copies  of  these  books  were  sent 
to  Hon.  WToodrow  Wilson  and  William  J.  Bryan  when  published. 

The  author  brings  to  the  solution  of  this  important  economic 
problem,  first,  experience  on  a  farm,  then  years  of  experience  in  com- 
mercial life  in  New  York  and  other  sections  of  the  country,  the  study 
of  law,  familiarity  with  all  the  financial  legislation  of  Congress  on 
money,  the  debates  and  records  of  all  the  international  conferences 
on  money  since  1867,  and  the  study  of  all  the  leading  economists  on 
the  subject,  supplementing  these  advantages  in  recent  years  by  per- 
sonal investigation  of  the  money  systems  of  foreign  countries. 

After  years  of  independent  study  and  investigation  of  economic 
problems  I  was  satisfied  that  the  evil  underlying  all  our  troubles 
was  an  absolutely  false  money  system — I  had  great  hopes  that  the 
incoming  Democratic  administration,  led  on  by  Woodrow  Wilson, 
would  solve  the  money  question  upon  a  sound  economic  basis  in  the 
interest  of  all  the  people.  When  I  read  the  first  draft  of  the  regional 
bank  bill,  in  which  it  was  suggested  that  these  regional  banks  should 
issue  their  notes,  I  addressed  the  following  letter  to  President  Wil- 
son and  sent  a  copy  of  it  to  Mr.  Bryan,  Secretary  of  State : 

Ocean  Deck  Apartments, 
Atlantic  City.  N.  J.,  May  8,  1913. 
"Woodrow  Wilson, 

President  of  the  United  States. 

Sir:  The  Republican  Party  has  foisted  upon  this  country  the  English  scheme 
of  "banks  (if  issue"  with  the  present  result. 

In  the  present  critical  stage  of  American  development  I  would  call  your 
attention  to  the  following  maxim  of  the  "  money  lenders  "  of  the  Old  World : 
"  Let  us  control  the  ruoney  of  a  country,  and  we  care  not  who  makes  its  laws." 

Those  who  favor  the  continuance  of  banks  of  issue  in  this  country  are  to  be 
classified  in  history  with  John  Sherman  and  Nelson  W.  Aldrich  and  the  money 
power. 

It  makes  no  difference  whether  it  is  done  under  the  name  of  the  so-called 
national  reserve  association  of  the  United  States  or  "regional  banks,"  as  now 
suggested  by  Congress. 

The  issue  is  ;it  last  squarely  drawn,  and  the  Democratic  Party  will  stullify 
and  absolute!;  discredit  itself  if  it  indorses  banks  of  issue  in  any  form. 


RUKAL   CREDITS.  765 

The  majority  of  the  6,500,000  men  who  voted  for  Bryan  believed  that  the 
issuing  of  the  money  was  a  Government  function.  The  4,000,000  men  who  voted 
for  Roosevelt  in  1912  voted  on  the  money  plank  of  his  platform,  which  declared 
"  the  issuing  of  money  to  be  a  Government  function." 

An  organization  of  the  Socialist  Party  in  Chicago  has  declared  that  the  issue 
of  money  should  be  by  the  Government. 

The  Democratic  Party,  from  the  days  of  Thomas  Jefferson,  has  declared  in 
favor  of  the  Government  issue  of  money  and  against  banks  of  issue.  The  Con- 
stitution of  the  United  States  unequivocally  provides  for  the  Government  alone 
issuing  money. 

I  presented  the  side  of  the  people  in  the  hearings  before  the  Banking  and 
Currency  Committee  after  the  panic  of  1907,  and  expect  at  an  early  date  to 
make  a  statement  before  the  Banking  and  Currency  Committee  of  the  Senate. 
I  regret  very  much  not  being  able  to  confer  with  you  on  this  subject  in  the  in- 
terest of  the  people  as  requested  in  my  letter  of  April  22,  1913. 
With  great  respect, 

T.  Cushing  Daniel. 

Upon  my  return  to  Washington,  I,  attending  the  hearings  before 
the  Banking  and  Currency  Committee  of  the  Senate,  and  realizing 
the  kind  of  bill  the  administration  had  indorsed  and  was  then  put- 
ting through  the  Senate,  wrote  the  following  letter  to  President 
Wilson  [reading]  : 

Washington,  D.  C,  November  25,  1913. 
Woodeow  Wilson,  President  United  States. 

Sir  :  The  people  of  the  United  States  have  never  indorsed  an  asset  currency. 

No  political  party  in  the  United  States  has  ever  suggested  in  its  platform 
the  issuing  of  an  asset  currency.  The  whole  record  of  the  Democratic  Party 
is  in  direct  opposition  to  the  pernicious  theory  underlying  the  issuing  of  asset 
currency. 

The  issuing  of  bank  credits  as  a  substitute  for  money  in  the  United  States 
and  Europe  has  caused  such  inflation  as  to  expose  and  absolutely  destroy  the 
so-called  gold  standard  of  values. 

In  Document  15,  hearings  before  the  Committee  on  Banking  and  Currency, 
S.  2539,  the  writer  conclusively  demonstrates  that  there  is  no  such  thing  as  a 
gold  standard. 

In  section  29  of  the  pending  bill,  if  passed  by  Congress,  the  Democratic  Party 
will  absolutely  reverse  and  stultify  itself  by  indorsing  an  economic  absurdity, 
and  something  that  does  not  exist,  after  having  opposed  it  for  over  40  years. 

Mr.  President,  if  you  or  Mr.  Bryan  had  taken  the  people  into  your  confidence, 
and  had  stated  that  you  were  in  favor  of  an  asset  currency,  and  of  the  Govern- 
ment issuing  debts  instead  of  dollars  as  money,  as  provided  in  this  bill,  neither 
would  have  received  the  support  of  the  people  of  this  country. 

The  issuing  of  real  money,  for  which  a  valuable  consideration  is  given,  and 
not  debts  redeemable  in  gold,  is  a  Government  function,  as  provided  in  the 
Constitution  of  the  United  States. 

No  incorporated  banking  institutions  with  stock  issues  are  necessary  as  a 
condition  precedent  to  the  Government's  exercising  this  highest  act  of  sov- 
ereignty— to  creat  and  issue  money — in  the  interest  of  all  the  people.  Salmon 
P.  Chase,  ex-Secretary  of  the  United  States  Treasury,  fully  realized  this,  and 
said : 

"My  agency  in  procuring  the  passage  of  the  national-bank  act  was  the  mis- 
take of  my  life.  It  has  built  up  a  monopoly  that  affects  every  interest  in  the 
country.  It  should  be  repealed.  But  before  that  can  be  accomplished,  the 
people  will  be  arrayed  on  one  side  and  the  banks  on  the  other  in  a  conflict  such 
as  we  have  never  seen  in  this  country." 

In  the  light  of  experience  and  present  conditions,  it  is  as  plain  as  the  noon- 
day sun  that  if  the  people  are  now  forced  into  partnership  again  with  this  con- 
victed Money  Trust  and  those  responsible  for  it,  as  contemplated  in  this  bill 
(S.  2G39),  it  can  and  will  produce  nothing  but  disaster. 

Bank  credit  inflation  has  swamped  the  so-called  gold-standard  theory  until 
every  man  of  ordinary  intelligence  can  now  see  the  economic  fraud  that  has 
and  is  now  inflicting  untold  loss  and  suffering  upon  the  people. 

The  world's  gold  supply  shows  the  cause  of  the  money  crisis  to  be  world- 
wide. 


766  RURAL   CREDITS. 

Debts  of  the  world  specifically  payable  in  gold  over  100  billions  of  dollars, 
while  the  total  gold  money  in  the  world  is  about  7  billions,  or  less  than  7  cents 
on  the  dollar. 

The  annual  increase  of  gold  in  the  world  during  the  last  six  years  has  been 
only  $9,967,500.     (See  p.  302,  Director  Mint,  1912.) 

The  world's  annual  production  of  gold  has  increased  since  1908  from  $442.- 
476,900  in  that  year  to  $462,335,000  in  1012,  or  $19,835,000,  only  $4,958,750  per 
annum  for  the  whole  world.  In  the  meantime  the  net  imports  of  gold 
by  India  has  risen  from  $56,346,699  during  the  British  fiscal  year  ending 
March  30,  1908,  to  $134,409,087  during  the  fiscal  year  ending  March  30.  1912. 

The  importation  of  India  last  year,  plus  the  world's  industrial  consumption, 
was  $57,353,250,  more  than  half  the  world's  production,  leaving  only  $173,- 
814,247  for  the  monetary  use  of  the  world. 

The  Director  of  the  Mint,  in  his  last  report,  1912,  states:  "India's  holding 
of  gold  steadily  increases  and  is  retired  from  monetary  use  and  from  the  world's 
available  supply.'"  and  says,  "At  this  writing  it  seems  probable  that  imports  of 
1912-13  will  equal  and  possibly  exceed  those  of  the  preceding  year." 

He  then  states:  "  It  can  not  be  safely  predicated  on  the  strength  of  present 
conditions  in  the  principal  gold  fields  of  the  world  that  the  production  of  gold 
will  materially  increase  in  the  next  10  years." 

Mr.  Wexler.  the  leading  representative  of  the  American  Bankers'  Associa- 
tion, makes  the  following  admission  before  the  Banking  and  Currency  Com- 
mittee of  the  Senate: 

"  Mr.  Wexler.  *  *  *  In  other  words,  we  have  not  been  able  to  find  where 
we  are  going  to  get  gold  enough  to  carry  the  reserves  that  are  necessary. 

"  Q.  Now,  if  the  faith  and  credit  of  this  big  institution  (the  central  reserve 
bank)  ever  became  seriously  impaired,  it  might  have  to  get  up  gold  very  quickly, 
might  it  not? — A.  Well,  of  course,  if  the  people  lost  confidence  in  the  note 
issue  and  everybody  came  to  the  window  and  demanded  the  amount  in  gold,  it 
would  require  a  general  liquidation  of  credit  of  all  the  notes  of  everybody 
which  the  bank  had,  and  the  system  would  break  down." 

******* 

"A.  Suppose  that  you  had  been  required  to  sell  $100,000,000  of  bonds  in  the 
last  six  months  for  the  purpose  of  bringing  gold  into  this  country.  You  could 
not  have  sold  them  in  any  civilized  country  in  the  world,  except  at  a  tremen- 
dous discount,  because  all  of  the  commercial  nations  of  the  world  were  beg- 
ging each  other  for  gold." 

The  report  of  the  Director  of  the  Mint,  1912,  page  302,  shows  that  from  1906 
to  1912  the  total  increase  of  gold  in  our  monetary  system  has  been  only 
$59,805,000. 

The  debts  specifically  payable  in  gold  have  been  created  amounting  to  not 
less  than  $12,000,000,000. 

The  total  amount  of  cold  money  in  the  United  States  in  1912  was  $1,616,538,- 
976.     (Report  of  the  Director  of  the  Mint,  1912,  p.  243.) 

Nonle^al-tender  notes,  redeemable  on  demand  in  gold,  $1,822,631,739. 

Debts  specifically  payable  in  gold,  not  less  than  $40,000,000,000. 

In  the  face  of  this  impossible  condition  it  is  now  proposed  to  issue  an  asset 
currency  of  hundreds  of  millions  of  dollars  redeemable  in  gold.  And  under 
section  29  of  the  bill  pledges  the  American  people  to  maintain  these  gold  pay- 
ments to  the  extent  of  issuing  bonds  to  get  the  gold  to  meet  the  demand  com- 
ing from  this  mountain  of  debts  for  which  gold  can  be  required. 

I  would  ask,  What  right  has  the  Government  to  pledge  the  people  to  do  this 
impossible  and  ruinous  thing,  and  place  them  absolutely  at  the  mercy  of  the 
money  lenders  and  manufacturers  of  debts? 

The  banking  corporations  now  have  $881,936,455  of  this  gold  in  their  pos- 
session, and  $930.0115. 2S4  of  credit  currency  immediately  convertible  into  gold. 
This  will  more  than  absorb  the  entire  amount  of  gold  in  .the  money  system  of 
the  United  States,  when  there  is  a  demand  for  gold. 

Is  it  reasonable  or  just  to  pledge  the  people  to  maintain  gold  payments  under 
this  condition? 

Europe  holds  enough  American  securities  to  exhaust  our  gold  supply  by  un- 
loading them  on  the  market.  Is  it  just  to  pledge  the  people  to  maintain  gold 
payments  when  this  occurs? 

Debts  specifically  payable  in  gold  in  the  United  States,  not  less  than  40 
billions  of  dollars. 


RURAL   CREDITS.  767 

Total  amount  of  gold  money  in  the  United  States,  $1,616,538,976.  Only 
anough  to  pay  4  cents  on  the  dollar. 

Is  it  any  longer  rational  to  pledge  the  people  to  maintain  gold  payment — 
under  the  fraudulent  pretext  of  maintaining  the  parity  of  our  dollars  and  the 
so-called  gold  standard  of  values — a  thing  that  does  not  exist? 

Upon  this  false  and  fraudulent  gold-basis  system,  it  is  now  estimated  that 
the  banking  corporations  of  the  world  have  created  out  of  bank  credits  as  a 
substitute  for  money  about  60  billions  of  debt  against  the  people.  Do  you 
not  consider  it  time  to  stop  this  bank-credit  inflation  that  requires  money 
from  the  borrowers  that  is  not  in  existence,  and  that  the  Government  should 
exercise  its  sovereign  power  and  issue  full  legal  tender  dollars  into  the 
money  system  of  the  United  States? 

In  legislation  on  money  you  deal  with  the  highest  attribute  of  sovereignty  of 
this  great  people.  The  Constitution  provides  that  "  Congress  shall  coin 
(create)  money  and  regulate  the  value  (quantity)  thereof."  This  means 
money  and  not  asset  currency  or  debts  redeemable  in  gold,  the  quantity  of 
which  is  measured  only  by  the  debts  that  the  banks  can  manufacture  against 
the  people  by  rediscounting  debts  already  held  against  them.  This  currency 
is  farmed  out  to  banking  corporations  already  burdened  with  interest  charges, 
which  the  borrower  eventually  pays.  This  is  done  in  order  that  banking  cor- 
porations may  multiply  more  debts  with  higher  interest  charges  upon  an 
already  overburdened  people. 

At  this  time  to  multiply  more  debts  upon  the  people  by  the  Government 
issuing  an  asset  currency  in  partnership  and  cooperation  with  these  banking 
corporations,  redeemable  in  gold,  would  be  the  monumental  fraud  and  absurdity 
of  the  age. 

Mr.  President,  allow  me  to  say  that  nothing  but  deep  concern  for  the  people 
and  the  future  of  this  country  prompts  this  frank  statement  of  the  facts  here 
presented. 

Very  respectfully,  T.  Cushing  Daniel. 

P.  S.  Those  who  control  the  money  of  the  banks  will  control  the  so-called 
Government  banks.     The  officials  become  mere  figureheads,  mere  employees. 

Mr.  Bulkley.  Mr.  Daniel,  you  understand,  do  you  not,  that  we  are 
discussing  the  subject  of  rural  credit,  and  the  matter  of  the  gold 
standard  is  not  before  us  at  this  time. 

Mr.  Daniel.  That  is  the  basis  of  the  whole  system,  you  know. 
It  is  useless  to  discuss  the  superstructure  unless  we  get  the  founda- 
tion properly  laid. 

Mr.  Bulkley.  I  would  like  to  suggest  that  you  confine  your  re- 
marks to  questions  relevant  to  the  subject  matter  we  have  under  con- 
sideration. 

Mr.  Daniel.  Mr.  Chairman,  in  the  interest  of  the  American 
farmer,  I  object  to  this  constant  reference  to  the  rural-credit  systems 
of  the  practically  bankrupt  countries  of  Europe  as  examples  for  the 
guidance  or  adoption  of  any  such  scheme  in  this  Republic. 

This  was  the  plan  adopted  by  the  National  Monetary  Commission, 
headed  by  Aldrich,  to  divert  the  attention  of  the  people  from  the 
preconceived  Aldrich  Money  Trust  bill  subsequently  indorsed  by  this 
commission,  and  introduced  in  Congress. 

There  is  nothing  new  in  these  Fletcher-Moss  bills  (S.  4246  and 
H.  R.  12585)  to  establish  national  farm-land  banks  indorsed  by  the 
administration.  This  system,  previously  framed  up,  was  described 
by  President  Taft  long  before  Woodrow  Wilson  was  nominated  as 
President  of  the  United  States. 

President  Taft  in  his  speech  before  the  Bankers'  Association  of 
New  York,  in  the  summer  of  1912,  stated  that  he  knewT  nothing  about 
the  money  question,  yet  in  the  same  speech  he  indorsed  the  Aldrich 
Money  Trust  bill  then  pending  in  Congress.    Also  in  the  summer  of 


768  HUIIA.L   CREDITS. 

1912  he  committed  himself  to  the  foreign-bank  credit  s}7stem  for 
agricultural  loans  as  follows: 

As  n  later  step.  I  favor  the  enactment  of  laws  by  Congress  permitting  the 
organization  of  national  land-mortgage  banks  to  be  operated  under  strict 
Government  supervision,  with  power  to  guarantee  and  market  the  guaranteed 
debenture  bonds  of  the  State  land-mortgage  banks  or  cooperative  socie- 
ties. *  *  *  Such  assumption  is  the  essential  precedent  for  obtaining  the 
confidence  of  American  as  well  as  of  the  European  invest  Jul;  public. 

We  find  in  the  Republican  and  Democratic  platforms  an  indorse- 
ment of  an  investigation  of  the  rural-credit  societies  and  corpora- 
tions in  foreign  countries,  and  that  national  banks  be  allowed  to  loan 
money  on  real  estate.  What  does  all  of  this  mean?  Are  the  people 
to  be  fooled  and  further  plundered  by  credit  substitutes  for  money, 
and  the  enlargement  of  the  powers  of  banks  of  issue — in  this  coun- 
try— under  the  pretext  of  helping  the  farmers?  The  money  power 
having  manufactured  debts  on  everything  else  in  sight  are  now  turn- 
ing their  attention  to  the  American  farmers. 

If  they  can  work  their  credit  money  scheme,  and  manufacture 
interest-earning  mortgages  and  bonds  on  the  farm  lands  of  this 
country,  indorsed  or  guaranteed  by  the  Government,  it  would  be 
equivalent  to  increasing  the  national  debt  so  far  as  the  obligation  to 
pay  is  concerned ;  and  at  the  same  time  have  the  farmers — the  great 
producers  of  this  country — mortgaged  for  all  time  to  the  nonpro- 
ducers,  and  foreign  and  domestic  bond  dealers.  Or  if  the  holders 
of  the  farm  mortgages  or  debenture  bonds  preferred  to  own  the 
farms  the  operation  would  be  described  as  follows:  The  credit  so- 
ciety or  bank  would  loan  the  farmer  its  credit,  and  the  farmers 
mortgage  would  become  an  asset  of  the  credit  society,  which  would 
lend  another  farmer  upon  the  basis  of  the  first  farmer's  mortgage  as 
an  asset.  A  small  amount  of  cash  would  thus  create  a  pile  of  mort- 
gages, each  drawing  interest,  and  no  corresponding  increase  in 
money  whatsoever  to  pay  them.  It  would  then  only  be  necessary 
for  these  credit  corporations  to  contract  the  currency,  call  in  farm 
loans,  foreclose  their  mortgages,  and  own  the  farms.  On  the  other 
hand  under  the  operation  of  a  direct  loan  of  money  by  the  Govern- 
ment, the  mortgages  given  by  the  farmers  would  be  held  by  the 
Government,  thus  the  expenses  are  reduced  to  a  minimum,  and  the 
interest  paid  applied  to  reducing  the  taxes  of  the  people  until  the 
mortgage  was  paid  by  the  farmer. 

In  other  words,  the  Government  would  lend  them  legal-tender 
money  that  would  then  be  in  existence  and  available  to  pay  debts 
instead  of  a  bank's  credit,  that  vanishes  into  thin  air  almost  as  soon 
as  the  debt  is  made.  It  should  be  always  borne  in  mind  that  although 
a  loan  is  created  by  a  "  bank  credit "  it  has  to  be  paid  by  the  bor- 
rower in  mony,  and  there  is  no  corresponding  amount  of  money  in  ex- 
istence to  pay  it. 

On  the  other  hand,  the  Government  would  pay  out  the  real  money 
to  correspond  with  every  loan  made,  and  this  money  would  be  avail- 
able in  order  that  the  debtors  could  pay  their  debts. 

Under  prosperous  conditions  brought  about  by  real  money  being 
put  into  circulation  and  in  a  few  years  under  this  system  the  farm- 
ers would  gradually  pay  off  their  mortgages,  and  have  enough  cash 
to  their  credit  in  bank  to  carry  them  through  a  bad  season.  The 
other  plan  assumes  that  the  farmer  must  always  be  in  debt  and  never 


RURAL   CREDITS.  769 

have  an}-  money  to  his  credit  in  the  bank.  This  construction  I  con- 
sider economically  unsound  and  dangerous  to  the  best  interests  of  the 
farmers. 

If  I  were  not  acquainted  with  the  hopeless  poverty  and  suffering 
of  the  people  in  European  countries,  I  might  be  more  tolerant  of 
these  suggestions  and  references  to  foreign  banking  systems. 

Mr.  Moss,  of  Indiana,  who  introduced  the  bill  now  being  consid- 
ered, admits  that  the  women  do  most  of  the  work  on  the  farms  in 
Europe  and  that  the  girls  are  made  prematurely  old  thereby. 

I  will  now  quote  from  a  reliable  authority,  the  National  Keal 
Estate  Journal,  of  December  27,  1913 : 

House  owners  are  steadily  decreasing  according  to  the  National  Real  Estate 
Journal.  A  hundred  years  ago  70  per  cent  of  all  Berliners  owned  their  own 
homes.     Now  only  12  per  cent  do  so. 

[Reading:] 

Berlin,  November  IS. 

The  report  of  the  Public  Weal  Society,  organized  for  the  relief  of  distress 
among  the  poor,  reveals  a  surprising  state  of  affairs  in  189  German  towns. 
According  to  the  report,  35.000  children  habitually  went  breakfastless  to  school, 
while  of  the  total  children  5  per  cent  were  sent  to  bed  each  night  supperless 
and  hungry.  Not  less  than  95,000  children  had  to  be  fed  by  the  public  assist- 
ance committee  and  requiring  an  outlay  of  $150,000,  a  sum  insufficient  by  far 
to  cope  with  the  distress. 


Londox,  December  25. 

The  London  County  Council  approved  an  extra  expenditure  of  $125,000  for 
providing  free  2-cent  and  3-cent  meals  to  necessitous  school  children  whose  par- 
ents are  unable  to  feed  them.  This  supplementary  vote  will  bring  the  money 
expended  for  this  purpose  by  the  end  of  the  financial  year  1909-10.  March  31, 
up  to  over  $311,000  instead  of  $150,000,  which  it  was  estimated  would  be  suffi- 
cient. 

The  number  of  free  meals  supplied  in  1909  was  7,700,000. 

Mr.  Chairman,  instead  of  being  precedents  worthy  of  imitation 
the  whole  European  money  system  should  be  held  up  as  a  horrible 
example  to  be  avoided  by  this  Republic.  Economic  failure  is  writ- 
ten upon  the  future  of  European  countries  so  plain  that  any  man  who 
knows  their  condition  can  not  fail  to  realize  it. 

Mr.  Chairman,  we  should  no  more  pattern  our  monetary  system 
after  that  of  Europe  than  rewrite  the  Constitution  of  the  United 
States  to  conform  to  the  monarchies  of  Europe. 

Another  objection  is  the  great  expense  attached  to  the  proposed 
system. 

The  expense  of  the  national  banks  as  a  tax  upon  the  circulating 
medium  of  exchange,  and  paid  by  the  people  to  maintain  the  system, 
is  now  absolutely  unreasonable  and  unjustifiable. 

The  report  of  the  Comptroller  of  the  Currency  for  1912,  at  page  18, 
states  that  the  charges  against  gross  earnings  (expenses)  wer  $300,- 
986.616,  or  66.48  per  cent. 

This  is  for  national  banks  alone.  Apply  the  same  rate  of  expense 
to  all  these  banks,  viz.  25,195,  in  the  United  States  and  the  expenses 
will  amount  to  over  a  billion  of  dollars  a  year. 

As  the  total  amount  of  currency  in  actual  circulation  or  doing  the 
work  of  money  is  only  $1,720,000  (see  Report  of  the  Comptroller. 
1912.  p.  9),  it  is  shown  that  in  order  to  use  this  amount  of  currency 

37031—14 49    ' 


770  RURAL    CREDITS. 

as  a  medium  of  exchange  the  people  are  taxed  for  the  expense  of  the 
banks  handling  it  over  a  billion  dollars  a  year. 

This  being  the  case,  can  it  be  justified  or  satisfactorily  explained 
to  the  people  why  the  circulating  medium  of  exchange  should  be 
taxed  with  another  tremendous  expense  by  a  system  of  regional 
banks  and  a  central  reserve  board  and  all  the  incidental  expenses  that 
such  a  system  will  place  upon  the  circulating  medium  of  exchange 
of  the  people  of  the  United  States  that  they  must  eventually  pay? 

In  the  Fletcher-Moss  bill  it  is  further  proposed  to  establish  an- 
other system  of  farm-land  banks  in  all  the  States  of  this  Union,  thus 
entailing  another  enormous  and  unnecessary  expense  upon  the  people 
for  the  use  of  a  circulating  medium.  Under  such  a  system  how  can 
the  people  ever  get  the  use  of  money  at  fair  or  low  rates  of  interest? 

All  this  unjustifiable  expense  could  be  saved  by  the  Government 
issuing  directly  its  legal-tender  money  and  receiving  a  valuable  con- 
sideration for  it  or  its  use,  instead  of  issuing  it  indirectly  as  a  credit 
substitute  through  banking  corporations. 

Farm  loans  could  be  made  through  the  postal  savings  banks.  Local 
appraisements  made  for  the  lands  offered  as  security  and  reporting 
to  the  agent  of  the  Government,  just  as  proposed  in  the  bill  now 
being  considered  by  this  committee.  Under  this  plan  the  borrower 
could  obtain  real  money  from  the  Government  that  would  be  in  ex- 
istence and  go  into  the  channels  of  trade,  thus  increasing  the  volume 
of  money  available  for  debtors  to  pay  their  debts. 

In  place  of  a  credit  substitute  for  money,  viz,  bank  credit,  that 
fades  out  of  existence  when  checks  are  drawn  against  it,  are  matched 
in  a  clearing-house  exchange  or  charged  up  on  the  crop  accounts  of 
the  bank's  ledger. 

In  making  the  loan  direct  the  Government  gets  the  interest  on  the 
farm  mortgages  until  they  are  paid,  and  can  thus  reduce  the  taxes 
of  the  people. 

Under  the  national  land-mortgage  and  rural-credit  scheme  pro- 
posed, when  these  farm  loans  are  made  indirectly  through  banking 
corporations  and  the  clearing-house  operation  used,  enabling  them  to 
furnish  their  "  bank  credits  "  as  a  substitute  for  money,  the  debts 
in  the  aggregate  become  absolutely  unpayable,  as  there  is  no  corre- 
sponding amount  of  money  in  existence  to  pay  them. 

These  mortgages  become  the  basis  or  security  of  debenture  bonds, 
practically  indorsed  by  the  Government,  made  long-time  investments, 
like  railroad  bonds,  dealt  in  and  manipulated  by  bankers,  the  interest 
payable  to  foreign  and  domestic  dealers  in  debts  and  bonds. 

This  system  is  based  upon  the  European  plan  of  capital's  control 
of  labor. 

The  word  "  capital "  is  generally  misapplied  and  misunderstood. 
It  is  not  money  but  a  fictitious  substance  known  as  "bank  credit," 
created  and  used  by  bankers  in  creating  interest-bearing  debts  upon 
the  people. 

From  the  best  calculations  that  are  obtainable,  take  into  considera- 
tion the  national  debts,  the  municipal  debts,  the  corporate  debts,  and 
the  real  and  personal  debts  of  the  people  of  the  United  States,  is 
figured  in  the  neighborhood  of  $90,000,000,000.  Upon  a  5  per  cent 
basis  this  would  mean  $4,500,000,000  annually. 


RURAL   CREDITS.  771 

This  can  be  paid  in  only  one  of  two  ways :  Either  by  adding  it  to 
the  cost  of  the  things  the  people  buy  or  use,  or  by  reducing  the  rate 
of  wages  that  produce  them. 

It  is  therefore  a  mathematical  certainty  unless  the  system  of  manu- 
facturing unpayable  debts  is  stopped,  it  eventually  means  repudia- 
tion, for  the  simple  reason  that  the  net  earnings  of  all  the  labor  in 
this  country  are  no  longer  sufficient  to  carry  these  charges. 

It  is  interesting  to  know  how  these  debts  have  been  manufactured 
upon  the  people  of  this  country.  In  1854  there  were  50  banks  in  the 
city  of  New  York  with  a  capital  of  $47,000,000.  They  establisheed 
at  that  time,  outside  of  the  money  system  of  this  country,  what  is 
known  as  the  "  clearing-house  "  process.  This  enabled  them  at  that 
time  to  pay  incoming  checks  upon  these  banks  amounting  to  $20,- 
000,000  with  only  $1,000,000  of  money,  which  was  not  paid  to  any 
drawers  of  the  checks,  but  simply  divided  among  the  banks  as  their 
balances  appeared. 

This  business  has  grown  to  an  enormous  amount  until  the  daily 
clearings  in  New  York  amount  to  $319,000,000,  and  this  is  settled 
with  about  $10,000,000  in  currency,  divided  among  the  banks. 

As  a  matter  of  fact,  when  Mr.  Morgan  and  the  great  financiers  of 
New  York  manipulate  the  underwriting  of  bonds  and  stocks  they 
prepare  the  necessary  amount  of  cash  as  a  basis  of  the  operation,  as, 
for  instance,  the  United  States  Steel  Corporation  is  required  to 
carry  a  cash  deposit  with  the  Morgan  banks  of  $75,000,000.  That 
$75,000,000  in  cash  as  a  basis  would  take  care  of  the  underwriting 
of  an  issue  of  more  than  $400,000,000  in  bonds  and  stocks,  under  the 
operation  of  the  clearing-house  system  of  matching  of  checks. 

It  is  shown  by  the  Comptroller  of  the  Currency  that  wTith  only 
$1,573,000,000  of  actual  money  in  all  the  25,195  banks  in  the  United 
States  they  have  multiplied  debts  against  the  borrowers  amounting 
to  $17,000,000,000. 

The  whole  thing  resolves  itself  into  a  plain  demonstration  of  mis- 
government  as  applied  to  the  most  resourceful  and  productive  country 
on  earth,  and  if  continued  will  result  in  industrial  revolution  or 
repudiation. 

To  sum  up :  With  $134,000,000  of  national  wealth,  we  have  already 
created  90  billions  of  dollars  of  debts. 

In  my  study  of  the  question  of  money,  the  greater  portion  of  this 
deception  comes  from  the  idea  that  we  are  getting  foreign  capital. 
We  often  hear  it  stated  that  in  England,  or  in  Europe,  they  have 
accumulated  a  great  deal  of  capital.  Now,  as  a  matter  of  fact,  no- 
body ever  sees  any  European  capital  in  this  country.  What  we 
really  borrow  is  a  bank's  credit,  which  is  a  fictitious,  nonexistent 
money.  And  old  England  has  worked  the  clearing-house  operation, 
located  at  the  crossroads  of  the  trade  of  the  world,  and  mortgaged 
other  countries  by  the  process;  and  the  international  bankers  have 
adopted  the  same  process  in  regard  to  the  United  States. 

Mr.  Chairman,  if  you  think  it  would  be  an  economy  in  time,  this 
memorandum  that  I  have  could  be  printed  without  the  trouble  of 
my  reading  it. 

Mr.  Bulkley.  Well,  you  may  submit  that,  and  we  can  look  it  over 
and  decide  whether  it  should  be  printed  or  not. 

Mr.  Daniel.  "  Let  us  control  the  money  of  a  country  and  we  care 
not  who  makes  its  laws."  This  is  the  maxim  of  the  house  of  Roths- 
childs, and  is  the  foundation  principle  of  European  banks.   If  a  country 


772  RURAL   CREDITS. 

and  its  people  are  mortagaged  for  the  assessed  value  of  their  prop- 
erty, and  the  bankers  control  the  money,  the  bondholders  and  not 
the  people  own  that  country.  It  makes  no  difference  whether  you 
call  it  a  republic  or  a  monarchy.  The  people  can  never  be  free  "  as 
the  borrower  is  the  servant  of  the  lender." 

As  the  banking  and  currency  bill  that  passed  the  extra  session  of 
Congress  is  the  basis  upon  which  the  bill  now  before  this  committee 
will  depend,  it  should  first  be  taken  into  consideration,  and  the  people 
of  this  country  should  know  the  genesis  of  this  Federal  reserve  act 
establishing  this  new  money  system  in  the  United  States. 

The  Federal  reserve  act  as  passed  by  Congress  did  not  originate 
with  the  people.  The  influence  of  the  money  power  framed  the  bill, 
and  it  is  acknowledged  to  be  a  banker's  bill. 

As  an  evidence  of  this  I  quote  from  the  hearings  before  the  Senate 
Committee  on  Banking  and  Currency,  referring  to  the  testimony  of 
H.  Parker  Willis,  this  advocate  of  the  so-called  exploded  gold  stan- 
dard theory,  an  expert  on  money,  who  gives  a  fair  indication  of  his 
qualifications  as  a  go-between  and  expert  adviser  to  the  President 
of  the  United  States  and  the  Banking  and  Currency  Committee  of 
Congress,  in  the  following  statement  of  his  economic  calculations 
on  money : 

Senator  Reed.  Well,  is  it  not  true,  is  a  matter  of  financial  law,  that,  taking 
prices  in  the  aggregate  and  not  picking  out  a  particular  year,  but  taking  a 
period  of  time  great  enough  so  that  you  can  strike  a  fair  general  average,  the 
rise  of  prices  has  always  followed  the  increase  of  per  capita  circulation? 

Mr.  Willis.  I  honestly  do  not  think  so.  You  ask  me  for  an  opinion,  and  it 
is  my  duty  to  tell  you  just  what  I  think. 

Senator  Reed.  Certainly. 

Mr.  Willis.  I  do  not  think  so.  But  I  also  add  to  that  that  there  is  scientific 
opinion  in  favor  of  the  view  that  you  have  expressed,  but  that,  in  my  judg- 
ment, the  weight  of  scientific  opinion  is  against  it — closing,  then,  with  the 
statement  that,  while  there  is  a  great  deal  of  evidence  on  behalf  of  both  sides, 
my  own  studies  of  the  subject  have  led  me  personally  to  the  conclusion  that  the 
quantitative  theory  of  money  is  not  a  sound,  is  not  a  tenable  one. 

Senator  Reed.  Then,  if  that  is  true,  it  will  not  make  any  difference  how 
much  per  capita  circulation  we  have  out;  as  long  as  it  is  good  money  it  will  not 
affect  prices. 

Mr.  Willis.  Provided  it  is  good  money,  and  instantly  redeemable.  I  do  not 
think  the  mere  quantity  in  circulation  makes  any  difference. 

In  order  that  there  may  be  no  further  doubt  on  this  question,  I  will 
state  that  there  has  been  only  one  standard  in  the  money  system,  and 
it  has  long  since  been  fully  recognized  and  indorsed  by  the  leading 
economists  and  recognized  authorities  on  money.  Concisely  stated. 
the  standard  of  value  in  a  money  system  is  constituted  by  the  num- 
ber of  dollars  in  the  system.  The  value  of  the  dollar  is  made  by  the 
demand  for  dollars,  the  demand  operating  against  the  supply. 

Therefore,  if  the  dollars  are  few,  and  the  demand  is  great,  the 
standard  of  their  value  is  high,  and  their  purchasing  power  is  great: 
and  if  the  dollars  are  many  and  the  demand  is  small,  the  standard 
of  the  value  is  low  and  their  purchasing  power  is  small.  Thus,  the 
value  of  the  money  unit  is  made  by  the  demand  operating  against 
the  supply. 

I   will   now   quote   from   John    Stuart   Mill's    work   on   Political 

Economy : 

The  value  of  money,  other  things  being  the  same,  v.nies  inversely  as  its 
quantity;  every  increase  of  quantity  lowering  the  value  and  every  diminution 
raising  it  in  a  ratio  exactly  equivalent. 


RURAL   CREDITS.  773 

John  Locke  says : 

The  value  of  money  in  any  one  country  is  the  present  quantity  of  the  current 
money  in  that  country  in  proportion  to  present  trade. 

Sir  James  Graham  says : 

The  value  of  money  is  in  the  inverse  ratio  of  its  quantity,  the  supply  of 
commodities  remaining  the  same. 

Mr.  Willis  declines,  at  this  late  day,  to  recognize  the  universal 
law  of  demand  and  supply  affecting  the  value  or  purchasing  power 
of  money. 

After  reading  the  statements  of  political  economists  and  so-called 
experts  in  their  indorsement  of  these  bankers'  bills,  one  has  a  painful 
realization  that  there  is  a  great  deal  of  truth  in  the  statement  of 
Lord  Macaulay,  the  English  historian,  when  he  said  that  for  a  valu- 
able consideration  he  could  get  men  of  high  standing  and  ability  to 
question  even  the  law  of  gravitation:  and  the  recent  statement  of 
Vice  President  Marshall  that  he  could,  for  $500,  get  expert  testimony 
on  any  subject  in  this  country. 

I  call  your  attention  to  the  following  statement  made  before  the 
Banking  and  Currency  Committee  of  the  Senate.    I  will  not  read  it. 

Mr.  Bulkley.  Mr.  Daniel,  the  time  which  the  committee  allowed 
you  has  about  expired  and  we  have  other  witnesses  from  out  of 
town 

Mr.  Daniel  (interposing).  Well,  the  rest  of  this  can  be  printed 
if  you  desire ;  I  have  no  disposition  to  read  it. 

Mr.  Bulkley.  You  may  leave  any  memoranda  that  you  have  with 
the  committee  and  it  will  then  be  determined  whether  it  ought  to  be 
printed  in  the  record  of  the  hearings. 

Can  you  state,  in  a  few  words  now,  before  you  leave,  what  is  the 
specific*  application  these  thoughts  you  have  expressed  to  the  subject 
of  rural  credits?  It  seems  to  us  as  if  you  have  been  talking  about 
financial  standards  generally,  and  we  do  not  see  that  you  have  said 
much  about  rural  credits. 

Mr.  Daniel.  I  am  opposed  absolutely  to  this  Government  issuing 
any  more  credit  substitutes  for  money.  We  are  running  this  coun- 
try into  bankruptcy  as  fast  as  we  can  with  debts,  and  the  idea  of 
banking  corporations  in  any  form  being  allowed  to  loan  a  substitute 
for  money,  that  every  other  man  in  the  United  States  has  to  pay  part 
of  his  life  to  meet,  by  a  fictitious  application  of  bank  credits,  has 
gone  on  long  enough. 

Mr.  Bulkley.  I  do  not  know  of  any  suggestion  pending  for  the 
Government  to  issue  any  more  substitutes  for  money 

Mr.  Daniel.  These  rural-credit  banks  will  not  lend  real  money. 
There  is  no  additional  currency  being  issued  in  the  United  States 
to-day.  This  Government  to-day  under  the  national  reserve  act. 
can  not  issue  one  dollar  of  real  money  into  the  currency  system  of  the 
country.  It  has  got  to  get  a  man  to  bring  into  a  bank  a  debt,  have 
it  rediscounted,  and  then  it  has  got  to  have  two  strings  tied  to  it, 
to  be  brought  back  into  the  Treasury  of  the  United  States.  To  my 
mind  it  is  one  of  the  momentous  questions,  the  idea  of  allowing 
farmers  in  this  country — the  men  that  feed  us  all — to  be  put  into 
perpetual  debt,  as  they  are  in  Europe 

Mr.  Bulkley  (interposing).  Your  idea  is  that  the  farmers  ought 
not  to  be  allowed  to  borrow  monev? 


774  RURAL   CREDITS. 

Mr.  Daniel.  Yes,  sir;  let  them  borrow  money;  but  let  that  money 
be  real  money,  in  existence;  do  not  let  it  be  a  credit  substitute.  There 
is  where  the  evil  comes  in.  I  have  gone  particularly  into  that  very 
feature  here.  It  has  not  been  touched  on  in  the  3,000  pages  of  tes- 
timony in  the  Senate  Banking  and  Currency  Committee.  I  have 
a  memorandum  here  that  clearly  shows  what  that  credit  substitute 
for  money  is,  and  how  it  works.  And  that  is  the  reason  why  I 
was  anxious  to  build  this  foundation,  and  get  an  idea  before  you 
that  has  not  been  placed  before  this  committee. 

Mr.  Woods.  What  do  you  refer  to  in  speaking  of  real  money — 
letting  the  farmers  have  real  money  ? 

Mr.  Daniel.  The  legal-tender  dollar;  that  completes  the  trans- 
action, and  is  it  in  existence,  increasing  the  volume  and  enabling 
the  farmer  to  get  hold  of  the  money  to  pay  his  debts.  For  instance, 
if  you  allow  these  farm  banks  to  be  established,  let  them  establish 
a  clearing  house,  where  the  farmer  checks  on  these  banks.  All 
these  farmers'  checks  will  be  congregated  in  a  clearing  house  and 
they  will — for  instance,  $100,000  of  those  incoming  checks  can  be 
paid  at  the  clearing  house,  and  that  will  simplify  the  matter.  But 
when  the  money  is  loaned  from  the  outside,  there  is  no  money  in 
existence  that  that  farmer  is  able  to  get  hold  of  when  the  demand  is 
placed  upon  him  to  pay  his  mortgage. 

Mr.  Bulkley.  You  do  not  think  the  farmer  will  be  able  to  buy 
his  goods  with  these  checks  and  pay  his  obligations  to  the  store- 
keeper, and  that  sort  of  thing? 

Mr.  Daniel.  The  individual  farmer  cancels  his  debt,  but  when 
the  check  goes  to  the  bank  it  is  canceled  by  being  credited  on  ac- 
count of  the  man  that  he  gives  the  check  to.  But  there  is  no  ad- 
ditional money  in  existence. 

Mr.  Bulkley.  Well,  what  I  want  to  get  at  is:  What  more  could 
the  farmer  buy  with  the  legal-tender  dollar  than  he  could  with  the 
bank  check? 

Mr.  Daniel.  Well,  I  will  make  an  illustration.  Suppose  you  go 
into  a  stockyard  and  want  to  borrow  100  horses,  promising  to  re- 
turn 100  horses.  You  would  be  very  much  interested  in  the  quantity 
of  horses  outside  of  that  pen,  as  you  would  have  to  return  those 
horses  one  of  these  days  in  a  physical  way;  therefore,  the  more 
horses  there  were  in  the  open,  outside  of  that  pen,  the  better  chance 
you  would  have  to  get  the  horses  to  be  returned  to  the  pen.  The 
whole  trouble  is  this,  that  the  banker  creates,  by  a  fictitious  substi- 
tute for  money,  a  debt.  He  can  pile  those  debts  up  until  he,  for 
instance,  loans  out  $8  of  his  "  bank  credit "  in  the  way  of  a  substi- 
tute for  money,  when  there  is  but  one  real  dollar  as  a  basis  for 
those  held  by  the  bank.  Now,  if  the  debtors  try  to  earn  the  real 
dollars  to  pay  those  debts  they  are  not  in  existence. 

Mr.  Bulkley  (interposing).  What  you  are  afraid  of  is  he  could 
not  pay  the  debt  by  a  check? 

Mr.  Daniel.  What  is  that? 

Mr.  Bulkley.  You  are  afraid  that  they  would  not  accept  the 
check  in  payment  of  the  debt  ? 

Mr.  Daniel.  Not  at  all.  My  proposition  is  that  when  a  man  signs 
a  contract  to  loan  you  $10,000,  that  $10,000  should  be  in  existence, 
and  he  should  loan  you  the  thing  he  obligates  himself  to  loan.    And 


EUEAL    CEEDITS.  775 

you  know,  if  the  quantity  of  money  is  increased  that  much,  it  makes 
it  easier  for  the  debtor  to  cancel  his  debt  in  money,  because  he  can 
not  pay  it  back  in  a  credit — the  fictitious  money  that  created  the 
debt. 

Mr.  Btjlkley.  Well,  I  have  many  times  borrowed  $10,000,  and  have 
always  been  able  to  take  the  money  out  of  the  bank  with  me,  and  I 
never  wanted  to  do  so. 

Your  time  has  now  expired,  Mr.  Daniel. 

(Whereupon,  at  4.35  o'clock  p.  m.,  the  subcommittees  adjourned 
until  10.30  o'clock  a.  m.,  Friday,  March  13,  1914.) 


FRIDAY,   MARCH   13,   1914. 

United  States  Senate, 

Washington-,  T).  C. 
The  subcommittees  assembled  in  joint  session  at  11  o'clock  a.  m.. 
Hon.  Robert  J.  Bulkley  presiding. 

Present:  Senator  Hollis,  Representatives  Stone,  Seldomridge, 
Woods,  and  Piatt, 

STATEMENT  OF  GEORGE  H.  SHIBLEY,  DIRECTOR  AMERICAN  BU- 
REAU OF  POLITICAL  RESEARCH,  OF  WASHINGTON,  D.  C. 

Senator  Hollis.  Yon  may  state  your  qualifications.  Mr.  Shibley. 

Mr.  Shibley.  For  the  past  13  years  I  have  been  director  of  the 
American  Bureau  of  Political  Research.  Twenty-five  years  ago  I 
was  admitted  to  the  Illinois  bar,  and  later  was  admitted  to  the  bar 
of  the  Supreme  Court  of  the  United  States.  My  work  in  the  law  has 
been  principally  research  and  law  publishing.  I  retired  from  busi- 
ness at  the  age  of  29  years,  and  soon  afterwards,  while  engaged  in 
researches  in  the  law,  matriculated  at  the  University  of  Chicago, 
studying  economics,  political  science,  and  social  science. 

Since  then — that  is,  for  20  years — I  have  been  devoting  my  entire 
time  to  public  questions,  from  the  standpoint  of  the  people's  interests, 
without  holding  office.  Five  and  one-half  years  of  my  time  I  de- 
voted to  the  money  question  and  to  the  banking  problem.  Recently 
I  was  expert  to  the  Senate  Committee  on  Banking  and  Currency, 
when  the  Federal  reserve  act  was  under  consideration. 

I  desire  to  present  a  short  statement  in  support  of  the  idea  that 
the  Federal  Government  should,  in  connection  with  its  regulation 
of  the  issuance  of  the  land-mortgage  bonds,  guarantee  the  payment 
of  the  principal  and  interest.  I  believe  that  this  plan  is  incorporated 
in  some  of  the  bills  that  are  before  you. 

By  providing  the  proposed  guaranty  it  would  lower  the  interest 
rate,  and  at  practically  no  expense  to  the  taxpayers. 

In  Great  Britain,  under  the  Irish  land-purchase  act  of  1903,  the 
Government  stands  back  of  the  transaction.  During  the  first  18 
months  after  the  act  went  into  effect  the  amount  for  which  the 
Government  was  obligated  was  $100,000,000.  and  the  total  amount 
would,  it  was  expected,  foot  up  to  $500,000,000. 

A  saving  of  1  per  cent  in  lower  interest  on  this  vast  sum  would 
be  $5,000,000  annually,  or  in  35  years  a  total  of  $175,000,000,  which, 
at  compound  interest,  would  amount  to  some  $300,000,000,  or  more 
than  one-half  of  the  entire  principal. 

This  is  a  tremendously  large  saving  to  the  people  through  the 
cooperative  use  of  their  combined  credit,  yet  it  is  for  only  part  of 
one  small  island.  Here  in  the  United  States,  with  an  area  as  large 
as  all  Europe,  the  saving  in  interest  from  Government  guaranty  of 
land-mortgage  bonds  would  be  tremendous. 

776 


RURAL   CREDITS.  777 

But  as  yet  there  is  not  even  a  Federal  system  for  the  issuance  of 
land-mortgage  bonds  in  this  country,  because  until  one  year  ago 
the  Federal  Government  was  in  the  hands  of  the  powerful  few, 
through  machine-rule  party  government,  who  used  that  Government 
to  promote  their  own  selfish  interests  at  the  people's  expense.  Ac- 
cordingly, there  was  no  lessening  of  interest  rates  to  the  people 
through  action  by  the  Government  in  any  way. 

However,  the  people  are  again  in  control  of  the  Federal  Govern- 
ment, as  is  evidenced  by  the  legislation  and  the  acts  of  administra- 
tion of  the  past  12  months,  and  an  improved  form  of  rural  credits 
is  about  to  be  installed,  to  include,  I  trust,  Government  guaranty  of 
payment  of  the  principal  and  interest  of  the  land-mortgage  bonds. 

In  New  Zealand,  where  the  people  have  had  control  of  the  Gov- 
ernment for  many  years,  it  is  saving  to  the  farmers  in  lower  interest 
rates  direct  a  sum  estimated  at  $800,000  per  year.  These  are  the 
figures  given  by  Hon.  Hugh  H.  Lusk,  of  New  Zealand,  in  his  book 
Social  Welfare  in  New  Zealand.  New  Zealand  is  a  very  small  place 
as  compared  with  our  country. 

Now  compare  Germany.  In  the  words  of  the  minority  report  on 
agricultural  cooperation  and  rural  credit  in  Europe — • 

Little  or  no  Government  inspection  is  provided  to  require  the  farmers'  co- 
operative land  banks  to  charge  off  losses  or  to  keep  'hen'  up  to  a  certain  standard 
(P.  9). 

The  result  is  that  there  have  been  glaring  cases  of  actual  failure 
nnd  of  considerable  losses,  while  the  interest  rate  must  inevitably  be- 
higher  than  though  the  Government  did  its  full  duty. 

The  explanation  of  the  action  of  the  German  Government  is  that 
it  is  controlled  by  the  few  for  their  own  benefit  and  they  evidently 
do  not  desire  to  reduce  the  interest  rates  for  the  money  that  they 
loan  to  the  farmers. 

Senator  Hollis.  Right  there,  Mr.  Shibley,  I  would  like  to  ask  this 
question:  Your  idea  is  that  if  the  Government  guarantees  these 
bonds,  it,  of  course,  will  be  much  more  careful  to  inspect  them  and 
see  that  only  good  bonds  are  put  out  X 

Mr.  Shibley.  Yes;  that  is  it. 

Senator  Hollis.  And  that  same  Government  inspection  will  tend 
to  give  them  credit,  in  addition  to  the  Government  guarantee,  and 
would  put  the  interest  rate  very  much  lower  than  it  can  be  put  in 
other  ways;  that  is  you  thought,  is  it? 

Mr.  Shibley.  That  is  my  idea.  In  other  words,  the  principle 
whereby  our  Government  is  warranted  in  guaranteeing  the  payment 
of  the  land-mortgage  bonds  is  that  as  the  said  Government  is  to 
regulate  the  issuance  of  the  bonds  it  should  guarantee  that  its  super- 
vision is  all  that  it  should  be.  Should  the  Government  refuse  to 
guarantee  that  its  supervision  has  been  properly  made,  it  would,  in 
effect,  amount  to  a  declaration  to  the  would-be  purchasers  of  these 
land-mortgage  bonds  that  they,  in  order  to  exercise  due  caution, 
must  individually  reinspect  the  conditions  under  which  the  bonds 
were  issued. 

Now,  I  would  like  to  know  if  1  am  correct  in  that  statement?  If 
the  Government  should  refuse  to  guarantee  that  they  have  made 
proper  inspection,  then  the  purchasers  themselves  would  have  to 
go  out  and  inspect  each  bunch  of  bonds  that  are  to  be  purchased. 


778  BUBAL   CBEDITS. 

Senator  Hollis.  Mr.  Shibley,  yon  see  thai  there  is  quite  a  differ- 
ence between  the  Government  stamping  them  as  duly  inspected  and 
approved  and  placing  a  guarantee  on  them,  which  would  make  the 
Government  responsible  for  their  payment  i:i  case  the  principal 
defaulted. 

Mr.  Shibley.  Exactly.  Now,  what,  would  be  due  care  on  the  part 
of  the  purchaser  if  the  Government  refuses  to  guarantee?  Why, 
they  must  go  and  see  if  the  bonds  were  properly  inspected — if  they 
were  issued  properly:  if  there  is  a  proper  amount  of  value  behind 
those  bonds. 

Senator  Hollis.  Well,  do  you  not  think  that  the  purchaser  would 
be  satisfied  if  the  Government  certifies  that  they  have  been  properly 
inspected,  and  were  approved,  without  the  Government  guaranty? 

Mr.  Shibley.  No;  certainly  not.  The  risk  would  be  1  per  cent 
higher  at  least. 

Senator  Hollis.  Well,  I  am  glad  of  your  estimate  on  that.  T 
think  it  would  be  considerably  higher  myself. 

Mr.  Shibley.  Yes ;  whereas,  if  you  put  the  seal  of  the  Govern- 
ment's guarantee  on  them  the  Government  would  be  more  careful ; 
would  do  better  work.  Now,  if  any  unforeseen  accident  should  arise, 
so  that  there  is  to  be  a  loss — a  loss  without  anyone  being  negligent — 
should  the  few  people  who  happen  to  be  where  the  trouble  is  suffer 
all  the  loss,  or  should  there  be  an  insurance,  so  that  the  loss  is  scat- 
tered all  over  the  country,  and  no  one  feel  it? 

Senator  Hollis.  I  wish  you  would  discuss  this  from  the  stand- 
point of  one  who  considers  that  the  Government  has  done  substan- 
tially the  same  thing  in  loaning  its  Federal  reserve  notes  to  the  Fed- 
eral reserve  banks. 

Mr.  Shibley-.  Yes;  that  is 

Senator  Hollis  (continuing).  On  good  security,  of  course. 

Mr.  Shibley.  On  good  security,  and  each  one  of  those  notes  is 
guaranteed  by  the  Government. 

Mr.  Bulkley.  They  are  Government  notes. 

Senator  Hollis.  It  is  a  Government  note  loaned  to  a  Federal  re- 
serve bank  on  good  security.  Now.  is  your  proposition  analogous 
to  that,  in  your  judgment  ? 

Mr.  Shibley.  Exactly.  And  I  have  been  told  that  it  is  the  policy 
of  the  administration  to  establish  insurance  of  bank  deposits  in  con- 
nection with  the  Federal  reserve  act ;  and  the  farmers  should  have 
the  same  plan  extended  to  them  in  order  that  they  may  get  lower 
interest  rates.  The  situations  are  exactly  analagous,  in  my  judg- 
ment. 

Mr.  Bulkley.  I  am  afraid  we  are  getting  into  a  doubtful  analogy 
about  the  guarantee  of  bank  deposits,  because,  as  I  understand  it, 
there  has  been  no  definite  declaration  on  the  part  of  the  administra- 
tion with  respect  to  that,  and  the  guarantee  of  bank  deposits  might 
be  a  virtual  guarantee  on  the  part  of  the  banks  without  any  Govern- 
ment intervention  at  all. 

Senator  Hollis.  I  think  that  has  not  gone  any  farther  than  this, 
that  the  Democratic  Senate  caucus  indorsed  an  amendment  in  favor 
of  guarantee  of  bank  deposits,  but  that  was  stricken  out  in  confer- 
ence, and  the  Senate  Banking  and  Currency  Committee  has  now 
appointed  a  subcommittee  to  consider  the  subject.  Perhaps  that  is 
as  far  as  the  administration  has  gone. 


RURAL   CREDITS.  779 

Mr.  Shibley.  It  is  well,  however,  to  have  it  in  the  record. 

Senator  Hollis.  That  is  merely  of  the  Senate  action. 

Mr.  Shibley.  But  in  connection  with  the  Federal  reserve  act  we 
will  possess  a  fund  that  can  be  used  for  the  payment  of  such  losses  as 
may  arise,  so  that  no  one  would  have  to  be  taxed  separately  to  get  a 
fund  for  the  guaranty  fund  or  the  insurance  fund,  whichever  you 
may  call  it. 

Senator  Hollis.  Do  you  mean  to  suggest  that  that  surplus  fund 
from  earnings  of  the  Federal  reserve  banks  might  be  extended  to  the 
farm-land  guaranty? 

Mr.  Shibley.  Yes;  the  same  as  it  was  in  the  Senate  bill. 

Senator  Hollis.  Yes ;  I  see. 

Mr.  Shibley.  A  portion  of  that  fund  would  be  sufficient. 

Mr.  Bulkley.  But  you  would  make  the  Government  absolutely 
liable  on  the  bonds,  whether  any  fund  happened  to  be  available  to 
make  good  the  loss  or  not,  would  you  ? 

Mr.  Shibley.  Yes;  certainly,  because  otherwise  the  interest  rate 
would  necessarily  be  higher,  too  high. 

Mr.  Bulkley.  Yes. 

Mr.  Shibley.  This  matter  of  an  insurance  fund  I  believe  is  poor 
policy,  because  the  Government,  the  entire  people,  ought  to  stand  as 
guarantors ;  but  under  the  insurance  plan  we  would  put  in  a  certain 
amount  of  money,  and  if  that  should  prove  to  be  insufficient  the  indi- 
viduals would  lose. 

Mr.  Bulkley.  So  that  the  fund  is  a  mere  incident  to  your  plan, 
but  the  liability  is  absolute. 

Mr.  Shibley.  Yes ;  in  order  to  get  the  lowest  possible  interest  rate. 
I  noticed  the  other  day  that  the  Canadian  4  per  cent  bonds  were  sell- 
ing at  102 ;  and  the  New  Zealand  4  per  cent  bonds  were  selling  at 
about  the  same  price.  At  the  high  rate  that  has  been  prevailing  in 
recent  years  the  New  Zealand  Government  has  been  loaning  to  its 
people  at  something  like  4^  per  cent. 

Mr.  Bulkley.  New  Zealand  does  not  guarantee  land  bonds;  they 
issue  their  own  Government  bonds  and  then  lend  the  money  to  the 
farmers ;  is  that  not  the  situation  there  ? 

Mr.  Shibley.  Yes ;  but  the  liability  of  the  Government  is  the  same. 
They  have  assumed  liability  for  the  whole  matter,  and  so  they  would 
under  the  guarantee  plan. 

Mr.  Bulkley.  Why  do  you  think  that  your  plan  is  better  than  the 
New  Zealand  plan? 

Mr.  Shibley.  For  many  reasons  we  should  not  have  the  direct- 
loan  plan  in  this  country.  In  the  first  place,  the  Government  acts 
too  slowly;  there  is  too  much  red  tape  about  it.  And  in  a  great 
country  like  this  if  the  farmers  want  to  go  ahead  and  pay  the  rate 
then  prevailing,  they  ought  to  be  able  to  get  their  money  promptly 
and  have  it  attended  to  so  that  they  can  go  on  about  their  business. 

The  function  of  Government,  as  I  take  it,  under  the  present  status 
of  civilization,  is  largely  to  regulate  competition.  That  is  its  main 
function;  and  in  regulating  in  matters  where  the  Government  is  to 
go  into  the  adequacy  of  the  security,  like  the  land-mortgage  bonds, 
it  ought  to  affix  a  guaranty  in  order  that  the  people  as  a  whole  can 
get  better  results;  the  Government  should  do  whatever  will  bring 
the  best  results. 


780  RURAL    CREDITS. 

Senator  Hollis.  Would  you  make  the  farm-land  banks  stand  this 
expense  of  Government  inspection  and  indorsement,  or  would  you 
make  that  payable  out  of  the  general  revenues  of  the  Government? 

Mr.  Shibley.  I  have  not  studied  that  carefully,  but  my  idea  is 
that  we  ought  to  treat  alike  all  industrial  groups.  If  in  the  case 
of  national  banks  a  considerable  sum  is  being  paid  by  the  Gov- 
ernment in  inspection,  we  should  do  the  same  for  the  land  banks. 
I  am  confident  that  the  farmers  are  not  asking  for  anything  special 
for  themselves ;  they  simply  desire  to  be  placed  on  the  same  footing 
with  other  industrial  groups. 

As  to  the  matter  of  direct  loans,  I  wish  to  present  a  statement  as 
to  the  general  function  of  government  by  Prof.  Lester  F.  Ward,  the 
noted  social  scientist.  In  his  volume,  Pure  Sociology,  page  567,  he 
says: 

The  whole  truth  is  that  Anglo-Saxon  supremacy  is  due  to  the  ability  of  that 
race  to  see  and  act  upon  the  principle  that  while  iudividual  initiative  can 
alone  accomplish  great  results,  it  must  be  free,  and  that,  under  the  influence  of 
the  normal  and  natural  forces  of  society,  and  taking  the  whole  human  nature 
into  account,  it  can  not  be  free  unless  the  avenues  for  its  activity  be  kept 
open  by  the  power  of  society  at  large.  Even  the  economists  are  beginning  to 
see  that  free  competition  in  business  is  a  myth  unless  it  be  protected  from  the 
universal  tendency  of  all  competition  in  nature  speedily  and  surely  to  end  in 
monopoly. 

Thus  Prof.  Ward  clearly  enunciates  the  principle  whereby  we 
of  the  United  States  should  shape  our  governmental  activities.  In 
industry  we  should  restore  the  competitive  system  wherever  prac- 
ticable, and  regulate  it  to  whatever  extent  necessary;  and  along  with 
that  regulation  to  guarantee  that  inspection  has  been  properly  made. 
This  guaranty  should  be  given  in  connection  with  land-mortgage 
bonds  in  my  judgment. 

Mr.  Seldomridge.  What  is  the  name  of  that  book? 

Mr.  Shibley.  Pure  Sociology. 

Senator  Hollis.  That  is,  you  would  guarantee  the  purity  of  the 
land-mortgage  bonds  the  same  as  the  Government  guarantees  the 
purity  of  beef  or  other  food  ? 

Mr.  Shibley.  That  is  it,  exactly. 

Mr.  Seldomridge.  You  would  guarantee  it  a  little  bit  more  than 
that,  would  you  not  ? 

Mr.  Shibley.  Yes;  because  in  the  nature  of  the  case  it  can  be 
guaranteed  more:  that  is  all.  It  is  a  peculiar  situation.  At  times 
I  have  been  asked  how  far  should  the  Government  go  in  guarantee- 
ing payment  in  the  business  world?  My  answer  is  that  it  depends 
upon  the  nature  of  the  case — upon  what  is  practicable.  The  whole 
thing  is  a  matter  of  practicability  for  the  Government,  in  my  judg- 
ment. 

Mr.  Bulkley.  I  would  like  to  ask  you  whether  you  are  familiar 
with  the  market  for  New  Zealand  bonds;  you  just  referred  to  their 
price.  As  I  remember  it.  New  Zealand  has  an  exceptionally  heavy  debt 
per  capita,  and  I  would  like  to  know  if  you  can  tell  us  where  those 
bonds  are  held,  and  how  they  maintain  such  a  good  market  for  them? 

Mr.  Shibley.  The  quotation  that  I  saw  was  in  the  London  Econo- 
mist, and  there  they  Avere  quoted  at  a  top-notch  price  along  with 
Canadian  bonds. 

Mr.  Bulkley.  Do  you  know  whether  they  are  held  largely  in 
England? 


SURAL   CREDITS.  781 

Mr.  Shibley.  I  think  they  are  largely  held  in  England.  The 
reason  for  the  large  debt  per  capita  in  New  Zealand  is  that  fund- 
have  been  borrowed  for  use  in  productive  enterprises — money  has 
been  loaned  to  the  people,  so  that  it  is  in  good  use.  As  to  the  reason 
why  the  New  Zealand  Government  has  entered  into  the  direct  loan- 
ing system  over  there — well,  I  do  not  know  all  of  the  details,  but 
surely  the  conditions  are  very  different  in  this  country,  it  being  so 
large.  So  that  the  direct-loan  plan  is  not  as  good  as  the  guaranty 
plan,  in  my  opinion,  because  under  both  systems  the  rates  will  be 
practically  the  same  to  the  farmers — a  much  lower  rate  than  would 
be  the  case  if  the  guaranty  is  not  given. 

Senator  Hollis.  You  feel  that  with  a  properly  conducted  system 
of  inspection  and  guaranty,  the  Government  would  not  be  called  on 
to  give  anything  but  its  supervision,  do  you? 

Mr.   Shibley.  That  is  practically  all. 

Senator  Hollis.  That  the  losses  would  be  so  few  that  they  would 
be  negligible,  and  could  be  made  up  by  some  sort  of  allowance  out 
of  the  earnings  of  the  banks? 

Mr.  Shibley.  Yes;  they  could  be  made  up  in  that  wray,  but  prefer- 
ably, I  should  say,  make  them  payable  from  the  earnings  coming  in 
through  Federal  reserve  banks — -that  money  that  we  are  trying  to 
find  a  place  for.  The  law  states  that  it  shall  be  applied  to  the  re- 
tirement of  Government  bonds  in  order  to  get  it  out  of  the  way — 
keep  it  apart  from  the  funds  for  the  payment  of  current  expenses. 

Senator  Hollis.  You  are  very  clear,  are  you.  that  you  would  make 
these  farm-land  banks  constitute  a  part  of  the  Federal  reserve  system, 
under  the  Federal  reserve  board? 

Mr.  Shibley.  I  am  not  sure  of  that. 

Senator  Hollis.  I  am  asking  you  what  your  ideas  are;  I  just  as- 
sumed that  that  was  your  idea. 

Mr.  Shibley.  From  what  little  study  I  have  given  to  the  matter 
of  supervision  it  struck  me  that  perhaps  the  plan  provided  for  in  the 
Fletcher-Moss  bill  may  be  about  right.  I  have  not  given  that  sub- 
ject sufficient  study  to  speak  with  exactness. 

Senator  Hollis.  I  spoke  as  I  did  because  of  your  plan  to  apply  the 
surplus  earnings  of  the  Federal  reserve  system.  It  would  hardly 
do  to  apply  that  to  anything  that  was  not  a  part  of  the  Federal  re- 
serve system,  I  should  think. 

Mr.  Bulkley.  Mr.  Shibley,  1  do  not  want  to  take  you  out  of  your 
own  logical  order  of  development  of  this  subject,  but  I  hope  before 
you  get  through  you  will  tell  us  about  who  is  to  issue  the  bonds, 
according  to  your  idea. 

Mr.  Shibley.  Well,  I  will  say  frankly  that  I  have  not  had  time  to 
give  the  entire  subject  full  study  in  all  its  details.  I  have  taken  up 
this  matter  of  guaranty,  and  that  is  as  far  as  I  feel  qualified  to  give 
any  assistance  to  the  committee. 

Mr.  Bulkley.  The  Fletcher-Moss  bill  provides  for  the  issuance  of 
bonds  by  an  indefinite  number  of  small  independent  banks,  scattered 
all  over  the  country.  Some  of  our  witnesses  have  suggested  that 
those  banks  ought  to  be  federated  into  State  units,  or,  perhaps,  larger 
units,  and  that  the  larger  unit  should  issue  the  bond.  Have  you  no 
opinion  about  that? 


782  BUBAL   CBEDITS. 

Mr.  Shibley.  I  am  not  sufficiently  acquainted  with  the  details  to 
express  an  opinion.  I  realize  that  in  a  matter  of  this  kind  each 
factor  may  be  a  determining  element. 

Mr.  Bulkley.  Let  me  ask  you  this  question :  When  you  say  that 
the  Government  should  guarantee  the  bond,  you  intend  to  imply  that 
some  bank  or  institution  other  than  the  Government  shall  be  pri- 
marily liable  on  the  bonds,  do  you  not? 

Mr.  Shibley.  Certainly. 

Mr.  Bulkley.  And  that  their  assets  should  first  be  absorbed  in 
paying  any  loss  before  the  Government  would  be  called  upon  ? 

Mr.  Shibley.  Yes;  and  that  there  should  be  double  liability  by 
the  stockholders:  and  that  all  other  practicable  checks  on  the  bad 
debts  shall  be  provided;  and  then  that  the  Government  shall  care- 
fully inspect;  and  if  inspection  is  not  properly  made,  or  if  there 
is  a  loss  anyhow,  then  the  Government  should  pay  the  loss,  and  not 
some  innocent'  individual.  The  Government  is  the  only  one  that  has 
the  right  to  inspect. 

Mr.  Bulkley.  According  to  your  plan,  in  every  case  some  private 
interests  are  bound  to  do  their  utmost  to  protect  the  Government 
against  loss  in  order  to  same  themselves  from  loss? 

Mr.  Shibley.  Most  assuredly.  I  am  glad  you  have  emphasized 
that  fact.  And  to  such  an  extent  would  that  be  the  case  that  I  pre- 
sume that  there  would  be  almost  no  losses  to  the  Government  and  the 
interest  rate  to  the  farmers  would  be  materially  lowered.  In  a  few 
years  this  saving  would  amount  to  a  billion  of  dollars  to  the  farmers 
of  this  country. 

Mr.  Platt.  Why  should  you  be  so  tender  about  saving  the  Govern- 
ment a  little  money  ? 

Mr.  Shibley.  Saving  the  Government? 

Mr.  Platt.  Yes. 

Mr.  Shibley.  Saving  the  people 

Mr.  Plait  (interposing).  I  mean  on  its  guaranty  of  these  bonds? 

Mr.  Shibley.  Do  you  mean  why  should  we  have  double  liability  of 
stockholders  and  matters  of  that  kind? 

Mr.  Platt.  Yes ;  that  is  one  thing. 

Mr.  Shibley.  Why,  the  inspection 

Mr  Platt  (interposing).  If  the  Government  is  going  to  guarantee, 
why  should  it  not  guarantee  and  stand  the  losses ;  why  should  it 
not  find  out  whether  the  thing  is  good  or  not  before  it  guarantees  it? 

Mr.  Shibley.  The  guaranty  would  stand  back  of  each  bond  as  a 
last  resort,  and  the  self-interest  of  the  stockholder  of  the  land  banks 
would  cause  them  to  see  to  it  that  the  valuation  is  not  too  high.  The 
stockholders  are  primarily  liable  in  addition  to  the  security  taken. 
The  guaranty  by  the  Government  would  simply  be  a  certificate  of 
character  to  the  world. 

I  believe  that  I  have  now  covered  the  points  that  I  had  in  mind. 

Mr.  Bulkley.  Why  is  it  better  for  the  Government  to  guarantee 
those  bonds  than  it  would  be  for  the  Government  to  buy  the  bonds, 
and,  if  need  be,  issue  its  own  bonds  to  secure  the  necessary  funds? 

Mr.  Shibley.  For  the  Government  to  issue  its  own  bonds  and  sell 
them  would  leave  off  the  individual  initiative  that  brings  such  ex- 
cellent results. 

Mr.  Bulkley.  I  do  not  see  why  it  would. 


RURAL   CREDITS.  783 

Mr.  Shibley.  If  the  bonds  are  to  be  marketed  by  the  issuing  cor- 
poration, then  they  are  going  to  go  out  and  find  purchasers  for  them, 
and  when  they  want  money  they  will  see  that  the  bonds  are  sold; 
and  the  Government  simply  would  puts  its  guaranty  on  them,  after 
due  inspection.  Individual  initiative  would  exist.  But  if  the  Gov- 
ernment itself  has  to  sell  the  bonds  there  might  be  a  great  deal  of 
delay,  red  tape,  and  so  forth.  Sometimes  it  might  say  to  a  would- 
be  borrower :  "  We  have  not  the  money  at  present ;  we  can  not  give 
you  this  loan."  And  the  farmers,  instead  of  being  able  to  get  their 
money  to  build  and  make  other  improvements  on  their  farms,  might 
have  to  wait  a  year  of  more.  The  Government  might  say  "  Money  is 
a  little  scarce  at  present." 

Mr.  Bulkley.  Of  course  I  am  not  talking  about  direct  loans  by 
the  Government  to  the  farmers.  I  am  talking  about  the  proposi- 
tion of  the  Government  buying  the  bonds  of  these  institutions, 
whatever  they  may  be. 

Mr.  Shibley.  Then  they  would  have  to  have  the  capital  with  which 
to  buy  them. 

Mr.  Bulkley.  Well,  does  the  Government  ever  have  trouble  in 
selling  its  bonds? 

Mr.  Shibley.  It  might  have  some  trouble.  If  it  can  always  sell 
its  bonds  quickly,  so  that  there  would  be  no  hitch  in  getting  the 
capital,  well  and  good. 

Mr.  Bulkley.  Well,  of  course  the  Government  issues  of  bonds  are 
always  over-subscribed.  It  is  simply  a  question  of  the  price  that 
the  bonds  will  sell  at. 

Mr.  Shibley.  They  have  been  over-subscribed  because  we  have  had 
very  little  paper  of  such  good  character ;  but  from  now  on,  I  take  it 
that  we  are  going  to  have  more  and  more  paper  of  a  high  character. 

Mr.  Bulkley.  What  is  there  that  will  bring  us  more  of  a  high 
character  of  paper? 

Mr.  Shibley.  I  believe  that  the  Government  is  going  to  do  more 
in  guaranteeing  certain  payments. 

Mr.  Platt.  Do  you  think  the  Government  is  going  to  guarantee 
railroad  bonds? 

Mr.  Shibley.  If  the  Government  inspects  and  says  that  capital 
should  come  in,  then  those  railroad  bonds  should  be  as  good  as  Gov- 
ernment bonds. 

Mr.  Platt.  I  think  there  is  something  in  that.  The  New  York 
State  Public  Service  Commission,  for  instance,  practically  guarantees 
all  railroad  issues  of  stocks  and  bonds  of  the  State  now. 

Mr.  Shibley.  I  am  very  glad  that  that  goes  into  the  record.  That 
is  an  excellent  point. 

Mr.  Platt.  And  that  is  exactly  what  will  happen  when  the  Inter- 
state Commerce  Commission  does  the  same  thing. 

Mr.  Shibley.  Certainly. 

Senator  Hollis.  You  believe  that  is  a  good  thing,  Mr.  Shibley, 
and  you  would  extend  it? 

Mr.  Shibley.  Certainly. 

Senator  Hollis.  All  right. 

Mr.  Shibley.  When  the  Government  puts  its  O.  K.  on  a  thing 
let  it  be  responsible  in  reality,  and  not  say  that  each  purchaser 
must  go  himself  and  find  out  whether  it  is  true  that  the  Government 


784  BUBAL  CREDITS. 

has  stated  the  thing  properly.  It  is  absolutely  impossible  to  issue 
good  securities  unless  the  Government  certificate  means  something. 

Mr.  Platt.  In  speaking  of  guaranteeing  these  land-mortgage 
bonds,  you  mean  more  than  the  O.  K.ing  of  the  issue  by  the  public 
service  commission,  or  the  Interstate  Commerce  Commission;  you 
mean  that  the  Government  actually  stands  back  of  it,  then,  do  you 
not? 

Mr.  Shiblev.  Yes;  I  mean  an  effective  O.  K. 

Mr.  Platt.  Yes. 

Mr.  Shirley.  And  not  one  that  is  ineffective 

Senator  Hollis.  We  thank  you  for  your  attendance  and  testimony, 
Mr.  Shibley. 

STATEMENT   OF  HON.   SHEFFIELD  INGALLS,   LIEUTENANT   GOV- 
ERNOR OF  THE  STATE  OF  KANSAS,  ATCHISON,  KANS. 

Mr.  Bulkley.  Will  you  state.  Gov.  Ingalls.  your  interest  in  this 
matter  and  your  special  means  of  information  ? 

Gov.  Ingalls.  Well,  by  way  of  qualifying  myself  as  a  witness,  I 
might  say  I  am  president  of  the  Commerce  Investment  Co.,  of 
Atchison — a  mortgage  company ;  a  director  in  the  First  National 
Bank  of  the  same  city;  a  farmer  per  alium,  and  not  per  se;  and,  by- 
way of  diversion,  I  am  lieutenant  governor  of  the  State  of  Kansas. 

I  firest  became  interested  in  this  class  of  legislation  about  two 
years  ago  during  a  trip  which  I  made  East  for  the  purpose  of  selling 
farm  mortgages.  During  that  trip  I  met  Mr.  Breitung,  who  testi- 
fied here  the  other  day,  and,  with  my  brother,  Ralph  Ingalls,  whose 
name  I  notice  has  been  mentioned  in  connection  with  these  proceed- 
ings by  Mr.  Robinson,  I  called  upon  him  and  as  a  result  of  that  in- 
terview my  brother  became  acquainted  with  Ambassador  Herrick, 
who  (as  you  know)  has  for  a  great  many  years  been  interested  in 
this  question.  I  regret  very  much  that  my  brother  is  not  here  to-day, 
because  he  has  technical  knowledge  (acquired  by  a  very  close  study 
of  this  question)  as  regards  the  plans  that  are  in  operation  in  Ger- 
many, Belgium,  and  France.  He  has  been  for  about  two  years  co- 
operating with  Ambassador  Herrick  in  the  collection  of  statistical 
matter. 

I  appear  here  to-day  more  as  a  practical  mortgage  man,  interested 
in  this  subject  purely  for  the  reason  that  I  would  like  to  see  the 
farm  mortgage  standardized,  the  credit  of  the  farmer  mobilized,  and 
a  market  created  for  this  kind  of  investments. 

Senator  Hollis.  By  the  way,  let  me  ask  you  this  practical  ques- 
tion: When  you  came  East  two  years  ago  to  sell  your  mortgage  loans, 
to  what  class  of  persons  did  you  actually  go? 

Gov.  Ingalls.  Well,  it  is  a  little  hard  to  answer  that  question  as 
you  put  it.  You  mean  by  that,  I  suppose,  whether  they  were  mer- 
chants or 

Senator  Hollis  (interposing).  No;  what  persons  did  you  go  to? 
That  will  throw  some  light  on  who  will  be  affected  by  these  bonds. 

Gov.  Txgalls.  Well.  I  called  on  the  savings  banks  of  New  Eng- 
land, and  personal  friends  of  means,  and  brokers  engaged  in  the  sale 
of  farm  mortgages.  I  think  I  have  made  as  complete  a  tour  of  New 
England  as  any  mortgage  man  has.  I  might  say,  incidentally,  that 
it  was  not  very  successful,  because  the  connections  which  New  Eng- 


RURAL   CREDITS.  785 

land  has  made  with  farm-loan  companies  of  the  West  were  made 
many  years  ago.  But  we  have  succeeded  in  making  connections  with 
one  or  two  insurance  companies,  and  have  a  reasonably  large  clien- 
tele. Our  company,  however,  is  not  one  of  the  large  companies  of 
Kansas.    In  fact,  we  are  one  of  the  smallest  ones. 

Personally,  I  have  been  engaged  in  loaning  money  on  farms  for 
12  or  15  years,  but  it  was  only  in  1910  that  I  organized  the  company 
of  which  I  am  at  present  the  president. 

I  believe  that  I  am  the  only  witness  that  has  appeared  before  this 
committee  from  Kansas,  and  I  realize  also  that  Kansas  is  a  State 
that  has  done  more  to  unpopularize  the  farm  mortgage  than  any 
other  State  in  the  Union.    But  that  is  not  hard  to  explain. 

I  believe  that  this  committee  has  had  some  testimony  with  refer- 
ence to  the  operation  of  the  Lombard  Investment  Co.  and  the  Jarvis- 
Conklin  people  in  the  early  eighties.  And  you  have  been  told  that 
the  failure  of  those  companies  was  due  to  bad  methods  rather  than 
to  the  security  behind  their  investments. 

I  do  not  recall  the  time  when  they  were  operating  in  that  field, 
because  it  was  before  I  was  in  active  business,  but  I  know  something 
about  it.  If  you  will  remember — some  of  the  older  members  of  the 
committee  may — the  railroads  in  the  late  seventies  and  the  early 
eighties  organized  great  colonization  schemes  and  brought  into  the 
State  settlers  in  large  numbers  and  took  them  out  into  the  western 
part  of  Kansas  and  settled  them  on  farms  in  what  was  known  as 
the  semiarid  region,  and  the  farms  and  their  powers  of  produc- 
tivity were  largely  overadvertised.  and,  as  a  result  of  that,  these 
mortgage  companies  sprang  up  and  loaned  money  at  exorbitant 
rates,  upon  high  valuations,  and  the  investors  of  New  England  held 
the  sack.  I  was  talking  with  the  cashier  of  one  of  the  largest  sav- 
ings banks  in  New  Hampshire — at  Portsmouth,  I  think 

Senator  Hollis   (interposing).  Do  you  remember  his  name? 

Gov.  Ingalls.  I  can  not  recall  his  name  now.  He  told  me  that 
they  had  made  investments  in  Kansas,  but  were  among  the  fortunate 
ones  who  held  on  to  the  security  after  it  became  their  property,  and, 
as  the  land  enhanced  in  value,  they  sold  out  at  a  large  profit.  They 
still  hold  some  properties  in  Kansas  as  a  result  of  their  early  in- 
vestments. 

I  say,  the  point  that  I  am  particularly  interested  in  in  connection 
with  this  legislation  is  to  see  an  interest  rate  fixed,  and  I  have  not 
been  able  to  determine  from  any  of  the  testimony  that  has  been 
offered  here  why  it  is  beyond  the  province  of  the  power  of  Congress 
to  fix  a  rate  of  interest  throughout  the  country. 

Mr.  Platt.  A  uniform  rate  of  interest? 

Gov.  Ingalls.  Yes,  sir.  I  do  not  see  why  that  is  impossible.  Of 
course,  these  loans  must  necessarily  be  confined  to  the  proven  agri- 
cultural sections  of  the  country,  and  while  I  come  from  a  section  in 
Kansas  where  land  is  selling,  or  has  sold,  as  high  as  $225  an  acre, 
there  is  about  half  of  the  State  where  land  is  materially  lower  than 
that  in  value. 

But  it  seems  to  me  that  all  agricultural  land  lias  a  value,  and  if  a 
loan  of  $5,000  on  a  quarter  section  of  land  in  northeastern  Kansas 
is  safe  and  a  loan  of  $250  on  a  quarter  sectibn  in  Western  Kansas  i.- 
■•'.7031— 14 50 


786  RUBAL   CREDITS. 

safe,  why  should  not  the  farmer  in  western  Kansas — the  home- 
steader, if  you  please,  the  man  who  is  the  pioneer  and  is  doing  the 
great  work  of  the  State  out  on  those  plains — why  should  he  not  be 
entitled  to  (he  same  rate  of  interest,  based  upon  the  valuation  back 
of  his  mortgage,  as  the  farmer  in  the  more  favored  section  of  the 
State? 

Mr.  Platt.  What  rate  of  interest  would  you  fix? 

Gov.  Ingalls.  Well,  not  to  exceed  C  per  cent  seems  to  be  a  kind 
of  a  magic  rate. 

Mr.  Platt.  We  are  paying  1  per  cent  less  than  that  all  over  the 
East.    Would  you  raise  our  rates? 

Gov.  [ngalls.  Well,  you  would  have  to  suffer  from  that,  possibly." 
The  average  rate  of  interest,  as  figured  out  by  Mr.  Thompson,  I 
think,  is  7 1T  per  cent.  Under  the  plan  that  has  been  outlined  in 
the  Fletcher-Moss  bill — and  I  consider  that  in  connection  with  my 
remarks  as  containing  the  basic  principles  of  legislation  as  it  will 
be  finally  enacted — the  difference  between  the  rate  on  the  mortgage 
and  the  bond  is  1  per  cent;  so  that  the  bonds  will  net  the  investor 
5  per  cent  if  written  at  a  basis  of  G  per  cent. 

Senator  Hollis  (interposing).  Well,  Gov.  Ingalls,  does  it  not  seem 
to  you  that  if  these  bonds  are  so  safeguarded  that  they  become  a 
desirable  investment,  so  that  a  large  amount  of  capital  is  seeking 
them,  that  would  have  a  tendency  to  lower  the  rate  of  interest  and 
give  the  borrowers  a  lower  rate  than  anyone  might  now  think  it  was 
wise  to  fix?  Or  do  you  mean  by  that  that  it  would  leave  it  flexible, 
but  have  the  same  rate  for  the  whole  country? 

Gov.  Ingalls.  I  would  have  it  the  same  for  the  whole  country — 
not  to  exceed  6  per  cent. 

Senator  Hollis.  But  would  you  have  it  fixed  or  flexible  for  the 
whole  country? 

Gov.  Ingalls.  Now,  let  me  answer  that  in  my  own  way,  please. 
Of  course,  in  this  legislation  we  have  got  altruism,  philanthropy,  and 
avarice  badly  mixed  up.  At  the  inception  of  this  movement  the  idea 
was  to  give  the  farmer  of  the  country  a  lower  rate  of  interest  to 
help  the  farming  class,  which  never  has  been  the  beneficiary  of  any 
financial  legislation  in  this  country.    That  was  the  beginning  of  it. 

Now  we  have  moved  on  from  that  point  to  this  bill,  which  in  a 
sense  loses  sight  of  that  one  important  feature,  it  seems  to  me.  Of 
course,  I  do  not  consider  the  direct  loaning  of  money  to  the  farmer 
by  the  Government  a  wise  policy  at  this  time.  If  this  plan  is  to  be 
inaugurated,  it  should  be  left  to  the  State,  as  it  is  in  Oklahoma  and 
other  States  of  the  Union;  but  if  this  legislation  is  passed,  you  can 
not  eliminate,  in  my  opinion,  a  certain  profit  that  should  go  to  the 
association  or  the  banks  handling  these  investments.  I  stated  G  per 
cent  because  6  per  cent  has  been  a  living  rate,  and  so  recognized  the 
country  over. 

And  I  believe  that  we  have  simply  got  to  frame  this  legislation, 
keeping  in  mind  as  nearly  as  possible  both  the  interest  of  the  farmer 
and  the  interest  of  those  who  are  going  to  handle  these  investments 
and  make  these  loans  and  put  the  machinery  in  motion. 

Mr.  Platt.  Let  me  see  if  I  clearly  understand  you,  Gov.  Ingalls. 
Do  you  mean  to  fix  by  law  the  rate  of  interest  the  farmer  shall  pay 
on  his  mortgage,  or  the  rate  of  interest  the  bond  will  pay? 


RURAL   CREDITS.  787 

Gov.  Ingalls.  The  rate  of  interest  that  is  to  be  paid — the  rate  of 
interest  over  the  country. 

Mr.  Platt.  Do  you  think  that  can  be  done  by  law  ? 

Gov.  Ingalls.  We  do  it  in  the  States. 

Mr.  Platt.  Do  you,  as  a  matter  of  fact? 

Gov.  Ingalls.  We  fix  the  legal  rate  of  interest  at  6  per  cent  and 
we  fix  the  usury  rate  at  10  per  cent  in  Kansas. 

Mr.  Platt.  Does  anybody  pay  any  attention  to  that? 

Gov.  Ingalls.  Well,  we  have  laws  against  murder  and  laws  against 
arson,  against  liquor  selling,  which  sometimes  are  not  observed ;  but 
if  the  law  is  there  it  is  intended  that  it  shall  be  observed. 

Mr.  Platt.  Do  you  think,  for  instance,  that  you  could  fix  a  rate 
of  interest  at  6  per  cent  in  New  York  State  if  its  natural  rate  is  5 
per  cent  b}^  a  law  of  any  kind?  Could  you  repeal  economic  laws  by 
statute  laws? 

Gov.  Ingalls.  I  have  no  finespun  economic  theories  about  it, 
but  it  seems  to  me  that  somehow  it  ought  to  be  possible  to  arrive  at 
a  rate  of  interest  that  would  be  equitable  all  around. 

We  can  not  disregard  the  law  of  supply  and  demand  altogether 
and  certain  economic  conditions  that  exist  in  different  parts  of  the 
country,  but  why  are  bonds  in  New  York,  for  instance,  selling  at  4£ 
per  cent,  at  a  premium? 

Mr.  Platt.  New  York  City  bonds  do  you  mean  ? 

Gov.  Ingalls.  No;  New  York  State  bonds.    Who  fixes  that  rate? 

Mr.  Platt.  The  market. 

Gov.  Ingalls.  Well,  what  is  the  market? 

Mr.  Platt.  The  supply  of  capital  that  is  handy  and  the  demand 
for  the  bonds  and  the  amount  of  the  bonds  issued.  The  rate  has 
been  going  up  on  New  York  City  bonds  pretty  steadily,  as  the  supply 
of  them  has  increased. 

Gov.  Ingalls.  Yes.  In  other  words,  you  think  the  rate  is  fixed 
simply  by  supply  and  demand? 

Mr.  Platt.  Unquestionably. 

Gov.  Ingalls.  Then  I  will  ask  the  question,  Why  do  States  fix 
the  rate  of  interest,  or  attempt  to  fix  the  rate  of  interest,  at  6  per 
cent  and  the  usurious  rate  of  interest  at  10  per  cent?  Why  are  those 
figures  particularly  magic? 

Mr.  Platt.  In  Europe,  as  a  rule,  there  are  no  usury  laws,  and 
the  best  economic  thought  to-day,  I  think,  regards  them  as  foolish. 
They  do  protect  some  people  from  loan  sharks ;  that  is  the  only  ob- 
ject of  them.  They  do  not  protect  the  ordinary  man  at  all ;  they  are 
no  good  as  to  him. 

Gov.  Ingalls.  It  is  the  custom  in  Kansas  for  a  mortgage  man  to 
charge  a  borrower  in  Scott  County,  which  is  west  of  the  one  hun- 
dredth meridian,  10  per  cent.  In  our  county  we  loaned  about  $200,000 
last  spring  at  5  per  cent  and  $15  a  thousand  as  a  commission,  so 
that  the  borrower  paid  less  than  5^  per  cent  for  his  money. 

Senator  Hollis.  For  what  term  ? 

Gov.  Ingalls.  Five  years,  with  the  privilege  of  paying  it  off  after 
the  first  year.    Now,  the  rate  in  Scott  County 

Senator  Hollis  (interposing).  Excuse  me,  but  let  us  figure  that 
up.  That  $15  a  thousand  commission,  applying  to  the  whole  period, 
would  make  one-third  of  1  per  cent  for  a  year,  and  that  would  make 
the  whole  rate  5^  per  cent. 


788  BAL    CREDITS. 

Gov.  [ngalls.  Yes. 

Senator  Hollis.  It  seems  to  me  that  that  is  very  reasonable. 

Gov.  Ingalls.  Of  course.  I  live  in  a  part  of  Kansas  where  the 
farmers  are  prosperous  and  are  themselves  money  lenders. 

But  what  I  started  to  -?ay  was  that  the  rate  in  Scott  County  was  10 
per  cent  simply  because  they  make  it  10  per  cent.  I  can  not  under- 
stand why  the  farmer  out  there,  if  he  has  sufficient  assets  back  of  the 
amount  of  money  he  asks  for,  should  not  be  entitled  to  as  low  a  rate 
of  interest  as  the  farmer  in  my  county.  Unless  this  legislation  is 
carried  out  with  that  idea  in  view  it  is  going  to  fail  of  its  purpose  to 
a  certain  extent. 

Mr-  Platt.  Is  not  the  reason  for  that  condition  in  Scott  County 
the  fact  that  the  farmers  in  that  county  went  back  on  their  mortgages 
in  1893  and  1894  and  are  suffering  for  that  now  ? 

Gov.  Ingalls.  We  have  passed  through  that  moulting  period,  and 
with  the  immense  activity  of  the  agricultural  departments  of  both 
State  and  Nation  and  the  farmers  having  been  taught  how  to  farm 
that  land,  what  kind  of  crops  to  put  in.  how  to  construct  silos  and 
what  to  do  with  them,  I  regard  the  mortgage  of  $200  or  $300  to  a 
quarter  section  in  Scott  County  or  Gove  County  or  Logan  County, 
which  are  all  west  of  the  one  hundredth  principal  meridian,  is  just 
as  safe  an  investment  as  a  $8,000  loan  on  a  $200  an  acre  farm  in 
Atchison  County. 

Mr.  Platt.  You  would  have  hard  work  to  convince  eastern  in- 
vestors of  that  fact,  and  that  is  why  they  pay  a  higher  rate  of 
interest. 

Gov.  Ingalls.  I  know  that. 

Mr.  Platt.  The  supply,  in  other  words,  will  not  go  there  until 
they  have  themselves  broken  down  the  prejudice  that  they  previously 
created. 

Gov.  Ingalls.  That  is  the  point,  it  seems  to  me,  that  Members  of 
Congress  have  got  to  keep  in  mind  in  shaping  this  legislation,  as  to 
whether  or  not  it  is  going  to  benefit  the  small  farmer  on  the  small 
farm;  if  it  simply  establishes  Federal  associations  to  standardize 
farm  mortgages  made  in  certain  selected  regions,  it  will  help  our 
loan  men  all  right,  but  it  will  not  go  to  the  bottom  of  the  subject  and 
help  the  farmer. 

With  your  permission.  I  would  like  to  call  attention  to  some  de- 
fects in  the  measure  known  as  the  Fletcher-Moss  bill,  taking  them  up 
as  they  appear  in  order  in  the  bill. 

I  notice,  for  instance,  that  in  subdivision  1  of  section  14  of  the 
bill  the  terminology  "national  farm-land  bank""  is  used.  It  seems 
to  me  that  the  word  "  association  "  would  be  preferable,  because  of 
the  danger  of  a  conflict  between  the  national  banks  as  now  organized 
and  these  proposed  land  organizations. 

I  should  like  also  to  refer  to  subdivision  A  of  section  10  of  the  bill, 
which  provides  the  kinds  of  deposits  that  these  banks  are  to  receive. 
I  should  think  it  would  be  wise  to  permit  the  banks  to  receive  other 
deposits  than  national  deposits  or  deposits  from  postal  savings 
banks;  and  while  there  is  one  section  that  does  not  prohibit  the  de- 
posit of  State  funds.  I  believe  you  should  include  State,  county,  and 
city  funds:  and.  in  fact.  I  think  these  banks  should  be  limited  to 
receiving  national.  State,  county,  and  municipal  funds,  and  trust 
funds. 


RUKAL    CREDITS.  789 

I  believe  in  this,  for  the  reason  you  would  not  then  come  in  conflict 
with  other  banks  as  not  organized,  or  in  competition  with  them.  In 
other  words,  let  them  do  practically  a  trust-company  business.  In 
relation  to  subdivision  3,  section  16.  I  notice  that  you  limit  the  pur- 
poses for  which  these  loans  can  be  made.  Of  course,  while  that  limi- 
tation might  be  entirely  proper,  it  seems  to  me  that  it  is  entirely  im- 
practicable, because  it  would  be  quite  difficult  to  limit  the  purposes 
for  which  these  loans  were  made.  If  a  man  should  make  application 
for  $5,000  on  a  quarter  section  of  land,  if  the  quarter  section  was  a 
good  asset  or  good  security  for  $5,000.  1  see  no  reason  why  he  should 
not  be  able  to  get  that  amount  of  money. 

Mr.  Platt.  Well,  you  are  talking  now  about  limiting  the  amount 
rather  than 

Gov.  Ingalls  (interposing).  No;  this  is  subdivision  3,  as  to  the 
purpose  for  wrhich  loans  can  be  made.  In  other  words,  if  a  man 
wanted  $5,000,  he  could  not  get  it  unless  he  wanted  it  to  complete  the 
purchase  of  the  land  mortgaged,  to  improve  and  equip  such  land  for 
agricultural  purposes,  or  to  pay  and  discharge  debts  secured  by  mort- 
gages or  deeds  of  trust  on  said  lands. 

Mr.  Platt.  I  thought  from  your  statement  as  to  $5,000  on  a  quar- 
ter section  of  land  that  you  were  talking  about  the  amount.  Well, 
just  why  do  you  think  that  it  would  not  be  possible  to  limit  the 
purpose  to  which  the  loan  is  to  be  applied? 

Gov.  Ingalls.  Pardon  me;  I  may  have  used  the  wrong  language. 
It  may  be  possible  to  do  it.  but  I  think  it  would  be  impracticable  to 
do  it,  and  in  a  sense  it  would  be  wrong  to  do  it.  If  a  man  has  a 
quarter  section  that  is  worth  $16,000,  why  should  he  not  be  able  to 
borrow  $5,000  on  it.  regardless  of  the  purposes  for  which  it  might 
be  desired? 

Mr.  Platt.  Well,  I  am  inclined  to  agree  with  you  that  it  would  be 
practically  impossible  to  prevent  him  from  getting  it,  regardless  of 
the  purpose  for  which  it  was  desired ;  but  would  it  not  be  possible  to 
provide,  for  instance,  that  if  he  borrowed  $5,000  and  spent  it  for  an 
automobile,  the  mortgage  should  thereupon  become  due  ? 

Gov.  Ingalls.  Let  me  tell  you  about  this  automobile  business.  I 
notice  that  all  through  these  hearings  reference  has  been  made  to 
automobiles,  and  the  idea  seems  to  be  that  it  was  wrong  for  a  farmer 
to  own  an  automobile.    Now,  in  my  country 

Mr.  Platt  (interposing).  I  know  they  are  all  rich  in  your  country 
now. 

Gov.  Ingalls.  In  my  country  the  bankers  are  glad  to  see  a  farmer 
invest  money  in  an  automobile,  simply  because  they  have  contributed 
very  largely  to  the  contentment  on  the  farm  of  the  women  and  the 
girls,  and  it  has  made  it  possible  for  them  to  transport  their  eggs 
and  their  produce  to  market  quickly,  and  to  go  to  town  and  get  back 
home  the  same  day ;  and  bankers  in  Kansas  no  longer  look  with  any 
degree  of  suspicion  upon  a  farmer  who  feels  like  buying  an  automo- 
bile, provided  he  does  not  try  to  get  one  of  the  high-priced  cars. 

Mr.  Seldomridge.  I  think  in  the  one  little  town  of  Larned,  in 
western  Kansas,  the  statistics  show  that  there  are  over  600  automo- 
biles owned  by  the  farmers. 

Gov.  Ingalls.  I  do  not  know  how  many  there  are,  but  there  are 
a  great  many  of  them. 


790  RURAL   CREDITS. 

Mr.  Platt.  Are  they  not  used  10  times  as  much  for  pleasure  as 
they  are  for  productive  purposes? 

Gov.  Ingalls.  That  may  be  true;  but  the  farmer  is  entitled  to  his 
pleasure.  That  is  the  very  thing  which  will  make  a  farmer  contented 
with  his  farm  life,  because  he  can  go  into  town  at  night,  attend  a 
moving-picture  show,  and  get  back  the  same  night :  or  he  can  ride 
over  the  fine  roads  in  Kansas  on  a  moonlight  night,  and  chase  jack 
rabbits  and  enjoy  living  as  he  never  has  before. 

Mr.  Seldomridge.  He  can  also  attend  political  meetings  and  listen 
to  the  campaign  orators.     [ Laughter.  1 

Gov.  Ingalls.  Yes ;  come  from  miles  around. 

I  also  find  in  subdivision  E 

Mr.  Platt  (interposing).  Before  you  leave  that  point  I  would 
like  to  say  that  of  course  I  used  the  automobile  merely  as  a  con- 
venient illustration. 

Gov.  Ingalls.  Yes. 

Mr.  Platt.  Do  you  think  it  might  be  possible  to  make  the  mort- 
gage become  due,  or  something  of  that  sort,  provided  the  farmer  was 
drinking  up  his  money,  or  blowing  his  money  in  on  riotous  living, 
or  something  of  that  kind? 

Gov.  Ingalls.  Of  course  that  question  will  rest,  under  this  bill, 
upon  the  appraisers  of  each  institution.  Now,  it  has  been  my  experi- 
ence as  a  farm-loan  man  that  we  investigate  very  carefully  into  the 
character  of  the  man,  into  the  character  of  his  farm,  and  of  the 
neighborhood,  and  his  general  demeanor  and  standing  in  the  com- 
munity in  which  he  lives.  I  can  not  see  why  that  process  should  be 
changed,  simply  because  we  had  a  Federal  act  that  will  provide  for 
the  creation  of  banks  to  loan  money.  After  all,  this  is  going  to  rest 
upon  the  individual  judgment  of  the  men  who  make  the  loans. 

Mr.  Platt.  On  the  appraisement  of  the  land  itself,  without  regard 
to  the  character  of  the  man  who  owns  it? 

Gov.  Ingalls.  No;  you  misunderstood  me — on  the  judgment  of  the 
individual  men  who  make  the  loans.  And  they  will  take  into  con- 
sideration these  very  questions  that  I  have  just  enumerated. 

Mr.  Ady.  May  I  ask  a  question,  please,  Gov.  Ingalls? 

Gov.  Ingalls.  Certainly. 

Mr.  Ady.  After  a  loan  has  been  made,  would  you  consider  it  ad- 
visable to  have  some  supervision  of  the  condition  that  the  land  is 
kept  in  during  the  life  of  the  loan  ? 

Gov.  Ingalls.  I  think  that  would  be  an  advisable  thing.  You 
would  simply  be  doing  what  is  done  now  by  all  the  loan  companies. 
They  make  inspections  of  the  land  from  time  to  time  during  the  term 
of  the  loan,  to  find  out  whether  there  has  been  any  depreciation  in 
the  value  of  the  security,  or  the  general  tone  and  character  of  the 
neighborhood. 

Senator  Hollis.  Now,  tell  us  how  they  carry  that  out  practically  ? 
Do  they  have  a  man  whose  business  it  is  to  travel  all  the  time  and 
look  after  those  things? 

Gov.  Ingalls.  In  reply  to  that  question,  Mr.  Chairman,  I  would  say 
that  I  stopped  in  Chicago  on  my  way  here  and  talked  with  Mr.  F.  W. 
Thompson,  the  farm-loan  manager  of  the  Merchants  Loan  &  Trust 
Co.  of  Chicago.  We  talked  over  that  very  subject.  He.  for  instance, 
makes  loans  in  Brown  County.  Kans. 


EUEAL   CREDITS.  791 

First,  he  went  over  the  field  very  carefully,  studying  the  topog- 
graphy  of  the  country,  and  ascertained  what  the  soil  conditions  were; 
and  then,  after  a  careful  investigation,  he  made  a  selection  of  a 
responsible  man  there,  who  knew  the  country  and  knew  the  people, 
as  his  representative;  and  when  this  representative  sends  in  appli- 
cations to  the  amount  of  about  $50,000  Mr.  Thompson  goes  to 
Brown  County,  investigates  the  security  offered  in  each  application, 
drives  over  the  country  with  his  agent,  and  then  makes  his  own 
private  report,  a  matter  of  record  in  the  company.  The  average  life 
of  5-year  loans,  I  think,  is  about  3  years  in  these  well-selected  ter- 
ritories. 

Senator  Hollis.  Now,  tell  us,  please,  what  percentage  of  three- 
year  farm  loans  are  paid  at  maturity  ? 

Gov.  Ingalls.  Well,  I  will  have  to  put  it  a  little  differently.  The 
loans  are  made  for  five  years,  but  the  percentage  as  worked  out  by 
Mr.  Thompson,  and  as  I  have  learned  it  from  other  sources,  shows 
that  the  average  life  of  these  mortgages  is  three  years.  I  have  never 
worked  it  out  myself,  but  from  authorities  that  I  have  consulted, 
I  find  that  the  average  life  of  these  loans  is  three  years.  That  was 
the  experience,  by  the  way,  that  I  found  in  your  own  State  of  New 
Hampshire,  in  talking  with  the  cashiers  of  savings  banks  there. 

Mr.  Platt.  That  the  loans  were  paid  off  in  three  years  ? 

Gov.  Ingalls.  That  their  average  life  was  about  three  years. 

Mr.  Platt.  Not  by  maturity,  but  by  payment  ? 

Gov.  Ingalls.  Yes;  by  payment. 

Senator  Hollis.  That  does  not  necessarily  mean  that  the  man  who 
pays  them  up  did  not  borrow  money  somewhere  else. 

Mr.  Platt.  I  was  wondering  whether  a  farmer  could  pay  for  a 
farm,  or  pay  one-half  the  cost  of  a  farm  in  three  years;  if  he  could 
do  that  he  does  not  need  any  help  in  New  Hampshire. 

Senator  Hollis.  Gov.  Ingalls  does  not  mean  that  those  loans  were 
made  on  New  Hampshire  real  estate;  he  means  that  those  were 
loans  made  by  the  New  Hampshire  people  on  Kansas  lands. 

Mr.  Platt.  I  see. 

Gov.  Ingalls.  Yes;  that  is  it.  Senator  Hollis  is  right  when  he 
says  that  that  does  not  necessarily  mean  that  the  farmer  does  not 
renew  his  loan  elsewhere;  but  the  average  life  of  the  mortgage  is 
three  years. 

Mr.  Platt.  Yes. 

Senator  Hollis.  I  diverted  you,  Gov.  Ingalls,  when  you  were  tell- 
ing us  about  how  Mr.  Thompson,  of  Chicago,  did. 

Gov.  Ingalls.  I  think  I  stated  his  plan  with  reasonable  accuracy, 
about  the  procedure  he  follows,  except  I  might  have  added  that,  at 
some  time  during  the  life  of  that  loan,  it  was  their  plan,  either 
through  somebody  in  the  home  office,  or  through  their  agent,  in 
whom  they  had  great  confidence,  to  have  a  report  made  on  the  con- 
dition of  the  land. 

Senator  Hollis.  What  could  they  do  about  it,  under  the  Kansas 
mortgage,  if  they  found  that  the  farmer  was  not  behaving  well,  and 
was  letting  his  land  run  out  ? 

Gov.  Ingalls.  Some  mortgages  are  drawn  in  a  way  to  provide  for 
just  those  contingencies. 

Senator  Hollis.  Well,  what  is  the  phraseology  ? 


792  RUBAL   CBEDITS. 

Gov.  Ingalls.  Well,  for  instance,  in  our  form  of  mortgage,  if  a 
man  fails  to  pay  his  taxes,  or  fails  to  pay  his  insurance  on  his  build- 
ing or  improvements,  or  defaults  in  several  other  particulars,  his 
mortgage  can  be  declared  due  at  once. 

Senator  Hollis.  Well,  do  they  use  the  general  expression  about 
letting  the  land  run  down — for  instance,  that  the  loan  shall  become 
due,  "  if  he  shall  commit  waste  "? 

Gov.  Ingalls.  That  is  not  included  in  the  mortgage.  That  is 
only  used  in  leases.  I  do  not  think  I  can  recall  any  forms  of  mort- 
gage that  have  that  provision. 

Senator  Hollts.  Well,  of  course,  you  know  that  if  a  farm,  or  any 
other  lands  has  timber  on  it,  it  would  be  an  infringement  of  the  rights 
of  the  mortgagee  for  the  mortgagor  to  clear  the  timber  off  and  de- 
preciate the  security.  That  would  be  "  waste,"  and  is  covered  in 
the  average  run  of  mortgages.  I  was  wondering  what  the  wording 
was  in  Kansas  in  that  respect. 

Gov.  Ingalls.  That  is  not  used  in  Kansas.  The  land  is  the  prop- 
erty of  the  mortgagor  to  do  what  he  pleases  with.  The  question 
of  timber  is  simply  one  of  crops;  he  could  denude  the  land  of  tim- 
ber, as  I  understand  it,  as  well  as  he  could  gather  his  crop  of  corn 
in  the  field.     It  is  simply  a  crop. 

Senator  Hollis.  That  is  probably  because  timber  is  not  an  im- 
portant factor  in  Kansas  as  it  is  in  other  localities? 

Gov.  Ingalls.  I  can  say  this,  however,  that  a  farm  that  has  a 
certain  acreage  in  timber  is  more  valuable  than  one  without  it,  sim- 
ply as  a  matter  of  fuel. 

Xow,  to  recur  to  section  16,  subdivision  E,  under  the  sixth  para- 
graph, I  notice  that  under  the  powers  of  these  banks  they  are 
given  the  right  to  discount  commercial  and  other  short-time  paper. 
The  phraseology  does  not  say  whether  that  refers  to  the  cooperative 
banks  or  whether  it  refers  to  land  banks  itself.  In  fact,  one  is  led  to 
believe  that  it  refers  to  the  land  bank,  because  in  the  same  subdivi- 
sion it  refers  specifically  to  the  cooperative  banks  by  name. 

Mr.  Bulkley.  Well,  in  the  cooperative  banks  provided  for  there 
is  a  land  bank  ? 

Gov.  Ingalls.  Yes;  I  understand  that;  but  I  am  not  thinking  of 
the  cooperative  banks.  In  fact,  I  have  not  given  that  question  any 
thought  or  consideration.  Are  we  to  understand  that  the  land  banks 
proper  are  permitted  to  discount  commercial  and  other  short-time 
paper  ? 

Mr.  Bulkley.  I  so  understand  it. 

Gov.  Ingalls.  Well,  I  think  that  is  wrong. 

Mr.  Platt.  Do  you  think  they  should  be  allowed  to  take  deposits 
at  all? 

Gov.  Ingalls.  Yes ;  along  the  line  that  I  mentioned  a  little  earlier 
in  my  testimony  here.  I  think  it  should  be  confined  to  national, 
State,  county,  and  municipal  funds  and  funds  of  trust  estates,  or 
something  of  that  kind.  I  think  that  would  be  wisest,  simply  for 
the  reason  that  their  operation  would  not  then  come  in  conflict  with 
banks  already  organized  to  such  a  large  extent.  I  do  not  see  any 
reason  why  we  should  organize  another  system  of  banks  here,  tfc 
encroach  upon  the  domain  of  our  present  banking  system. 

Mr.  Platt.  Well,  one  point  that  Mr.  Moss  makes,  for  instance, 
is  that  he  expects  a  great  many  of  the  present  banks  to  be  reorgan- 


RUBAL   CREDITS.  793 

ized  into  banks  of  this  kind,  the  little  $10,000  banks  that  are  so 
plentiful  all  over  the  Middle  West. 

Gov.  Ingalls.  I  was  coming  to  that  a  little  later  on.  the  question 
of  the  organization  of  this  banking  system  by  the  creation  of  these 
little  banks;  and  possibly  I  will  touch  on  the  point  you  now  make 
as  I  come  to  it. 

I  also  wish  to  refer  to  subdivision  D  under  the  heading  of  "  Spe- 
cific limitations,"  section  16,  which  attempts  to  fix  the  amount  of 
money  that  is  to  be  loaned  to  any  one  individual.  I  find  that  this 
is  a  subject  which  has  been  much  discussed  in  these  hearings,  and  I 
believe  it  is  one  of  the  most  important  subjects. 

The  Northwestern  Mutual  Life  Insurance  Co.,  which  possibly  does 
the  largest  farm-loan  business  of  any  insurance  company  in  this 
country,  until  a  few  years  ago  fixed  a  limit  of  $5,000  on  any  quarter 
section  of  land  in  Kansas,  regardless  of  its  value.  Other  companies 
have  fixed  a  limit  of  $50  an  acre,  regardless  of  the  value  of  the  land. 
The  Union  Central  Life  Insurance  Co.  fixes  a  limit  of  $10,000  to 
any  individual,  regardless  of  the  amount  of  land  he  owns. 

Senator  Hollis.  That  is.  the}-  would  not  go  above  that? 

Gov.  Ingalls.  They  would  not  go  above  that. 

Senator  Hollis.  But  the  land  might  be  worth  very  much  less? 

Gov.  Ingalls.  Oh.  yes.  But  I  mean  where  the  security  back  of  it 
is  adequate.  I  think  now  the  Northwestern  Mutual  Life  Insurance 
Co.  will  not  loan  to  exceed  $50  an  acre  on  any  land  in  our  county. 
although,  as  I  say,  some  of  it  goes  as  high  as  $225  an  acre  in  value. 
The  Union  Central  Life  Insurance  Co.  has  concluded  that  $10,000 
is  as  much  as  any  farmer  should  go  into  debt;  that  his  earning 
capacity  is  not  sufficient  to  carry  a  greater  indebtedness  than  that. 

Of  course,  under  the  bill  here  we  have  20  per  cent  of  the  sum  of 
the  paid-up  capital  and  surplus  of  the  bank,  and  that  would  auto- 
matically fix  the  amount  in  every  case,  because  a  $10,000  bank  could 
only  loan  $2,000  to  any  individual ;  and  that,  I  think,  is,  in  a  way, 
going  to  solve  this  question  of  the  organization  of  these  small  insti- 
tutions as  provided  by  this  bill,  to  which  I  will  refer  a  little  later. 

The  clause  relating  to  exemption  from  taxation,  I  believe,  is  going 
to  cause  a  great  deal  of  discussion,  and  it  is  to  me  one  which  seems 
to  be  a  most  serious  problem.  I  believe  it  will  be  unwise  to  exempt 
the  income  of  a  bank  from  taxation.  We  have  an  income-tax  law  in 
this  country,  and  we  are  also  going  to  get  one  in  Kansas.  We  are 
going  to  amend  our  constitution  to  provide  for  the  taxation  of  in- 
comes in  line  with  the  Federal  act. 

There  has  also  been  introduced  into  the  Western  States  recently  a 
new  plan  of  taxing  mortgages  which  they  call  a  mortgage  registra- 
tion fee.  Oklahoma  has  passed  such  a  law.  Kansas  came  very  near 
doing  so  the  last  session  of  the  legislature,  and  I  think  within  a  very 
short  time  we  will  have  such  a  law. 

Mr.  Stone.  Where  do  you  expect  the  people  of  Kansas  to  go  when 
you  pass  the  income-tax  law  ? 

Gov.  Ingalls.  Where  will  they  go  ? 

Mr.  Stone.  Yes;  where  do  you  expect  them  to  go? 

Gov.  Ingalls.  I  do  not  know ;  possibly  Illinois. 

Senator  Hollis.  You  can  ask  me,  and  I  would  have  to  tell  you  I 
do  not  know  where  the  people  go  who  are  subject  to  an  inheritance 
tax  in  New  Hampshire.     [Laughter.] 


794  KUKAL   CREDITS. 

Gov.  Ingalls.  We  repealed  our  inheritance-tax  law  in  Kansas. 

Mr.  Plait.  How  much  of  a  registration  tax  is  proposed  in  Kansas; 
do  von  know  ? 

Gov.  Ingalls.  The  amount  that  was  pretty  well  agreed  upon  last 
winter  was  $5  a  thousand,  to  be  paid  when  the  mortgage  is  recorded; 
and  no  further  tax  is  levied  against  it. 

Mr.  Platt.  That  is  one-half  of  1  per  cent? 

Gov.  Ingaij.s.  Yes. 

Mr.  Platt.  That  is  what  the  New  York  State  tax  is.  Although  J 
can  not  speak  for  the  majority,  of  course,  I  imagine  that  if  that  is 
retained  in  the  bill  we  will  probably  provide  that  once  such  a  tax 
was  paid  the  mortgage  should  not  be  subject  to  any  local  tax,  because 
you  can  tax  them  2  or  3  per  cent  in  some  cities,  where  the  rate  is 
high. 

Gov.  Ingalls.  Yes.  The  question  of  the  appointment  of  a  fidu- 
ciary agent  is  another  one  that  seems  to  have  caused  a  good  deal  of 
comment.  The  bill  provides  that  this  fiduciary  agent  shall  be  any 
individual  who  is  not  an  officer  or  director  of  the  bank.  I  believe 
that  is  one  of  the  very  weakest  points  in  the  bill,  for  the  reason  that 
I  hardly  believe  it  will  be  possible  to  secure  the  appointment  of  an 
outsider  as  a  fiduciary  agent  who  would  be  satisfactory  to  the  board 
of  a  bank,  no  matter  whether  it  was  a  bank  organized  with  $10,000 
capital  or  $300,000.  If  the  president  or  some  officer  of  the  bank 
could  be  designated  as  a  fiduciary  agent,  wTho  stands  between  the 
Government  and  the  bank,  I  believe  that  that  would  be  for  more 
satisfactory  than  to  bring  in  an  outsider.  Necessarily,  this  outsider 
would  be  objectionable  to  those  whose  money  was  invested  in  the 
bank,  and  who  were  responsible  for  its  organization,  and  who  had 
a  pride  in  making  it  a  successful  and  strong  institution  within  the 
particular  territory  in  which  it  operated. 

Mr.  Platt.  Well,  perhaps  it  ought  to  be  said  there,  that,  as  I  un- 
derstand it.  there  is  nothing  to  prevent  a  bookkeeper  or  an  employee 
of  the  bank  from  being  made  fiduciary  agent,  is  there? 

Gov.  Ingalls.  Yes:  I  think  that  was  somewhat  amplified  by  the 
testimony  of  Dr.  Coulter  here  a  few  days  ago,  when  he  said  that  it 
might  be  possible  to  appoint  a  notary  public,  under  bond,  to  certify 
as  to  these  securities. 

Mr.  Platt.  In  fact,  this  fiduciary  agent  is  not  very  much  more 
than  a  notary  public  anyway,  is  he? 

Gov.  Ingalls.  No.  I  think  he  should  be  a  more  responsible  officer 
than  that.  I  think  if  the  Government  is  going  to  take  any  part  in 
seeing  that  these  land  bonds  are  good  securities,  this  officer  should  be 
a  responsible  officer  connected  with  the  bank,  and  he  should  have 
some  standing,  both  in  the  institution  itself  and  with  the  Govern- 
ment, which  result  could  not  be  secured  by  simply  appointing  a  book- 
keeper or  some  notary  public. 

In  section  42  the  bill  provides  for  insurance,  and  the  last  sent- 
ence of  the  section  is  as  follows: 

In  apprasing  property  for  loins,  the  buildings'  indestructible  property  shall 
not  be  valued  at  more  than  20  per  cent  <«f  the  total  appraisement. 

I  believe  that  that  sentence  should  be  stricken  out  of  the  bill,  and 
that  these  loans  should  be  based  entirely  upon  50  per  cent  of  the 
value  of  the  land  itself,  irrespective  of  the  improvements,  and  con- 


RURAL   CREDITS.  79 0 

sequently  the  insurance  feature  would  become  unimportant.  That 
is  the  basis  of  assessment  and  appraisement  that  most  of  the  insur- 
ance companies  have.  I  do  not  believe  it  is  wise  to  use  the  improve- 
ments as  security  in  a  farm  mortgage. 

Mr.  Platt.  Is  there  not  a  great  difference.  Gov.  Ingalls.  between 
different  sections  of  the  country  in  the  proportion  of  the  value  of 
the  buildings  to  the  land — for  instance,  the  land  in  Kansas  is  prob- 
ably worth  a  great  deal  more  in  proportion  than  the  buildings  are; 
but  in  certain  other  sections,  possibly  in  the  East,  the  buildings  may 
he. worth  more  than  the  land  sometimes? 

Gov.  Ingalls.  Yes;  that  is  possibly  true;  and  I  am  somewhat 
provincial  in  that,  I  guess,  because  I  speak  entirely  from  my  knowl- 
edge of  conditions  in  my  own  State.  I  think,  perhaps,  that  would  be 
quite  true  in  regard  to  Pennsylvania  and  New  York  and  some  of  the 
other  Eastern  States. 

Mr.  Platt.  Yes. 

Gov.  Ingalls.  But  in  any  event,  the  land  is  the  basis  of  security 
for  these  loans,  and  I  should  think,  in  view  of  that  fact,  that  you 
should  disregard  the  improvements  on  it. 

Mr.  Platt.  Well.  I  agree  that  they  ought  not  to  be  counted  for 
very  much. 

Gov.  Ingalls.  Section  46  of  the  bill  provides  that  any  borrower 
may  pay  eff  his  mortgage  by  presenting  to  the  bank  bonds  of  the 
same  series  as  those  issued  against  his  mortgage.  It  occurs  to  me  that 
it  might  be  impossible  for  a  bank  to  locate  these  bonds,  in  as  much  as 
they  pass  from  hand  to  hand  and  are  a  liquid  asset,  and  it  would  be 
practically  impossible  at  times  to  secure  bonds  of  the  particular  series 
which  were  issued  against  that  mortgage. 

Mr.  Bulkley.  Of  course  the  borrower  always  has  the  right  after 
five  years  to  pay  it  in  cash,  and  this  payment  by  presenting  the  bonds 
is  only  an  option  that  he  can  exercise. 

Senator  Hollis.  The  idea  being,  that  if  the  bonds  should  go  below 
par  he  should  get  the  benefit  of  that. 

Gov.  Ingalls.  Yes:  but  in  reading  this  over  it  occurred  to  me  that 
there  might  be  some  central  point  of  registration  of  these  bonds,  so 
that  they  might  be  followed  in  a  way  and  located  if  they  are  needed. 

I  do  not  want  to  take  much  more  of  your  time ;  but  I  do  want  to 
say  this,  that  I  believe  that  the  theory  you  are  operating  on.  under 
this  bill  to  establish  a  multitude  of  small  banks  in  a  State,  is  not  a 
sound  one,  because,  from  my  experience  in  a  small  way  as  a  mortgage- 
loan  man,  I  believe  it  would  be  practically  impossible  to  sell  theland 
bonds  of  a  small  institution  in  Kansas,  for  instance,  located  in  a  small 
town  of  700  or  800  population. 

In  other  words,  I  am  more  or  less  of  an  advocate  of  the  sugges- 
tions made  in  the  minority  report  of  the  American  commission ;  if  it 
was  entirely  popular,  I  do  not  know  but  that  I  would  be  willing  to  go 
as  far  as  to  favor  the  organization  of  a  central  bank.  But  that  does 
not  seem  to  be  in  the  air  at  this  time,  and  it  is  something  that,  Mr. 
Morris  said  yesterday,  we  ought  to  leave  in  the  back  of  our  heads 
for  the  present. 

But.  at  any  rate,  I  do  believe  in  the  regional  plan.  And  I  believe 
in  the  organization,  either  into  State  units  or  regions,  rather,  com- 
prising one  or  two  States  or  three  States,  and  that  these  local  units 
would  simply  be  federated  so  that  we  would  have  a  bank  of  sufficient 


796  RURAL   CREDITS. 

size  and  magnitude  and  standing  to  give  character  to  these  invest- 
ments. 

Mr.  Seldomridge.  I  would  like  to  ask  Gov.  Ingalls  a  question. 
What  would  you  suggest  in  the  way  of  an  effective  and  competent 
appraisement  of  the  land — what  scheme? 

Gov.  Ingalls.  I  think  the  scheme  provided  in  the  bill  is  as  near 
safety  as  you  can  get  it.  In  other  words,  if  three  directors  of  the 
institution,  who  have  knowledge  of  land  conditions  and  of  property 
values  and  of  the  elements  that  go  to  make  up  the  value  of  a  piece  of 
land,  pass  upon  it  under  oath,  I  can  not  see  how  you  can  get  down 
closer  to  the  bedrock  value  of  the  security.  You  can  not  get  an  out- 
sider, armed  as  he  might  be  with  some  commission  from  the  Govern- 
ment, to  come  into  a  locality  and  pass  upon  the  value  of  the  land 
just  on  a  visit  of  a  few  hours  or  a  few  days.  And  I  do  not  see  any 
better  way  than  is  provided  in  the  bill. 

Mr.  Seldomridge.  Recognizing  your  support  of  a  central  unit  to 
federate  with  these  smaller  units,  would  you  confine  that  central 
unit  to  the  limit  of  a  State,  or  would  you  enlarge  its  field  of  activity? 

Gov.  Ingalls.  My  first  thought  was  to  confine  it  to  the  State — let 
each  State  stand  upon  its  own  bottom,  as  it  were.  I  realize  that  there 
would  be  competition 

Mr.  Seldomridge.  You  heard  yesterday  the  statement  of  Mr. 
Morris  that  there  would  be  more  or  less  prejudice,  somewhat  psycho- 
logical in  character,  against  bonds  issued  by  a  State  mortgage  bank 
that  might  operate  unfavorably  in  securing  a  market  for  those  par- 
ticular bonds? 

Gov.  Ingalls.  I  heard  that:  and  I  also  heard  the  retort — I  will 
not  say  the  retort,  either,  but  the  question — of  Mr.  Thompson  di- 
rected to  Mr.  Morris,  asking  him  how  he  would  adjust  the  difficulty 
of  the  different  laws  that  might  obtain  in  the  different  States  with 
reference  to  interest  rates  and  other  matters,  and  also  the  question 
as  to  how  it  would  be  possible  to  establish  these  regional  banks. 
Take,  for  instance,  the  States  of  Kansas,  Nebraska,  Missouri,  and 
Oklahoma,  with  Kansas  City  the  natural  point  for  a  regional  bank: 
it  is  now  competing  for  one  of  the  reserve  banks  under  our  Federal 
reserve  act.  Then  there  is  Omaha,  on  the  other  hand,  a  large  city 
in  that  particular  region,  located  in  one  of  the  proven  agricultural 
sections  of  the  State,  would  want  a  State  or  two  in  its  region. 

Mr.  Platt.  Both  of  them  are  on  the  borders  of  the  States,  so  that 
they  would  not  either  one  be  very  well  located  for  a  State  central 
institution. 

Gov.  Ingalls.  Well,  the  geographical  center  is  not  necessarily  of 
importance :  it  is  a  question  of  where  it  would  be  the  wisest  to  put 
them  under  all  the  circumstances.  I  think  it  would  be  a  very  diffi- 
cult matter  to  adjust  the  agricultural  territory  to  any  particular 
point. 

Mr.  Platt.  You  would  not  think  that  providing  regional  or  State 
central  banks  would  add  anything  to  the  efficiency  of  the  appraise- 
ment, would  you?  You  would  not  think  that  a  central  appraiser 
should  be  sent  out  from  the  regional  banks? 

Gov.  Ingalls.  Simply  to  check  up  the  appraisement  of  the  local 
institutions. 

Mr.  Seldomridge.  Gov.  Ingalls,  what  percentage  of  mortgages  on 
Kansas  farm  lands  are  now  held  by  nonresidents? 


RURAL   CREDITS.  TUT 

Gov.  Ingalls.  I  have  no  idea.  In  fact,  I  can  not  see  how  it  is  pos- 
sible for  anybody  to  determine  that  there  are  $3,000,000,000  of  mort- 
gages in  this  country.  I  do  not  see  under  what  scheme  or  what 
plan  they  have  been  able  to  determine  that  there  are  $3,000,000,000 
of  mortgages  in  this  country. 

Mr.  Seldomridge.  Yes. 

Gov.  Ingalls.  I  have  attempted  for  the  last  two  years  to  find  out 
what  the  mortgage  indebtedness  was  in  my  own  State,  but  have 
been  unable  to  do  so. 

Mr.  Seldomridge.  Is  there  any  tendency  toward  tenancy  in 
Kansas  ? 

Gov.  Ingalls.  Oh,  yes.  Kansas  is  a  little  over  50  years  of  age,  and 
many  of  the  pioneers  who  came  out  there  and  bought  land  cheap 
a  long  time  ago  and  have  lived  on  the  farm  are  now  growing  old  and 
are  moving  into  the  smaller  towns,  and  those  wTho  have  no  families 
or  children  are  simply  renting  that  land  out  and  living  on  the  in- 
come of  it. 

Mr.  Seldomridge.  Yes.  Is  there  any  difficulty  or  distress  caused 
by  any  lack  of  money  to  be  had  on  farm  loans?  Do  farmers  have 
any  difficulty  in  getting  money  now  ? 

Gov.  Ingalls.  None,  except  that  the  rate  is  higher  now  than  it 
has  ever  been  in  our  State. 

Mr.  Seldomridge.  There  is  no  difficulty  in  a  man  getting  a  loan 
on  good  land,  if  he  has  it? 

Gov.  Ingalls.  There  is  no  difficulty  in  getting  money,  except  that 
now  they  can  only  get  it  from  the  insurance  companies;  that  is  the 
only  source  of  supply  they  have  now. 

Mr.  Seldomridge.  Have  the  insurance  companies  raised  their  rate? 

Gov.  Ingalls.  Yes;  the  rates  of  insurance  companies  have  in- 
creased from  one-half  to  1  per  cent  in  the  choice  loaning  districts 
of  the  State. 

Mr.  Platt.  Does  tenancy  tend  to  precede  ownership  ?  Do  tenants 
buy  the  farms,  or  do  they  remain  tenants  all  their  lives? 

Gov.  Ingalls.  The  tendency  is  to  acquire  the  farms. 

Mr.  Platt.  To  lease  the  farm  first  and  buy  it  afterwards  ? 

Gov.  Ingalls.  That  is  the  tendency  in  our  country. 

Mr.  Platt.  You  said  awhile  ago  that  you  did  not  think  anybody 
would  take  the  bonds  of  these  small  banks,  supposing  that  they  were 
organized  as  this  bill  provides.  Now,  Mr.  Moss  thinks,  for  instance, 
that  in  his  own  State  of  Indiana  the  local  people  would  take  those 
bonds,  just  as  they  do  local  road  bonds  and  things  of  that  sort.  He 
thinks  they  will  be  taken  right  in  the  neighborhood.  Would  not  that 
be  true  in  eastern  Kansas,  where  the  farmers  are  already  loaning 
money  to  each  other  ? 

Gov.  Ingalls.  Yes;  they  would  to  a  limited  extent,  but  not  in  a 
sufficient  volume. 

Mr.  Platt.  I  mean  that  they  would  take  the  stock  of  the  banks 
and  would  take  their  mortgages  from  those  banks  to  give  them  a 
start,  so  that  the  bonds  would  get  a  chance  to  get  afloat  ? 

Gov.  Ingalls.  I  will  simply  give  it  as  my  opinion  that  I  do  not 
think  they  would.  I  do  not  think  there  is  sufficient  money — what 
we  call  "  private  money  " — in  the  several  localities  to  absorb  these 
securities.  The  fact  that  they  will  be  tax  free  might  attract  in- 
vestors; but  we  must  look  for  a  larger  market  for  the  bonds  than 


798  RURAL   CREDITS. 

among  local  people.  That  is  the  trouble.  We  must  go  outside  of  the 
State  for  a  sufficient  volume  of  money  to  carry  the  mortgage  indebt- 
edness of  the  State.  If  it  was  not  for  the  big  insurance  companies 
and  the  investors  throughout  the  country,  we  would  not  have  suf- 
ficient money  to  finance  our  farms  to-day.  Every  two  years,  when 
the  legislature  convenes,  the  question  comes  up  as  to  taxing  mort- 
gages, and  right  on  top  of  that  question  comes  the  argument  that 
"  if  you  tax  them,  you  will  drive  these  insurance  companies  out  of 
the  State,  and  your  rate  will  go  up";  and  that  always  has  defeated 
the  plan  to  tax  them. 

Mr.  Platt.  They  ought  to  be  exempted ;  but  then  it  is  hard  to  con- 
vince people  of  that  fact.  Are  mortgages  normally  taxable  now 
under  the  laws  as  personal  property  ? 

Gov.  Ingalls.  Oh,  yes;  at  100  cents  on  the  dollar. 

Mr.  Platt.  There  is  no  legal  exemption  now  ? 

Gov.  Ingalls.  Not  a  dollar. 

Mr.  Platt.  It  is  simply  that  you  are  not  actually  taxed  by  the 
assessors  ? 

Gov.  Ingalls.  Yes;  they  are  supposed  to  be.  We  have  got  very 
rigid  taxation  laws  in  Kansas,  passed  within  the  last  few  years.  It 
used  to  be  25  per  cent  of  the  valuation,  but  now  everybody  is,  under 
oath,  supposed  to  turn  in,  dollar  for  dollar,  his  mortgages,  securities, 
and  money  in  the  bank. 

Mr.  Platt.  That  is  a  sufficient  reason  for  the  rate  of  interest  going 
up  in  your  State. 

Gov.  Ingalls.  I  can  not  say  whether  that  is  the  cause  or  not,  but 
that  is  the  law. 

Senator  Hollis.  Are  there  any  other  questions?  We  are  very 
much  obliged  to  you,  Gov.  Ingalls. 

(Thereupon,  at  12.50  o'clock  p.  m.,  the  committee  adjourned  until 
to-morrow,  Saturday,  March  14,  1914,  at  10.30  o'clock  a.  m.) 


SATURDAY,   MARCH   14,    1914. 

United  States  Senate, 

Washington,  D.  G. 
The  subcommittees  assembled  in  joint  session  at  10.30  o'clock  a.  m., 
Hon.  Henry  F.  Hollis  presiding. 
Present:  Representatives  Stone,  Seldomridge,  Woods,  and  Piatt. 

STATEMENT  OF  HERBERT  QUICK;  EDITOR  OF  FARM  AND  FIRE- 
SIDE, SPRINGFIELD,  OHIO. 

Senator  Hollis.  Mr.  Quick,  will  you  state  your  residence  and  your 
business  ? 

Mr.  Quick.  I  am  editor  of  Farm  and  Fireside,  the  home  offices 
of  which  are  at  Springfield,  Ohio. 

Senator  Hollis.  Mr.  Quick,  if  you  will,  please  tell  us  what  inter- 
est you  have  had  in  the  matter  of  rural  credits,  and  any  special  study 
you  have  made  of  that  subject. 

Mr.  Quick.  Well,  gentlemen,  I  do  not  know  that  I  have  made  any 
such  study  of  rural  credits  as  entitles  me  to  speak  to  you  here.  I 
suspect  that  all  of  you  know  more  about  it  than  I  do.  I,  however, 
have  been  studying  the  agricultural  situation,  and  have  studied  it 
from  a  practical  point  of  view,  and  for  years  I  have  been  editor  of 
the  Farm  and  Fireside,  which  is  a  national  paper  and  goes  to  every 
part  of  the  United  States.  Any  advantage  that  I  have  had  consists 
in  the  fact  that  I  have  been  obliged  to  learn  all  I  could  about  the 
United  States,  rather  than  any  one  location. 

It  has  seemed  to  me  for  a  long  time  as  though  some  better  system 
of  rural  credits  is  needed  in  some  parts  of  the  country.  I  think  if 
we  take  up  this  matter  as  a  thing  of  universal  application,  instead 
of  thinking  of  farm  credits  as  a  thing  which  can  be  decided  accord- 
ing to  the  differing  local  conditions,  we  are  going  to  make  a  mistake. 
For  instance,  I  do  not  believe  that  the  farmers  of  the  Middle  West, 
where  lands  are  uniform  in  quality  and  very  high  in  value,  and 
where  a  man  might  take  a  mortgage  on  any  farm  without  much 
reference  to  its  inspection  and  come  out  all  right  on  the  market, 
needs  a  system  of  farm  credits  as  badly  as  the  portions  of  the  coun- 
try which  lack  uniformity  in  soil,  lack  a  developed  loan  system,  and 
really  need  development  rather  than  any  very  radical  change  in 
their  financial  system.  For  instance,  in  the  State  of  Iowa  it  has 
been  possible  for  a  long  time  to  borrow  money  on  almost  any  farm 
at  5  per  cent,  sometimes  even  less  than  that. 

Senator  Hollis.  Mr.  Quick,  do  you  mean  that  the  average  farmer 
actually  gets  his  money  as  low  as  5  per  cent,  taking  into  account 
lawyers'  fees  and  commissions? 

Mr.  Quick.  I  was  going  to  add  that  I  had  letters  from  farmers  in 
Oklahoma  and  in  the  South  who  are  absolutely  unable  to  get  money 

799 


800  RURAL   CREDITS. 

now  at  terms  of  less  than  10  to  L2  per  cent,  and  as  high  even  as  20 
per  cent. 

Senator  Hollis.  How  about  in  [owa?  Do  you  think  that  farmer 
himself  gets  his  money  actually  ;ii  5  ]j<t  cent  in  Iowa? 

Mr.  Quick.  I  am  inclined  to  think  in  Iowa  a  5  per  cent  mortgage 
will  be  renewed  in  five  years  at  a  nominal  expense,  which  will  consist 
of  about  $5  as  a  fee  for  reexamination  of  the  title,  to  see  whether  or 
not  there  have  been  any  liens  filed  or  accrued  against  the  land  in  the 
meantime.  That  is  not  very  burdensome.  Well,  take  my  own 
place — I  have  a  farm  up  here  at  Berkeley  Springs.  I  am  building 
a  house.  Probably  the  building  I  am  going  to  put  up  would  not 
come  within  the  purview  of  any  system  of  farm  mortgages  or  farm 
credits  anyhow,  but  suppose  it  is  an  improvement  that  could  come 
under  the  system.  I  wrant  to  borrow7  $5,000  this  year.  I  tried  to  get 
the  loan  first  in  my  local  town,  where  the  banks  are  small.  They 
said.  "  Yes;  we  would  be  very  glad  to  loan  you  the  $5,000.  but  wTe  can 
not  loan  it  for  any  length  of  time  ";  but  the  banker  said.  "  I  will  go 
down  to  Baltimore,  and  if  you  will  give  me  a  mortgage  on  the  farm  I 
think  I  can  put  it  up  down  there  and  get  the  money."  The  Baltimore 
banker  said.  "  We  would  be  very  glad  to  accommodate  Mr.  Quick, 
but  we  can  not  loan  on  anything  but  stocks  and  bonds  and  things  we 
know  the  value  of."  "  But,"  said  my  friend,  "  I  will  take  his  mort- 
gage and  sign  his  note  with  you,  because  I  think  he  is  all  right."  but 
he  would  not  even  take  the  indorsement  of  the  president  of  my  local 
bank  on  any  paper  that  would  be  indirectly  supported  by  a  farm 
mortgage. 

And  all  over  the  South,  all  over  a  good  part  of  the  Southwest,  and 
over  a  large  proportion  of  the  United  States,  there  is  absolutely  no 
means  wrhatever  for  a  farmer  to  get  money  in  a  broad  way  on  the 
security  on  farms.  There  is  no  direct  market  for  farm  mortgages. 
There  is  no  way  by  which  the  investor  of  New  England  or  New  York 
can  know  whether  a  farm  mortgage  is  good  or  not.  There  is  not  any 
standardized  method  of  getting  those  loans.  The  whole  business  of 
inspection  of  loans,  of  the  original  placing  of  the  loan  in  a  safe  way, 
and  all  that,  is  in  a  state  of  absolute  anarchy,  and  in  my  opinion  the 
biggest  work  that  Congress  can  do  is  to  put  into  effect  some  plan  by 
which  the  market  for  farm  mortgages  will  be  broadened,  so  that 
people  who  never  saw  a  farm,  people  who  do  not  know  anything 
about  farm  people,  who  have  no  method  of  protecting  themselves 
against  bad  loans,  will  be  protected  by  some  governmental  agency 
that  will  assure  them  that  the  security  for  the  money  they  invest  is 
good.  That  is  a  very  important  matter,  the  making  of  the  market 
for  farm  loans  universal,  so  that  anybody  that  has  $100,  and,  if  it  is 
possible,  make  it  as  low  as  $25,  or  any  larger  sum,  may  safely  invest 
in  farm  loans.  So  that  a  man  working  on  a  railroad,  for  instance, 
who.  under  present  conditions,  buys  post-office  money  orders  so  as  to 
have  the  Government  back  of  his  savings,  or  puts  his  money  in  postal 
savings  banks.  wThen  he  has  accumulated  $25  or  $100  or  $500  may  buy 
a  bond  based  on  a  farm-land  mortgage.  If  you  can  put  through  some 
legislation  that  will  obtain  a  market  for  farm-land  mortgages  in  that 
way,  I  think  von  will  do  ;i  very  great  thing  for  the  people  of  the 
United  Stan-.' 


RURAL   CREDITS.  801 

Mr.  Bulkley.  That  is  apart  from  the  question  of  rates  of  interest? 
That  is  a  question  of  getting  a  loan  at  all,  is  it  not  ? 

Mr.  Quick.  It  is  a  question  of  getting  a  loan  at  all.  I  know  some 
gentlemen  who  went  down  to  the  Lake  Charles  district  in  Louisiana. 
They  had  some  rice  lands  down  there,  and  they  organized  a  little 
bank  there  for  the  purpose  of  carrying  on  a  loan  business.  They 
started  operations  and  began  loaning  to  farmers  in  that  vicinity. 
They  immediately  found  that  they  had  done  a  very  terrible  thing. 
The  bankers  in  that  vicinity  were  all  very  much  incensed  at  the  idea 
of  those  men  from  the  North  coming  down  there  and  disturbing  their 
financial  system,  which  consisted  in  this:  If  a  farmer  wanted 
money,  he  did  not  go  to  the  bank,  but  he  went  to  his  merchant, 
whoever  it  might  be,  the  merchant  went  to  the  bank  and  borrowed 
the  money  and  paid  the  bank  rates  and  advanced  to  the  farmer  a 
sufficient  amount  of  money  to  carry  him  through.  The  farmer  then 
was  supposed  to  buy  all  of  his  supplies  of  that  merchant,  and  sell 
him  all  his  products.  The  merchants  all  over  the  South — I  should 
not  say  "  all  over,"  because  it  may  not  extend  all  over  the  South, 
and  I  may  be  making  my  statements  too  broad,  but  so  far  as  I  know 
it  is  all  over  the  South,  the  local  merchants  have  that  kind  of  system, 
by  which  for  an  article  for  which  they  charge  $1  to  a  man  who  pays 
cash,  they  charge  $2,  or  something  like  that,  if  he  is  a  farmer  who 
is  indebted  to  the  store.  And  it  is  that  kind  of  a  situation  that 
the  people  of  the  South  and  the  people  in  the  more  backward  dis- 
tricts of  this  country  need  to  have  a  market  to  get  them  out  of.  It 
is  an  oppressive  thing.  It  is  just  about  the  situation  which  pre- 
vailed in  Austria  when  the  Austrian  Government  began  to  estab- 
lish the  Landschaften  and  Raeffeisen  banks  for  the  purpose  of  get- 
ting farmers  out  of  the  clutches  of  a  class  of  men  who  were  just 
simply  sucking  their  blood.  I  do  not  mean  to  say  that  the  people 
who  are  doing  this  thing  are  consciously  bloodsuckers,  but  it  is  a 
system  which  has  grown  up  in  that  section  of  the  country,  and  it  is 
an  incubus  upon  its  development. 

Mr.  Platt.  Mr.  Quick,  may  I  interrupt  you? 

Mr.  Quick.  Yes. 

Mr.  Platt.  You  spoke  of  some  men  who  went  down  into  the  Lake 
Charles  district  and  found  they  had  done  a  very  terrible  thing.  Do 
not  those  merchants  control  politically  and  every  other  way  and  will 
there  not  be  trouble  getting  an  institution  started  there  because  of 
their  control? 

Mr.  Quick.  I  do  not  know  about  that. 

Mr.  Platt.  We  had  a  man  here  the  other  day  who  said  that  the 
statements  he  was  making  were  likely  to  get  him  into  trouble  from 
those  people. 

Mr.  Quick.  I  have  known  cases  in  which  that  no  doubt  would 
happen,  but  I  do  believe  this:  That  whatever  you  may  do,  if  you 
enact  wise  legislation  it  will  not  begin  to  have  a  very  strong  in- 
fluence to-ivorrow  or  the  next  day ;  but  if  in  10  years  from  now  it  will 
have  accomplished  this  result  it  will  be  a  piece  of  very  wise  states- 
manship. I  am  not  expecting  this  result  to  be  immediate.  The 
South  is  now  looking  up.  The  farmers  of  the  South  are  among  the 
most  teachable  in  the  world.  They  are  better  than  the  northern 
37031—14 51 


802  RURAL   CREDITS. 

people  in  that  respect.  Dr.  Knapp's  work  has  shown  that  the  farm- 
ers of  the  South  can  be  taught.  They  are  bringing  about  a  revolution 
in  their  practical  operations.  A  large  and  growing  number  of  farm- 
ers in  the  South  are  proud  of  the  fact  that  they  are  farmers,  who  are 
making  money  on  their  farms.  They  started  from  a  much  lower 
plane  than  the  northern  farmer,  but  I  believe  they  are  getting  out  of 
that  plane,  and  I  believe  they  need  some  such  system  of  farm  credit. 

Mr.  Platt.  Can  a  northern  farmer  go  into  the  South  and  actually 
work  with  his  own  hands  without  losing  money? 

Mr.  Quick.  Some  places  he  can,  but  he  will  be  better  off  if  he 

Mr.  Platt  (interposing).  Do  the  southern  farmers  work,  or  do 
they  get  somebody  else  to  do  the  work  ? 

Mr.  Quick.  There  is  a  large  number  of  white  men  in  the  South 
who  are  working  and  working  well  and  working  hard,  and  the  num- 
ber is  increasing  very  largely.  In  every  part  of  the  country,  if  you 
go  to  the  very  finest  people  in  the  towns,  they  will  tell  you  that  they 
have  a  higher  appreciation  of  the  man  who  works  with  his  hands 
than  they  have  of  the  man  who  does  not.  Of  course  that  is  to  some 
extent  an  intellectual  appreciation  rather  than  sentimental. 

Mr.  Platt.  And  that  is  growing? 

Mr.  Quick.  That  is  growing.  That  is  aside,  however,  from  the 
matter  of  rural  finance. 

I  think  that  the  first  thing  that  is  necessary  is  to  furnish  capital 
to  farmers.  If  I  had  known  I  was  going  to  have  this  privilege, 
which  I  appreciate  very  highly,  I  would  have  prepared  myself  with 
some  figures  from  the  State  of  Wisconsin  which,  I  presume,  you  may 
have.  They  are  available,  have  been  published,  and  represent  the 
work  of  Dr.  D.  H.  Otis,  of  the  University  of  Wisconsin.  Dr.  Otis 
has  been  getting  reports  from  farmers  as  to  their  profits  on  their 
operations — profits  or  losses.  In  a  great  many  cases  they  are  losses. 
That  is  in  Wisconsin.  He  has  published  a  very  interesting  bulletin 
on  this  subject  in  which  he  shows  that  the  farm  is  profitable  in  Wis- 
consin just  in  proportion  to  which  its  value  is  represented  by  the  im- 
provements— rather  than  tied  up  in  lands.  In  other  words,  the  farm 
which  has  100  per  cent  land  value  is  the  ideal  poor  farm — the  farm 
that  produces  the  poorest  results.  The  farm  which  has  perhaps  50 
per  cent  in  value  of  improvements  is  the  ideal  farm  for  profits. 

Mr.  Platt.  By  improvements  you  mean  buildings? 

Mr.  Quick.  I  mean  productive  improvements.  I  mean  live  stock 
and  drainage  and  fencing  and  silos  and  barns  and  other  improvements 
for  carrying  on  farm  operations.  I  think  that  farms  having  40  or 
50  per  cent  of  their  value  in  improvements  (productive  improve- 
ments) paid  about  the  highest  returns  to  the  farmers  of  any  farms 
that  they  had  examined,  and  they  had  examined  hundreds  of  them. 
I  state  this  fact,  and  you  can  get  the  exact  figures,  if  you  like,  be- 
cause they  are  available,  to  show  that  what  the  farmer  needs  is  capi- 
tal productively  invested.  Therefore,  I  think,  in  the  first  place  the 
plan  of  opening  up  the  money  markets  of  the  world  to  the  farmers 
so  that  they  may  get  the  capital  which  they  need  to  make  their  farms 
productive  ought  to  be  coupled  with  some  provision  that  the  money 
obtained  on  those  loans  should  be  productively  invested.  If  money 
is  loaned  to  farmers  merely  because  they  have  land,  it  will  be  a  bad 
thing.    In  Dakota  and  Nebraska,  in  the  early  nineties,  after  a  pro- 


RURAL   CREDITS.  803 

longed  land  boom  there,  during  which  a  large  portion  of  that  coun- 
try was  taken  up  and  homesteaded,  the  business  of  making  farm 
loans  was  very  highly  developed.  There  were  great  concerns  in 
Kansas  City,  Omaha,  St.  Joseph,  Sioux  City,  and  other  towns  out 
there,  that  were  dealing  very  heavily  in  farm  mortgages.  They  would 
take  the  farm  mortgage  down  East  and  sell  it  to  Senator  Hollis  and 
his  friends 

Senator  Hollis  (interposing).  That  is,  our  bank! 

Mr.  Quick.  Yes;  your  bank.  Those  loans  had  been  very,  very 
good ;  they  had  paid  interest  all  along,  but  two  things  were  happen- 
ing: First,  lots  of  people  who  were  not  farmers  were  getting  tired  of 
their  lands;  and,  second,  the  seasons  were  bad.  At  that  time  a  great 
many  of  these  homesteads  were  reaching  a  point  where  they  could 
get  titles.  Many  and  many  an  instance  took  place  out  there  where  a 
man  made  his  application  for  a  loan,  which  was  sold  in  Vermont. 
Xew  Hampshire — all  over  the  country — to  savings  banks  and  other 
concerns.  He  made  his  application  for  a  loan,  so  that  the  money 
would  be  there  the  day  that  he  went  down  and  got  his  patent  from  the 
Government.  He  loaded  his  stuff  into  his  wagon,  went  down,  got 
his  patent,  made  his  mortgage,  took  his  money,  and  left  the  country 
snd  never  went  back  to  that  farm.  There  were  many,  many  instances 
of  that  kind.  There  are  many  people  who  own  land  who.  if  they 
could  get  a  loan,  would  simply  get  the  loan  and  leave  the  country. 
For  it  is  perfectly  obvious,  to  my  mind,  that  in  any  proper  system  of 
farm  finance  you  must  have  not  only  local  organization  and  local 
moral  responsibility  for  the  loans,  but  you  must  have  local  financial 
responsibility,  so  that  if  the  loan  is  not  paid,  somebody  concerned 
Avith  the  making  of  it  will  have  to  pay  it.  If  you  do  not  do  that,  you 
are  going  to  have  the  possibility  of  booms  in  countries  that  are  not 
economically  sound,  and  your  system  will  receive  a  setback  and  a 
black  eye. 

Senator  Hollis.  It  has  been  suggested.  Mr.  Quick,  that  the  money 
loaned  should  be  confined  to  one  of  three  purposes:  First,  to  help  a 
man  purchase  a  farm  for  actual  cultivation;  second,  to  make  produc- 
tive improvements  on  the  farm ;  third,  to  refund  some  existing  obliga- 
tions on  the  farm.  Will  vou  discuss  those  three  objects?  Do  vou 
think  that  fills  it  ? 

Mr.  Quick.  Well,  I  think  there  is  danger,  as  well  as  great  possible 
good,  in  the  provision  for  floating  loans  for  purchasing  lands. 

Senator  Hollis.  That  is  done  so  as  to  permit  the  tenant  farmers, 
particularly  young  men  who  have  not  very  much  capital,  to  get  a 
good  instrument  and  not  spend  their  lives  on  a  rented  farm. 

Mr.  Quick.  That  object  is  certainly  good.  I  do  not  know  about 
the  words  "  productive  improvements."  I  presume  you  might,  per- 
haps, define  the  word  ';  productive  "  to  cover  pretty  nearly  what  you 
want.  Anyhow,  with  those  things  in  the  law,  it  would  be  an  im- 
provement over  the  present  conditions. 

Senator  Hollis.  There  is  no  doubt  that  farm  buildings  and  drain- 
age and  fencing,  etc..  would  come  in  under  productive  improvements. 

Mr.  Quick.  That  is  perhaps  true. 

Senator  Hollis.  Perhaps  I  should  not  use  the  word  "  productive," 
Is  that  in  the  bill? 

Mr.  Moss.  The  word  "  productive  "  is  not  in  the  bill. 


804  RURAL   CREDITS. 

Senator  Hollis.  No  ;  it  is  not  in  the  bill. 

Mr.  Platt.  Do  you  think  it  is  practicable  to  enforce  any  such  pro- 
vision ? 

Mr.  Quick.  Any  such  provision  as  what? 

Mr.  Platt.  As  you  have  just  been  speaking  of — to  say  what  the 
money  should  be  used  for? 

Mr.  Quick.  I  think  it  is  not  only  practicable,  but  I  think  it  is 
absolutely  essential  to  the  system. 

Mr.  Platt.  What  would  you  do  with  the  man  who  did  not  spend 
his  money  for  the  things  he  secured  it  for?  Suppose  he  wanted  to 
mortgage  his  farm  to  buy  a  few  shares  of  United  States  Steel  stock ; 
how  would  you  stop  him? 

Mr.  Quick.  I  should  say  that  it  would  be  perfectly  possible  for  a 
local  bank  to  so  conduct  its  affairs  that  it  would  know  what  the 
mone}T  was  going  to  be  spent  for.  I  think  it  would  be  perfectly  pos- 
sible for  the  loan  to  be  made  so  that  they  could  at  once  foreclose  if 
the  money  was  not  spent  according  to  the  arrangement.  I  under- 
stand that  the  loans  in  other  countries  are  loaned  under  similar 
conditions.  I  suppose  something  must  be  left  to  the  integrity  of  the 
man  and  that  is  the  advantage  of  a  local  concern.  A  man  that  would 
do  that  probably  would  not  be  able  to  get  a  loan  from  a  local  bank 
at  all,  because  they  would  know  that  he  is  a  rascal. 

Mr.  Platt.  He  is  not  a  rascal,  if  he  has  invested  his  money  in  a 
productive  enterprise  and  his  security  is  there. 

Mr.  Quick.  He  is  a  rascal  if  he  tells  them  he  is  going  to  invest 
it  in  improving  his  farm  and  then  buys  United  States  Steel. 

Mr.  Platt.  That  may  be.  Of  course,  he  is  to  the  extent  of  having 
made  a  false  statement. 

Mr.  Quick.  I  do  not  believe  that  there  would  be  much  of  that.  I 
think  that  where  the  responsibility  is  local,  both  moral  and  financial, 
where  there  is  a  liability  on  the  part  of  the  man  making  the  loan, 
they  are  going  to  be  able  to  protect  themselves. 

Senator  Hollis.  Do  you  think  that  liability  would  be  enough  if 
the  capital  of  the  bank  were  hazarded,  without  any  personal  liability 
on  the  part  of  the  bank  officers? 

Mr.  Quick.  I  think  so  •  if  the  stockholders  in  the  banks  were  liable 
at  least  to  double  liability,  and  perhaps  an  unlimited  liability  on 
their  stock,  to  pay  off  bad  loans,  I  do  not  believe  the  farmers  of  the 
United  States  would  organize  banks  rapidly  enough  to  meet  their 
wants  if  there  were  an  unlimited  liability. 

Mr.  Seldomridge.  Will  you  pardon  me  for  a  question  ? 

Mr.  Quick.  Yes. 

Mr.  Seldomridge.  The  bill  provides  for  a  minimum  capital  of 
$10,000,  with  loaning  power  to  the  amount  of  15  times  its  capital, 
but  only  provides  for  a  profit  of  1  per  cent  to  the  bank  for  perform- 
ing this  service.  Do  you  think  that  men  would  associate  themselves 
together  in  a  banking  corporation  with  double  liability  of  stock- 
holders, the  profits  of  which  would  not  possibly  go  beyond  as  small  a 
figure  as  $1,500?  In  other  words,  would  they  want  to  assume  lia- 
bility for  their  proportion  of  debt  that  the  bank  might  obligate  itself 
for? 

Mr.  Quick.  As  a  matter  of  act  there  is  not  any  liability  if  the  loans 
are  properly  made,  and  the  advantage  of  that  kind  of  organization 


SURAL   CREDITS.  805 

is  that  they  have  it  within  their  power  to  protect  themselves  against 
any  liability.  If  they  make  their  loans  properly  there  will  never  be 
any  losses;  it  is  almost  possible  to  say  that  there  will  never  be  any 
losses,  because  the  farm  will  always  be  worth  more  than  the  loan, 
and  there  will  be  men  who  would  be  perfectly  willing  to  take  it  for 
the  debt  if  they  have  to  meet  the  loan.  But  they  will  make  the  loan 
so  that  they  will  not  have  to  take  those  chances.  That  is  the  advan- 
tage of  a  local  system  instead  of  having  the  loans  made  from  afar  oil'. 
I  do  not  know  whether  they  would  be  very  keen  to  organize  them- 
selves into  banks  for  capitalistic  purposes  or  not,  but  I  do  believe  if 
farmers  are  permitted  to  organize  along  properly  cooperative  lines, 
that  there  will  be  great  local  interest  on  the  part  of  both  farmers  and 
capitalists.  I  believe  in  our  community  that,  almost  regardless  of  the 
profits  of  the  operations,  people  would  be  drawn  together  in  these  or- 
ganizations. Take,  for  instance,  the  town  of  Mason  City,  Iowa,  where 
for  30  years  there  have  been  city  building  and  loan  associations  operat- 
ing on  purely  cooperative  basis.  In  these,  in  most  cases,  there  are  no 
salaried  officials,  and  no  salary  whatever,  except  to  a  clerk  who  does 
the  work,  who  gets  about  $15  or  $20  a  month.  They  have  matured 
association  after  association,  and  if  you  should  go  to  that  town  you 
will  find  that  those  associations  are  formed  by  public-spirited  per- 
sons for  the  purpose  of  making  the  people  more  prosperous.  In  that 
town  many  people  are  living  in  homes  that  would  seem  to  the  average 
man  away  beyond  their  means  to  pay  for,  yet  they  own  them  and  have 
paid  for  them,  and  they  have  done  it  through  the  building  and  loan 
association. 

Mr.  Seldomridge.  Are  those  building  and  loan  associations  loaning 
to  farmers? 

Mr.  Quick.  No  ;  but  in  Ohio  they  have  begun  to  loan  to  farmers, 
and  they  loan  at  6  per  cent  and  receive  deposits  at  5  per  cent. 

Mr.  Platt.  Before  you  leave  that  question — you  are  talking  about 
limiting  loans  to  productive  purposes — I  would  like  to  put  that  ques- 
tion in  another  way.  If  you  limit  these  banks  to  loans  made  only 
for  certain  purposes  are  you  not  going  to  shut  them  out  from  get- 
ting a  great  many  of  the  best  loans  they  could  get?  Are  you  not 
going  to  limit  their  possibilities  for  competition  right  away?  For 
instance,  if  there  is  a  farmer  in  your  neighborhood  that  has  got  a 
good  farm  that  has  no  mortgage  on  it,  why  should  he  not  use  that 
farm  for  anything  he  wants  to,  if  his  security  is  good? 

Mr.  Quick.  I  will  answer  that  by  saying  that  it  is  my  belief  the 
need  is  not  for  a  sj^stem  which  loans  to  farmers  who  do  not  need  it 
but  rather  to  those  who  do  need  it. 

Mr.  Platt.  How  can  you  possibly  do  that? 

Mr.  Quick.  I  believe  I  have  answered  that  in  my  other  answer. 
In  the  first  place,  the  probabilities  are  that  a  large  majority  of  these 
farms  that  are  not  mortgaged  at  all  would  be  able  to  use  loans  in  a 
very  productive  way  under  a  proper  agricultural  system.  They 
probably  need  drainage  or  silos  or  barns  or  live  stock  more  than 
the}'  have  now.  But  I  do  not  believe  that  we  need  to  take  into 
account  the  trade,  if  I  may  put  it  that  way,  of  a  man  who  does  not 
need  the  money  on  the  farm  to-day. 

Mr.  Platt.  I  agree  with  your  purpose  entirely,  but  it  seems  to  me 
you  are  going  to  limit  the  banks  and  make  them  less  liable  to  be  sue- 


806  RURAL   CREDITS. 

cessful  if  you  shut  them  out  from  entering  into  competition  which 
is  legitimate  farm  loaning. 

Mr.  Quick.  If  that  field  is  as  large  as  you  think,  I  think  it  would 
be  perfectly  proper  to  shut  it  out  for  the  sake  of  accomplishing  the 
other  objects. 

Now,  I  think  any  system  of  rural  finance  will  fail  of  its  best  good 
if  you  do  not  take  into  account  the  educational  value.  I  have  had  a- 
rather  long  correspondence  with  Senator  Norris,  of  Nebraska,  about 
that.    He  has  a  bill  in  the  Senate  for  making  loans  direct  to  farmers. 

Senator  Hollis.  You  mean  the  Government? 

Mr.  Quick.  For  the  Government  to  make  loans  directly  to  farmers. 

Senator  Hollis.  You  will  discuss  that  before  you  finish,  I  hope. 

Mr.  Quick.  In  view  of  the  fact  that  I  am  going  on  in  a  rambling 
sort  of  way.  I  might  as  well  say  what  I  have  to  say  on  that  now. 

The  Senator's  bill  provides  for  Government  loans  at  3^  per  cent,  I 
think,  the  avails  to  be  loaned  to  farmers  at  4  per  cent.  I  do  not 
believe  that  the  Government  can  borrow  money  at  3^  per  cent  when 
it  starts  out  to  make  as  many  loans  as  it  would  have  to  make  in  order 
to  take  over  the  entire  loan  business  of  the  United  States,  which  it 
certainly  would  have  to  do  if  it  started  out  with  such  a  system  as 
that.  I  do  not  believe  the  Government  could  go  into  the  money  mar- 
ket to-day  and  do  it.  Canada  had  bonds,  over  $20,000,000  of  them, 
on  the  Canadian  market  in  the  last  four  or  five  months,  and  there 
was  only  17  per  cent  of  them  subscribed.  The  war  preparations  of 
the  world  and  vast  permanent  investments  are  calling  for  such  enor- 
mous sums  of  money  that  every  corporation  and  man  who  has  to 
borrow  more  than  $1,000,000,  in  fact,  no  matter  how  little  he  is  seek- 
ing to  borrow,  is  competing  with  the  Governments  of  the  world. 
Everywhere  they  are  raking  and  scraping  together  all  the  liquid 
capital  of  the  world.  Liquid  capital  is  now  so  far  exhausted  all  over 
the  world  that  I  do  not  think  that  any  such  system  of  Government 
loans  stands  any  chance  of  success.  British  and  French  securities 
have  sold  for  the  last  year  lower  than  for  80  years.  German  land 
bonds  have  sold  within  the  last  year  for  more  money  that  Govern- 
ment bonds.  I  do  not  believe  the  Government  could  go  out  and  take 
over  the  loan  business  of  the  United  States  without  so  disturbing  the 
money  market  as  to  drive  the  interest  above  3i  per  cent  for  even  such 
a  customer  as  the  United  States  Government. 

Mr.  Bulkley.  Mr.  Quick,  a  witness  told  us  the  other  day  that 
New  Zealand  4  percents  were  selling  at  substantially  par.  New 
Zealand's  bonded  indebtedness  is  perhaps  8  or  9  times  as  great 
as  ours,  but  they  are  in  this  business  of  loaning  farmers  direct. 

Mr.  Quick.  While  New  Zealand's  debt  is  tremendously  high,  she 
has  assets  back  of  those  debts. 

Mr.  Bulkley.  Under  any  proposed  plan  of  Government  loans  to 
farmers,  we  would  have  assets. 

Mr.  Quick.  Yes ;  we  would  have  assets  back  ot  it. 

Mr.  Bulkley.  That  is  a  country  of  1,000,000  people. 

Mr.  Quick.  I  know;  but  those  bonds  are  just  as  good  as  ours;  it 
has  the  British  flag  floating  over  it;  it  is  a  new  country;  its  fertility- 
is  enormous;  its  production  is  wonderful,  and  I  presume  the  bonds 
of  New  Zealand,  based  upon  land  values,  are  just  as  good  as  those  of 
the  United  States.  I  do  not  believe  the  United  States  could  get  money 
for  less  than  New  Zealand  does. 


RURAL   CREDITS.  807 

That  is  my  first  objection  to  the  plan.  The  second  objection  to 
the  plan  is  this :  That  the  United  States  in  dealing  with  those  loans 
at  arm's  length  and  through  the  United  States  district  attorneys  or 
clerks  in  their  offices,  making  examinations,  passing  on  loans,  can 
not  do  it  safely;  that  it  must  be  done  through  men  who  are  locally 
interested  and  locally  responsible.  Furthermore,  the  United  States 
can  not  give  to  these  borrowers  the  service  that  they  ought  to  have. 
A  man  who  borrows  money  ought  to  have  some  service  as  well  as  the 
money.  He  ought  to  be  given  something  in  the  way  of  conference 
or  consultation  as  to  what  he  shall  do,  and  a  system  of  farm  loans 
which  requires  that  it  be  loaned  on  the  land  for  productive  purposes, 
it  seems  to  me,  will  have  great  educational  value.  When  a  man 
finds  out  he  is  a  bad  farmer,  who  is  doing  business  in  a  way  that 
everybody  knows  is  ruinous  to  his  land,  that  people  who  are  making 
loans  on  farms  refuse  to  take  him,  because  of  the  fact  that  his  loan 
will  not  be  used  for  productive  purposes,  because  he  does  not  know 
what  a  productive  purpose  is,  you  will  immediately  start  going  some 
such  process  as  has  been  going  on  in  European  countries,  particularly 
Denmark  and  Ireland,  where  the  cooperative  society  and  the  bank- 
ing society  and  the  local  bank  is  a  great  agency  for  the  dissemina- 
tion of  agricultural  intelligence;  and  as  I  said  to  Senator  Norris,  I 
would  rather  have  the  farmers  pay  6  per  cent  for  money  with  a  serv- 
ice of  that  sort,  which  would  be  educative  and  increase  the  efficiency 
of  our  human  resources,  than  to  have  them  get  it  for  3^  per  cent  and 
not  have  that  service. 

I  believe  that  the  advantages  of  any  particular  system  of  rural 
finance — and,  by  the  way.  I  have  not  read  these  bills;  I  have  not 
been  able  to  get  them — but  that  a  proper  system  of  rural  finance 
which  gives  that  kind  of  a  service  will  do  more  to  increase  the  prod- 
ucts of  our  fields  and  increase  the  efficiency  of  our  rural  population 
than  anything  else  that  can  be  done,  especially  if  they  can  be  induced 
to  organize  cooperatively. 

Mr.  Platt.  That  is  entirely  true,  but  it  seems  to  me  you  are  a  little 
bit  mixing  up  what  has  been  done  in  Europe.  You  are  mixing  the 
personal  credit  or  short-time  credit  with  the  long-time  credit.  I 
think  that  the  farm-mortgage  associations  do  not  attempt  to  say  that 
the  money  shall  be  spent  for  productive  purposes.  They  originated 
among  the  nobles,  and  the  money  was  spent  by  them  for  whatever 
they  pleased. 

Mr.  Quick.  Your  criticism  is  perfectly  correct.  But  I  think,  as 
a  matter  of  fact,  it  is  true  that  long-time  mortgage  loans  are  ex- 
tended to  farmers  in  very  many  countries,  New  Zealand  among  them, 
for  productive  purposes. 

Mr.  Platt.  Under  a  Government  loan  system  they  certainly  should 
be  limited,  if  it  is  possible  to  so  limit  them. 

Mr.  Quick.  So  there  is  no  reason  that  I  can  see  why  farm  loans  on 
mortgage  bonds  should  not  be  just  as  carefully  controlled  as  to  their 
use  as  personal  loans-  Of  course  the  American  farmer  needs  persona! 
credit  and  needs  that  very  much.  I  do  not  know  how  the  United 
States  Government  is  going  to  help  him. 

Senator  Hollis.  Do  you  think  a  man  would  be  likely  to  get  a  farm 
loan  direct  from  the  Government  with  reasonable  promptness? 

Mr.  Quick.  I  do  not  think  he  will  ever  get  it  at  all,  Senator. 


808  RUEAL   CBEDITS. 

Senator  Hollis.  1  mean  if  the  Xorris  bill  goes  through,  for  in- 
stance. Do  you  not  think  that  is  one  of  the  objections  there  will  be, 
that  there  would  be  too  much  red  tape,  and  it  would  take  too  long  to 
get  the  money? 

Mr.  Quick.  Of  course  I  think  it  is  proper  to  anticipate  some  such 
situation  as  you  suggest. 

Senator  Hollis.  I  have  had  some  experience  in  New  Hempshire 
with  lands  that  were  taken  on  account  of  the  Forest  Service,  in  the 
Appalachian  Mountains,  and  it  has  taken  the  longest  while  to  get 
the  titles  examined  and  the  local  forms  complied  with,  to  get  the 
money  for  these  landowners  after  the  deal  had  actually  been  made. 
It  takes  a  long  while.  If  it  were  a  private  concern  involved  it  would 
have  been  done  in  two  or  three  weeks. 

Mr.  Quick.  That  is  perfectly  true.  It  sometimes  takes  12  to  15 
years  to  get  an  application  through  in  the  Patent  Office. 

Mr.  Platt.  Also  on  the  line  of  a  Government  loan,  do  you  think  it 
would  be  advisable  to  try  to  have  a  uniform  rate  of  interest  all  over 
the  country,  which  probably  would  be  the  result  of  direct  loans? 

Mr.  Quick.  I  think  it  is  not  only  not  advisable,  but  I  think  it  is 
impossible. 

Mr.  Platt.  You  do  not  think  it  would  be  advisable? 

Mr.  Quick.  I  do  not  think  it  would  be  advisable.  I  think  that 
the  rate  of  interest  should  be  rendered  as  low  as  possible  for  making 
the  land  bonds  attractive,  through  exemptions  from  taxation,  as  far 
as  possible,  and  then,  it  seems  to  me,  that  in  order  to  make  the  sys- 
tem economical,  so  that  one  region  wall  not  have  to  pay.  through  its 
excellence,  for  the  poverty  of  another  region,  so  that  every  region 
can  stand  on  its  own  basis,  so  that  the  rate  of  interest  ought  to  be 
a  thing  on  which  the  local  banks  themselves  can  work.  For  instance, 
if,  in  any  county  where  conditions  are  not  very  good  as  compared 
with  Iowa  or  Nebraska,  w^e  find  that  by  organizing  a  cooperative 
institution,  with  unlimited  liability,  we  can  get  money  for  44  per 
cent,  whereas  if  we  simply  stand  on  our  technical  rights  and  have 
only  a  double  liability  we  will  have  to  pay  6,  it  will  tend  to  render 
the  local  bodies  more  efficient.  I  think  that  the  whole  conduct  of 
this  business  should  be  thrown  on  the  people  themselves  for  their 
own  benefit.  If  it  succeeds,  let  it  succeed  where  it  can  succeed ;  if  it 
fails,  let  it  fail  where  it  has  to  fail.  For  instance,  manufacturers 
in  the  East  are  very  largely  paying  7  per  cent  for  their  money.  They 
are  issuing  7  per  cent  preferred  stock  to  carry  on  their  business.  If 
it  turns  out  that  the  legal  rate  of  interest  in  any  State  is  so  low 
that  nobcd}'  will  buy  the  land  bonds  at  that  rate  of  interest,  let  it 
fail  there  and  let  them  go  to  work  and  adjust  themselves  to  that 
situation.  On  the  other  hand,  if  any  farmers  anywdiere  can  so  thor- 
oughly transact  their  business  as  to  put  themselves  on  a  solid  basis, 
let  them  reap  the  benefit  in  the  lowest  possible  interest  rates.  If 
you  pass  this  bill,  I  can  assure  you,  gentlemen,  that  it  will  be  a  live 
issue  in  one  county  after  another  over  the  whole  United  States, 
"What  are  w7e  going  to  do  about  farm  loans?  "  When  the  farmers 
get  together  they  are  going  to  discuss  the  question,  "What  can  we 
do  to  get  lower  interest  rates?"  You  wTill  find  that  you  will  spread 
education  in  a  way  that  will  amount  to  something. 

Mr.  Platt.  I  think  there  is  no  doubt  about  that. 


RURAL   CREDITS.  809 

Mr.  Quick.  That  is  the  second  important  thing  in  the  whole 
scheme — the  educational  influence  of  it. 

Senator  Hollis.  What  do  you  say,  Mr.  Quick,  to  the  Government 
providing  to  look  after  land  banks,  supervise  them,  and  also  send  out 
agents  or  commissioners  to  demonstrate  what  can  be  done  in  the 
way  of  cooperation  among  farmers? 

Mr.  Quick.  Those  would  be  people  that  would  really 

Senator  Hollis  (interposing).  They  would  be  organizers. 

Mr.  Quick.  They  would  be  organizers? 

Senator  Hollis.  Yes. 

Mr.  Quick.  Well,  I  could  not  answer  that  question,  Senator.  I 
should  not  like  to  see  this  system,  in  the  matter  of  its  cooperative 
features,  pressed  faster  than  the  local  communities  are  ready  for  it. 
I  would  rather  they  would  not  be  pressed  too  fast. 

Senator  Hollis.  You  would  rather  that  they  work  from  the  bottom 
up  rather  than  from  the  top  down? 

Mr.  Quick.  I  would  rather  they  would  not  be  organized  than  to 
be  organized  too  soon.  You  see,  there  are  very  many  instances  of 
cooperative  organizations  that  were  started  too  soon.  I  think, 
though,  that  this  might  be  well  done,  and  I  think  it  ought  to  be  done. 
I  think  there  ought  to  be  some  agency  that  would  help  the  people 
that  want  to  cooperate — somebody  that  will  know.  For  instance, 
out  in  the  State  of  Montana  a  law  was  passed,  I  understand,  which 
forbids  the  establishment  of  cooperative  creameries  at  any  point  until 
the  State  dairy  commissioner  has  given  them  the  right  to  organize, 
the  object  being  to  prevent  the  promoters  of  creameries,  who  promote 
them  for  the  purpose  of  selling  supplies,  from  going  around  and 
organizing  creameries  where  there  is  no  economic  demand  for  them. 
The  State  dairy  commissioner  says,  "  How  many  cows  have  you 
here?"  "We  have  200."  "Well,  you  want  200  more;  wait  until 
you  get  200  more."  "  What  are  you  going  to  do  about  agreeing  that 
you  will  all  patronize  this  creamery  ?  "  "  We  have  not  got  around  to 
that  yet."  "  Well,  get  around  to  it;  let  us  talk  that  over."  If  we  get 
a  similar  service  for  the  farmers  in  the  matter  of  organizing  coop- 
erative land  banks  it  will  be  a  very  good  thing. 

Senator  Hollis.  It  takes  a  pretty  intelligent  man  to  sit  down  and 
read  the  income-tax  law  and  comprehend  what  it  means,  so  that  he 
could  make  a  return  on  a  blank  sheet  of  paper;  but  the  Government, 
by  providing  blanks,  directs  a  man's  attention  in  such  a  way  that 
a  man  of  average  intelligence  can  make  a  pretty  fair  return.  It 
struck  me  that  we  might  have  some  such  help  along  this  line — not  too 
paternalistic,  but  helpful — and  in  that  way  help  the  farmers  to 
organize  banks  and  cooperative  societies. 

Mr.  Quick.  The  Department  of  Agriculture  would  be  in  position 
to  furnish  not  only  things  that  would  correspond  to  blanks,  not  only 
communications  that  would  go  through  the  mails,  but  actual  men  to 
go  and  look  the  situation  over.  A  man  that  can  talk  intelligently 
about  any  such  organization  as  a  land  bank  or  creamery  should  be 
enabled  to  talk  to  the  men  themselves,  see  what  sort  of  people  they 
are,  what  they  look  like,  and  what  their  history  is,  because  it  is  pretty 
important  to  have  these  things  organized  properly,  and  they  can  be 
organized  too  fast  very  easily. 

Mr.  Platt.  Mr.  Quick,  what  do  you  think  of  fixing  the  rate  of 
interest  on  the  bonds?     Instead  of  making  a   rate  of  interest   at 


810  RURAL   CREDITS. 

which  thejT  would  sell  at  par  for  each  separate  community,  what 
would  you  think  of  putting  a  uniform  rate  at  5  per  cent  on  the 
bonds  and  let  them  take  the  market  as  they  would?  In  one  com- 
munity they  would  sell  at  DO.  another  80,  and  another  70. 

Mr.  Quick.  I  have  not  considered  that  question,  Mr.  Piatt. 

Mr.  Platt.  Would  that  not  be  a  pretty  effective  way  to  enable  the 
people  of  the  different  localities  to  know  about  what  their  standing 
was  with  relation  to  other  localities? 

Mr.  Quick.  Of  course,  it  will  all  work  out  in  the  end ;  but  I  do 
not  know.  I  have  not  considered  that  matter,  and  I  do  not  believe 
that  I  would  like  to  express  an  opinion  on  it. 

Mr.  Seldomridge.  It  has  been  contended  before  the  committee  with 
some  reason  that  in  order  to  find  a  market  for  the  bonds  it  would  be 
necessary  for  us  to  federate  these  banks,  rather  than  have  each  unit 
bank  issue  its  own  bonds;  that  the  only  way  in  which  we  can  find 
a  market  for  the  mortgage  bonds  is  by  bringing  the  small  units  to- 
gether in  some  State  federation,  or  some  central  body  that  will 
market  and  handle  the  bonds.     Have  you  thought  of  that  matter  ? 

Mr.  Quick.  It  would  seem  to  me  that  they  would  inevitably  have 
to  come  together  in  some  way.  If  you  do  not  do  it  they  would  have 
to  do  it.  I  do  not  think  that  the  farmers  of  the  country  would  be 
satisfied  with  a  law  that  would  require  them  to  sell  their  land  bonds 
through  any  particular  agency. 

Mr.  Seldomridge.  Would  they  not  more  readily  sell  their  bonds 
through  an  agency  established  by  the  Government  and  supervised 
by  the  Government?  Would  there  not  be  a  readier  market  for 
bonds  coming  through  that  kind  of  an  agency  than  through  an 
individual  or  corporate  agency? 

Mr.  Quick.  I  can  see  a  great  deal  of  advantage  in  the  matter  of 
satisfaction  on  the  part  of  the  people  in  giving  them  the  right  to 
sell  their  bonds  to  the  people  of  their  own  town  if  they  wanted  to. 
But  I  will  say  also  that  it  is  equally  true  that  they  should  have 
some  central  agency  to  sell  them  if  they  do  not  sell  them  in  their  own 
locality. 

Mr.  Seldomridge.  In  the  localities  which  you  mention  as  particu- 
larly needing  this  system,  and  in  which  they  are  unable  at  the  present 
time  to  finance  themselves,  perhaps,  would  it  not  be  necessary  that 
they  should  seek  an  outside  market  in  order  to  dispose  of  their  bonds, 
and  thereby  compel  them  to  establish  beyond  question  the  validity 
and  solvency  of  the  security? 

Mr.  Quick.  There  would  be  great  advantage  in  having  in  a  State 
like  Nebraska,  where  the  soil  is  very  varied  in  character,  where  some 
of  it  is  good,  the  best  in  the  world,  and  some  of  it  is  very  poor, 
i;ome  of  it  is  blessed  with  abundant  rains,  and  some  of  it  is  very 
«;rv — and  similar  conditions  exist  in  almost  every  State  except  Iowa, 
where  everything  is  good — I  think  it  would  be  almost  necessary  for 
them  to  get  together  and  have  something  else  besides  local  organiza- 
tions to  take  part  in  the  matter  of  selling  these  bonds,  but  how,  I 
do  not  know. 

Mr.  Seldomridge.  That  is  where  some  of  the  committee  and  some 
who  have  appeared  before  the  committee  contend  that  the  Govern- 
ment should  step  in  and  not  make  it  voluntary  cooperation,  but  a 
compulsory  cooperation;  that  there  should  be,  in  a  certain  way,  a 
double  appraisement  of  the  securities  offered  back  of  the  bonds. 


RURAL   CREDITS.  811 

Mr.  Quick.  I  am  not  prepared  to  say  that  I  agree  with  that.  I 
believe  that  local — I  am  not  opposed  to  organizations  and  I  think 
they  will  have  to  come — organizations  for  the  purpose  of  handling 
these  bonds  as  a  whole  and  exercising  some  degree  of  supervision 
over  the  placing  of  these  loans.     I  am  not  opposed  to  that. 

Mr.  Woods.  Mr.  Quick,  do  you  think  the  bonds  issued  by  a  little 
local  unit  could  find  as  ready  a  market  as  bonds  issued  by  a  State 
organization  composed   of   a   federation   of  these  local   units? 

Mr.  Quick.  I  do  not  think  it  could. 

Senator  Hollis.  Would  it  not  be  a  little  better  to  have  the  capital 
in  the  community  locally,  where  the  owners  of  it  would  know  their 
associates  in  the  farm-land  bank,  to  invest  their  money  in  the  capital 
of  the  bank,  taking  stock,  and  then  have  the  bonds  indorsed  or 
pooled  by  some  central  authority,  so  that  they  could  sell  to  outside 
capital  ?     Would  not  that  be  the  ideal  combination  ? 

Mr.  Quick.  The  thing  that  seems  to  me — I  am  putting  this  for- 
ward with  a  great  deal  of  diffidence — but  it  seems  to  me  that  the 
ideal  thing  would  be  to  have  an  arrangement  by  which  local  banks 
could  be  created  and  receive  outside  aid  or  not,  as  they  preferred. 
If  for  any  reason  they  were  too  poor  to  be  ready  to  do  it,  or  too 
badly  managed  to  be  able  to  do  it,  or  if  for  any  reason  they  were  so 
rich  that  they  did  not  need  to  do  it,  let  them  stay  out  of  the  federa- 
tion if  they  wanted  to ;  but  I  do  not  at  this  time  feel  that  the  country 
would  be  satisfied  with,  or  that  I  would  care  to  vote  if  I  were  in 
Congress  for  a  bill  setting  up  a  big  central  agency  through  which 
all  loans  must  be  handled.  But  I  do  believe  that  if  there  were  some 
way  of  enabling  these  local  banks  to  become  accredited,  so  that  their 
bonds  could  have  some  higher  certification  than  that  of  their  own 
local  bank  it  would  be  a  good  thing,  but  my  opinion  on  that  may  not 
be  worth  anything. 

Mr.  Platt.  You  think  that  the  system  ought  to  be  such  that  they 
can  organize  where  it  is  most  easy  to  organize  than  where — — 

Mr.  Quick  (interposing).  It  rather  seems  to  me  that  is  likely  to 
be  the  case.  I  have  become,  through  observation  of  such  things, 
suspicious  of  the  great  big  thing  that  is  going  to  start  all  over  the 
country.  Such  movements  do  not  grow.  The  successful  things  are 
things  that  grow  up  from  the  bottom,  like  the  northwestern  fruit 
associations,  like  the  Citrus  Fruit  Association  of  California,  like 
various  truck-farm  associations. 

Mr.  Seldomkidge.  Among  the  national  and  commercial  banking 
organizations  there  has  been  a  general  recognition  of  the  general  need 
of  coordination  of  the  banking  concerns,  and  mobilization  of  capital, 
banking  credit,  and  commercial  credit,  in  order  to  furnish  the  country 
with  a  currency  that  will  respond  to  the  needs  of  the  country,  and 
why  should  there  not  be  a  similar  coordination  of  farm  credit  in 
order  to  effect  a  like  mobilization  and  bring  results? 

Mr.  Quick.  Well,  I  am  not  disposed  to  say  that  there  should  not  be. 

Mr.  Seldomridge.  No;  and  I  am  not  disposed  to  say  that  there 
should  be,  but  the  idea  has  been  advanced  here  by  a  great  many  who 
have  appeared  before  the  committee,  that  that  really  must  constitute 
the  very  backbone  of  such  a  system  as  is  proposed. 

Mr.  Quick.  We  must  not  be  misled  by  analogy.  The  object  to  be 
accomplished  in  the  currency  bill  is  very  different  from  what  is 
sought  to  be  accomplished  here.     A  currency  necessarily  has  to  be 


812  RURAL   CREDITS. 

universal,  but  it  is  perfectly  proper  for  certain  farm-land  banks  to 
fail,  to  be  abortive  in  their  formation,  by  reason  of  being  allowed 
to  stand  on  their  own  feet,  but  yet  the  system  itself  may  be  good. 
I  personally  prefer  to  see  the  loans  handled  with  the  utmost  free- 
dom, so  that  if  the  business  men  of  any  community  say,  "Here,  we 
will  get  back  of  this  bank  and  buy  these  loans,  that  the  loans  can 
be  kept  in  the  community.''  Even  in  the  poorer  regions  there  is 
often  no  lack  of  wealth  in  the  community  at  large.  It  is  the  agri- 
cultural condition  that  is  low.  The  community  itself  may  be  very 
rich  and  the  people  of  that  vicinity  might  regard  it  as  a  patriotic 
duty  to  get  out  and  take  care  of  those  things,  just  as  the  bankers 
have  in  a  great  many  parts  of  the  country  gone  out  and  cooperated 
with  the  farmers  for  the  purpose  of  improving  their  agricultural 
operations;  in  order  that  the  farmers  might  get  on  their  feet,  and 
they  will  get  out  and  help  market  their  bonds. 

Mr.  Bulkley.  Why  could  they  not  do  that  now  without  any 
legislation  ? 

Mr.  Quick.  It  might  be  possible  to  build  it  up  by  a  system  of 
voluntary  action,  but  the  thing  that  we  lack  now  is  a  standardiza- 
tion of  conditions  under  which  the  loans  are  issued. 

Mr.  Bulkley.  Do  you  think  that  mere  standardization  would 
wake  them  up? 

Mr.  Quick.  A  standard  form  of  organization  would,  I  think, 
help. 

Mr.  Bulkley.  You  think  it  would  wake  them  up  to  do  things  that 
do  not  occur  to  them  now  ?    Is  that  your  thought  ? 

Mr.  Quick.  They  could  do  things  that  they  can  not  do  now.  How 
can  a  community  practice  rural  banking  now  and  issue  land  bonds? 

Mr.  Woods.  They  can  organize  trust  companies,  which  is  practi- 
cally the  same  thing. 

Mr.  Quick.  And  issue  debenture  bonds  ? 

Mr.  Woods.  Yes. 

Mr.  Quick.  Yes;  but  the  Federal  sanction  back  of  it  and  Federal 
supervision — the  fact  that  there  is  a  fiduciary  officer  whose  duty  it 
is  to  attend  to  the  amortization;  that  is  something  I  have  not 
spoken  of — to  attend  to  the  amortization  credits  and  all  that. 

Senator  Hollis.  To  give  them  information  and  block  out  a  way? 

Mr.  Quick.  Yes;  and  not  only  that,  but  stand  as  sponsor  for  the 
system  before  the  buying  public. 

Mr.  Moss.  Mr.  Bulkley  asked  wrhy  it  should  not  be  done.  Do  not 
the  laws  of  taxation  and  mortgages  and  about  securities  stand  as 
at  least  a  burden  in  some  places? 

Mr.  Quick.  I  think  so. 

Mr.  Bulkley.  Yes;  there  is  no  doubt  about  that,  and  I  had  that 
in  mind,  but  I  wanted  to  get  Mr.  Quick's  views  on  the  other  features. 

Mr.  Quick.  In  the  matter  of  amortization,  I  think  there  is  plenty 
of  experience  in  this  country  as  well  as  abroad  to  show  that  amorti- 
zation is  a  good  thing.  The  building  and  loan  associations  plan  is 
simply  an  amortization  scheme.  I  think  that  it  is  important  that 
the  amortization  should  proceed  at  least  as  fast  as  the  exhaustion 
of  the  fertility  of  the  soil.  That  is  one  point  I  think  ought  to  be 
borne  in  mind. 

Mr.  Bulkley.  Do  you  think  35  years  toe  long? 


RURAL   CREDITS.  813 

Mr.  Quick.  I  do  not  think  most  American  farmers  would  want  a 
loan  that  long,  but  they  ought  to  have  it  if  they  do.  At  the  same 
time  if  there  is  not  such  local  control  and  such  watch  as  to  prevent 
them  from  skinning  the  land  and  spoiling  it  inside  of  35  years  you 
would  have  some  losses  on  it. 

Mr.  Bulkley.  It  has  been  suggested  that  the  borrower  should  file 
an  annual  report,  which  should  be  approved  or  disapproved  by  some 
officer  of  the  bank.    What  would  you  think  of  that  ? 

Mr.  Quick.  I  do  not  know.  I  have  not  thought  of  that.  I  do 
not  believe  you  will  be  able  to  do  that.  Ordinarily  it  is  pretty  hard 
to  get  an  annual  report  from  a  farmer — any  kind  of  a  report.  I 
think,  as  a  matter  of  fact,  that  a  good  deal  of  the  condition  on  the 
farm  is  practically  incapable  of  being  put  into  an  annual  report. 
You  can  go  onto  a  farm  and  see  how  his  clover  looks  and  see  how 
his  fences  are  and  you  see  the  general  air  of  the  place  and  you  know 
the  farm  is  all  right.  On  the  other  hand,  you  might  see  everything 
that  would  be  put  into  an  annual  report,  but  it  would  not  be  worth 
anything.  Certainly  I  do  not  know  but  the  annual  report  is  all 
right;  it  might  keep  the  farmer  aware  of  the  fact  that  there  is  a 
God  in  Israel,  but  if  you  rely  on  your  annual  reports  it  will  be  a 
bad  thing:  and  it  is  true  that  where  you  have  your  annual  report 
you  will  rely  on  it. 

Mr.  Seldomridge.  Do  you  think  there  is  any  danger  in  the  matter 
of  appraisement,  giving  the  bank  the  right  to  issue  bonds  on  a  mort- 
gage of  its  own  appraisement  entirely? 

Mr.  Quick.  If  the  fellows  who  make  the  appraisement  are  finan- 
cially liable  for  any  errors  they  make,  I  think  that  is  the  highest 
safeguard  you  can  get.  As  soon  as  you  get  other  people  to  make 
the  appraisement  3'ou  begin  to  add  expense  and  trouble  to  your  sys- 
tem. That  is  the  way  it  strikes  me  at  first  blush.  I  am  liable  to 
say  a  lot  of  things  here  that  I  might  want  to  come  back  to-morrow 
morning  and  take  back. 

Mr.  Seldomridge.  Let  me  ask  you  as  to  your  views  in  the  matter 
of  short-time  credits.  Do  you  think  that  these  banks  should  under- 
take, in  any  way2  to  extend  to  the  farmers  accommodations  along 
the  line  of  short-time  loans  ? 

Mr.  Quick.  Do  you  mean  personal  loans  ? 

Mr.  Seldomridge.  Loans  on  personal  security — chattels. 

Mr.  Quick.  I  do  not  believe  so,  because  just  as  soon  as  they  begin 
to  mix  anything  up  with  mortgage  loans  they  are  likely  to  do  some- 
thing that  will  destroy  the  fundamental  basis  upon  which  they  get 
their  credit. 

Mr.  Seldomridge.  Some  conditions  have  been  presented  to  us  from 
gentlemen  living  in  sections  of  the  country  where  the  need  for  short- 
time  credit  is  even  more  pressing  than  even  the  need  for  land  credit. 

Mr.  Quick.  Now,  gentlemen,  as  to  that,  you  are  dealing  here  in 
this  matter  of  mortgage  loans  with  people  that  need  help  less  than 
anybody  else  in  the  rural-credit  business.  The  people  that  need 
help  are  the  tenant  farmers  that  do  not  own  anything  whatever; 
that  is,  unless  they  make  a  loan  and  buy  a  farm.^  Thirty-seven  per 
cent  of  the  farmers  of  Nebraska  are  tenant  farmers  and  are  home- 
less the  1st  of  every  March.  There  are  some  parts  of  Texas, 
Georgia,  Alabama,  and  Mississippi  where  90  per  cent  of  them  are 


814  BURAL   CREDITS. 

tenants;  literally  peons,  almost.  They  are  the  folks  you  have  not 
got  to  yet. 

Mr.  Seldomridge.  How  are  we  going  to  get  to  them  ? 

Mr.  Quick.  You  can  not  get  to  them  in  this  bill,  I  am  afraid. 

Mr.  Seldomridge.  Can  we  get  to  them  at  all  ? 

Mr.  Quick.  I  do  not  know. 

Mr.  Seldomridge.  You  have  studied  that  question? 

Mr.  Quick.  It  is  a  question  we  can  not  enter  into  at  this  time.  I 
would  like  to  deliver  a  lecture,  but  it  would  take  me  until  8  o'clock 
in  the  evening. 

Mr.  Seldomridge.  We  had  a  meeting  the  other  day  where  the 
views  were  pretty  well  expressed  in  less  time  than  that,  and  we  were 
confronted  with  a  condition  which,  to  my  mind,  was  very  serious, 
in  which  men  were  practically  in  a  state  of  commercial  peonage ;  had 
mortgaged  their  subsistence,  all  that  they  had  on  hand  and  what 
they  hoped  to  have. 

Mr.  Quick.  Yes;  the  condition  in  certain  sections  is  very  bad; 
and  a  system  of  credit,  under  which  a  man  can  capitalize  his  integ- 
rity and  his  industry,  is  sorely  needed;  but  it  does  not  seem  to  me 
that  that  is  under  discussion  here. 

Mr.  Platt.  In  certain  sections  of  the  country,  those  you  spoke  of, 
for  instance,  the  land  is  not  even  for  sale  to  the  tenants,  is  it?  And 
it  hs  been  urged  before  us — I  think  it  has  at  least  been  mentioned — 
as  a  possible  objection  to  this  system  that  it  might  encourage  tenants 
to  buy  farms. 

Mr.  Quick.  That  is  true.  The  American  system  of  landlordism  is 
the  most  unintelligent  and  most  cruel,  and  the  most  utterly  without 
any  basis  of  common  sense  of  any  system  of  landlordism  that  I  know 
of  in  the  world.  It  is  the  same  land  of  system  from  one  end  of  the 
country  to  the  other.  A  man  passes  through  the  pioneer  days  and 
proves  up  on  160  acres  of  land  out  in  Mr.  Woods's  district,  and  goes 
to  Fonda  or  some  other  town  out  there  and  lives  as  a  retired  farmer 
the  rest  of  his  life,  entering  into  an  arrangement  with  some  other 
man  which  constitutes  a  criminal  conspiracy  on  the  part  of  both  of 
them  to  rob  the  land  and  their  posterity.  That  is  going  on  all 
over  the  country,  and  any  system  of  farm-land  banks  will  not  meet 
that  condition. 

Mr.  Platt.  It  will  in  some  sections  of  the  country. 

Mr.  Quick.  It  may  in  some  sections,  I  think. 

Mr.  Platt.  But  as  a  matter  of  fact,  though,  isn't  it  true,  according 
to  your  observation,  that,  leaving  out  the  sections  of  the  country  in 
the  Southwest,  and  in  the  South  particularly,  tenants  are  tending 
to  become  owners  more  and  more? 

Mr.  Quick.  No;  they  are  tending  to  become  owners  less  and  less. 
That  is  inevitable.  It  was  perfectly  feasible,  when  I  was  a  boy, 
for  a  tenant  to  pay  for  a  farm  in  Iowa  in  a  few  years. 

Mr.  Platt.  I  did  not  put  my  question  just  exactly  right.  I  should 
not  have  said  more  and  more.  The  tenants,  as  a  matter  of  fact,  do 
purchase  farms,  and  the  statistics  seem  to  show  that  the  percentage 
of  tenantry  is  much  higher  among  the  young  men  than  the  older  men. 

Mr.  Quick.  Those  statistics,  however,  do  not  mean  very  much,  in 
view  of  the  fact  that  the  tenantry  in  all  ages  is  increasing  at  a 
tremendous  rate. 

Mr.  Platt.  Not  in  the  northern  part  of  the  United  States,  is  it? 


RURAL   CKEDITS.  815 

Mr.  Quick.  Yes. 

Mr.  Platt.  How  about  that,  Mr.  Coulter? 

Mr.  Coulter.  I  think  the  last  census  report  shows  8  or  10  States 
where  there  is  a  decrease  in  the  tenants,  the  actual  number  of  tenants 
in  proportion. 

Mr.  Quick.  What  States  are  those  ? 

Mr.  Coulter.  From  New  England  down  along  the  line. 

Mr.  Quick.  Yes ;  but  that  is  perfectly  explainable. 

Mr.  Platt.  Most  of  the  increase  is  in  the  South,  especially  where 
large  farms  have  been  split  up  and  put  out  to  tenants. 

Mr.  Quick.  The  increase  in  Iowa,  Nebraska,  and  Illinois  is  great. 

Mr.  Coulter.  Not  great,  I  think.  Some  of  them  show  not  to  ex- 
ceed over  2  to  5  or  6  per  cent. 

Mr.  Quick.  That  means  that  in  50  years  the  entire  thing  is  weeded 
out.    We  are  dealing  with  long  time  here. 

Mr.  Coulter.  It  is  a  very  small  increase. 

Mr.  Platt.  If  you  split  up  a  thousand-acre  farm  into  100  small 
farms  and  rent  them  out,  that  shows  an  increase  of  tenantry,  but  it 
might  be  a  mere  wedge  to  ownership  to  split  up  those  big  farms. 

Mr.  Quick.  On  the  other  hand,  where  50,000  city  people  go  out  into 
the  Berkshire  hills  and  buy  a  piece  of  land  to  live  on  in  the  summer 
and  50,000  more  buy  truck  patches  out  in  the  vicinity  of  the  towns, 
those  operations  show  an  apparent  decrease  in  farm  tenantry,  but  it 
is  not  a  real  decrease  at  all.  What  is  needed  in  order  to  determine 
that  matter  is  to  have  a  survey  made  of  the  agricultural  counties. 
I  think  if  that  survey  were  made  it  would  be  found  that  the  farm 
tenantry  is  universally  increasing.  In  the  East  there  is  a  tremendous 
number  of  people  going  out  from  the  cities  and  buying  farms.  Then 
there  is  nothing  to  be  made  by  landlordism  in  the  East;  there  is 
nothing  to  be  gained  from  landlordism  in  Vermont  and  New  Hamp- 
shire. 

Senator  Hollis.  That  is  perfectly  true.  I  own  a  farm  and  do  not 
operate  it  at  all  because  I  can  not  get  my  money  back.  I  am  letting  it 
grow  up  to  timber. 

Mr.  Quick.  I  know,  but  if  that  farm  were  in  Iowa  you  would  op- 
erate it.  You  would  not  rent  it  as  if  you  were  looking  after  the 
welfare  of  the  country  or  the  welfare  of  the  farm,  but  you  would 
expect  from  the  man  who  rented  it  from  you  every  last  cent  you  could 
get,  and  every  spring  you  would  change  your  tenant.  You  would 
get  dissatisfied  with  that  kind  of  a  man,  of  course.  Anybody  would. 
You  would  try  another  man,  and  finally  you  would  say  that  the 
American  people  are  deteriorating;  that  there  are  no  more  good 
tenants  left. 

Mr.  Platt.  There  are  a  good  many  big  farms  that  were  run  by 
hired  help  entirely,  but  now  they  are  run  by  tenants.  It  shows  an 
increase  in  tenantry,  but  it  does  not  show  any  going  backward. 

Mr.  Quick.  I  think  you  can  get  more  out  of  a  man  as  a  tenant 
than  you  can  as  a  laborer. 

Mr.  Platt.  That  may  be  all  true,  but  he  is  more  his  own  master 
as  a  tenant  than  he  was  as  a  hired  man.  He  is  more  on  the  way  to 
ownership  than  was  the  hired  man. 

Mr.  Woods.  I  think  the  hired  man  would  be  able  to  purchase  a 
farm  quicker  than  the  tenant. 


816  RURAL   CREDITS. 

Mr.  Quick.  As  a  matter  of  fact  the  records  of  farms  show  that 
in  many  cases  the  owners  do  not  get  as  much  return  for  their  labor 
as  the  hired  n  en  do. 

Mr.  Platt.  That  is  up  in  Senator  Hollis's  neighborhood. 

Mr.  Quick.  No;  that  is  in  Wisconsin  and  Iowa. 

Mr.  Platt.  No;  not  in  Iowa. 

Mr.  Quick.  Yes. 

Senator  Hollis.  I  think  that  is  true  to  a  great  extent.  That  is, 
you  allow  a  man  5  or  6  per  cent  on  his  investment  and  reckon  what 
he  pays  his  hired  man  and  what  he  gets  out  of  it  at  the  end  of  the 
year  the  hired  man  will  come  out  ahead  in  a  great  many  cases. 

Mr.  Quick.  The  fact  is  that  land  values  are  going  up,  and  a  man 
is  a  loser  as  a  farmer,  but  as  a  land  speculator  he  has  been  a  gainer. 
It  reminds  me  of  a  man  out  in  Iowa  who,  in  speaking  of  how  a 
certain  man  was  getting  along,  said :  "  Oh,  very  badly  indeed ;  Bill 
is  bankrupt,  but  his  wife  has  been  prospered  wonderfully — wonder- 
fully." In  this  case  as  a  landowner  he  has  "  been  prospered  wonder- 
fully," but  as  a  farmer  he  is  doing  rather  badly. 

Mr.  Platt.  That  brings  us  around  to  a  question  that  we  have 
asked  several  times  of  several  people.  Is  the  value  of  farm  land 
based  upon  productiveness  in  the  United  States  to-day  or  is  it  based 
upon  speculation,  or  what  is  it  based  upon? 

Mr.  Quick.  Well,  three  or  four  years  ago  I  got  it  into  my  head  that 
farmers  ought  to  have  some  different  arrangements  with  reference 
to  keeping  their  accounts.  I  discovered  that  a  farmer  can  not  keep 
books,  because  his  books  are  very  much  more  complex  than  the  aver- 
age bank  books,  if  he  keeps  them  correctly.  It  is  perfectly  absurd 
to  expect  a  farmer  to  hire  a  secretary  and  bookkeeper  to  keep  his 
books  on  a  farm,  therefore,  at  a  farm  club  in  a  Wisconsin  neighbor- 
hood, I  suggested  the  idea  of  cooperative  farm  credit,  and  the 
farmers  up  there,  being  thoroughly  progressive,  said,  "  Start  that 
here;  we  will  go  into  it.  If  Farm  and  Fireside  will  put  in  a  little 
money  toward  it  as  a  research  experiment,  we  will  do  the  rest  and 
get  the  University  of  Wisconsin  to  delegate  a  man  to  come  down  here 
and  keep  our  statistics;  we  will  keep  our  farm  accounts  cooperatively 
so  that  we  will  know  which  farm  makes  the  money,  and  will  have  an 
absolute  demonstration  of  our  operations  and  their  results."  I  went 
down  to  Prof.  Taylor,  at  the  University  of  Wisconsin,  and  said, 
"  Here,  can  you  find  me  a  good  man  that  will  do  this,  who  will  get 
me  up  a  set  of  books  ?  "  He  said,  "  Do  you  mean  to  say  you  have  a 
crowd  of  farmers  that  will  put  up  anv  real  monev  to  have  their  ac- 
counts kept  ?  "  I  said,  "  Yes."  He  said,  "  I  will  look  into  that."  I 
went  back  and  after  a  while  I  said  to  him,  "  How  about  those  books, 
Professor?"  He  said,  "I  have  not  got  them  ready."  I  went  back 
after  while  and  said,  "I'll  tell  you  what  I'll  do;  if  you  do  not  give  me 
those  books  for  that  system  of  accounts  for  the  farmers,  I  am  going 
down  to  Washington  and  get  Dr.  Spillman  to  give  them  to  me."  He 
said.  "  You  need  not  go  to  Spillman,  because  he  can't  help  you  any 
more  than  I  can."  He  said,  "  The  fact  is  I  don't  know  how  to  get  up 
a  set  of  books."  He  has  been  working  on  it,  but  up  to  this  time  he 
has  not  yet  got  up  a  satisfactory  system  of  farm  statistics. 

He  said.  "  Here  is  this  problem  for  one — of  course  there  are  plenty 
of  other; — if  a  man  can  make  80  cents  an  hour  raising  corn  for  his 
work,  and  only  65  cents  raising  tobacco,  which  had  he  better  raise? 


RURAL   CREDITS.  817 

Which  is  the  most  profitable,  tobacco  or  corn?  Of  course  a  man 
would  say  that  corn  is  15  cents  more  profitable  by  the  hour,  but  he 
can  do  tobacco  work  in  the  winter  when  other  work  is  slack.  There 
are  bigger  things  than  that  that  have  to  be  worked  out.  Those  are 
things  which  we  want  finally  to  work  out."  But  he  said,  "  What  are 
you  going  to  do  about  land  values?  Land  is  worth  $125  an  acre, 
we  will  say,  and  it  will  rent  for  $3.50  an  acre.  What  are  you  going 
to  do?  In  20  years  that  would  be  $70  an  acre.  What  are  you  going 
to  do  with  the  difference  ?  That  $125  is  the  market  value  or  price  of 
the  land,  and  $70  is  what  it  is  worth  as  a  productive  proposition. 
What  are  you  going  to  charge  the  surplus  to?  If  you  charge  it 
against  farming  it  is  unfair  to  farming."  I  said.,  "  Why  don't  you 
charge  it  to  land  speculation ;  that  is  what  it  is." 

He  said,  "Yes;  that  is  exactly  what  it  is."  That  answers  your 
question. 

Mr.  Platt.  That  brings  up  the  question  whether  it  is  going  to  be 
safe,  in  a  great  many  cases,  to  loan  50  per  cent  of  the  value  of  the 
land. 

Mr.  Quick.  I  do  not  mean  to  say  that  the  speculative  value  of  the 
land  will  ever  be  less,  unless  it  is  taxed  out,  because  the  pressure  for 
land  is  getting  greater  all  the  time,  and  if  loans  are  made  up  to  50 
per  cent  for  productive  purposes  I  think  it  will  be  safe— you  see  it 
is  not  a  matter  of  a  boom,  it  is  a  steady  pressure.  There  is  no  farm 
land,  I  believe,  in  the  world  that  is  on  a  more  stable  basis  than  those 
Prof.  Taylor  spoke  of. 

Mr.  Bulkley.  Speaking  generally,  land  values  have  not  grown 
less,  but  they  have  gone  up  in  certain  instances  ? 

Mr.  Quick.  They  have  gone  down  in  certain  places.  For  instance, 
in  New  York  City,  in  certain  localities,  land  values  have  been  all 
but  crushed. 

Mr.  Platt.  Farm-land  values  have  gone  through  the  same  thing  in 
New  York  State. 

Mr.  Quick.  That  was  owing  to  a  condition  that  never  will  happen 
again,  I  think,  Mr.  Platt.  When  the  prairies  were  discovered  and 
developed,  and  at  the  same  time  labor-saving  machinery  was  devel- 
oped, the  tremendous  opportunity  that  existed  in  robbing  virgin  soil 
of  its  fertility  and  mining  it  and  shipping  it  away  crushed  farming 
everywhere.  It  wrecked  the  European  farmer,  and  it  meant  many 
abandoned  farms  in  this  part  of  the  country. 

Mr.  Platt.  I  do  not  know  that  it  is  generally  known,  but  that  is 
absolutely  true,  and  that  was  due  to  the  fact  that  the  Government 
gave  away  great  tracts  of  land  in  the  West  that  ought  to  have  been 
sold,  it  seems  to  me.  instead  of  given  away.  At  least,  they  ought  to 
stop  giving  them  away  now.  There  is  an  Indian  reservation  opened 
up  every  once  in  awhile  and  lottery  tickets  given  away,  and  people 
crowd  around  by  the  thousands  to  get  that  land  free.  They  had  one 
only  a  short  time  ago.  It  does  not  do  much  harm,  of  course,  to  the 
eastern  farmers  now,  because  there  is  not  enough  of  it. 

Mr.  Quick.  Not  now.  There  is  not  any  trouble  about  the  West. 
It  has  already  reached  the  point  where  the  land  values  are  such  that 
they  are  absolutely  crushing  to  legitimate  farming.  Land  values  are 
so  high  that  it  is  hard  to  make  anything  on  them  for  a  man  that  buys 
now.     But  I  think  it  is  perfectly  safe  to  count  on  a  steady  increase 

37031—14 52 


818  RUBAL   CREDITS. 

in  the  land  values  even  in  the  East  and  South  and  the  forestry  belts 
of  the  North,  and  I  do  not  believe  there  is  any  danger  of  booms  in 
them,  because,  in  order  to  have  a  farm-land  boom,  you  must  have  some 
sort  of  country  that  you  can  divide  up  and  sell  in  township  tracts. 

Mr.  Platt.  You  would  except  such  land  from  that  statement  as 
can  be  used  for  orchards,  for  instance,  because  they  are  boomed? 

Mr.  Quick.  Oh,  yes;  I  would  except  those.  But  no  reasonable 
local  banker  would  loan  money  on  an  orchard  proposition,  unless  it 
was  to  some  man  who  was  giving  his  attention  to  it  personally,  and 
then  in  a  reasonably  small  way  that  would  come  under  their  obser- 
vation. 

Mr.  Platt.  "Would  you  limit  the  amount  of  loan  to  be  made  per 
acre  under  this  system? 

Mr.  Quick.  No. 

Mr.  Platt.  You  think  the  local  banks  would  take  care  of  that? 

Mr.  Quick.  I  think  they  would  have  to.  if  the  local  people  are  re- 
sponsible for  them. 

Mr.  Bulkley.  Would  you  limit  the  amount  to  be  loaned  any  one 
individual  ? 

Mr.  Quick.  I  do  not  know.     I  have  not  considered  that. 

Mr.  Bulkley.  There  was  a  question  I  wanted  to  ask  on  another 
subject,  though  I  did  not  want  to  divert  you  from  what  you  were 
saying.  What  do  you  think  would  be  the  desirable  par  value  of 
shares  in  these  land-mortgage  banks? 

Mr.  Quick.  Well,  they  ought  to  be  small  enough  so  that  people 
could  buy  them ;  and  in  the  cooperative  banks  I  think  it  ought  to  be 
one  man,  one  vote. 

Mr.  Bulkley.  Would  you  make  the  shares  $25  or  would  you  make 
them  as  low  as  $5  ? 

Mr.  Quick.  Why.  unless  he  is  required  to  pay  in  all  cash,  I  should 
say  that  $25  would  be  right.  When  you  get  down  to  $5  shares  you 
get  more  expense  in  handling  your  shares:  yet,  if  there  is  a  man 
in  the  community  that  wants  to  buy  one  share  at  $5  and  become 
interested  in  the  bank,  while  it  would  not  be  profitable  it  would  be 
a  nice  thing  to  have  that  fellow  encouraged  to  go  in,  it  seems  to  me. 

Mr.  Bulkley.  That  is  the  point  suggested,  and  $5  shares  have 
been  advocated. 

Mr.  Quick.  Of  course,  you  know  that  in  a  lot  of  mining  companies 
it  is  quite  common  to  sell  $1  shares.    It  is  generally  done.  I  think. 

Mr.  Bulkley.  It  is  very  generally  done;  is  it  not? 

Mr.  Quick.  Yes.  There  is  not  any  reason  why  the  shares  should 
not  be  made  small.    I  think  it  would  appeal  to  the  farmers  generally. 

Mr.  Platt.  There  would  be  some  danger  in  that.  A  whole  lot  of 
people  take  mining  shares  because  they  are  cheap.  As  some  man 
said,  a  mine  is  a  hole  in  the  ground  out  of  which  nobody  ever  takes 
anything. 

Mr.  Quick.  That  is  a  good  definition,  I  think.  That  would  be 
true  if  there  is  any  extraordinary  profit  to  be  made  out  of  the  farm- 
land banks.  But  I  do  not  think  there  is  very  much  money  to  be  made, 
as  a  banking  proposition,  out  of  them.  I  think  that  they  will  be  very 
largely  banks  that  will  be  run  for  the  purpose  of  paying  their  clerical 
help,  and  they  will  be  operated  to  a  very  large  degree  through  the 
public  interest  in  the  matter  of  farm  loans,  in  developing  the  coun- 


RURAL   CREDITS.  819 

try;  and  I  doubt  whether  the  danger  referred  to  would  exist;  but  it 
is  worth  considering. 

Mr.  Platt.  If  tnat  should  be  true — if  they  should  be  operated 
largely  through  altruistic  motives — would  that  not  have  a  tendency 
to  considerably  increase  the  value  of  land  ? 

Mr.  Quick.  Not  altruistic  motives,  but  motives  of  public  benefit. 
If  there  is  any  good  in  it  it  will  increase  the  price  of  land  anyhow. 
The  price  of  land  always  absorbs  the  value  of  everything  good. 

Mr.  Platt.  That  is  one  thing  we  have  been  particularly  desirious 
of  prohibiting. 

Mr.  Quick.  I  have  thought  of  that,  and  I  have  thought  of  it  very 
seriously.  In  this  matter  you  are  confronted  with  the  idea  of  either 
leaving  people  who  need  help  unhelped  or  contributing  to  a  flame 
that  is  fed  by  every  public  improvement,  anyhow.  If  you  are  going 
to  quit  public  improvements  because  it  raises  the  price  of  land,  you 
had  better  quit  everything. 

Mr.  Platt.  That  is  true,  too.  But  in  Europe  these  banks  are,  some 
of  them,  pretty  largely  profitable,  if  I  remember  Mr.  Moss's  state- 
ment and  that  of  others  who  have  been  there,  and  there  seems  to  be 
no  good  reason  why  they  should  not  be  here. 

Mr.  Quick.  Those  building  and  loan  associations  in  Ohio  do  busi- 
ness on  a  margin  of  1  per  cent  and  are  profitable. 

Mr.  Platt.  They  are  purely  cooperative? 

Mr.  Quick.  They  are  purely  cooperative.  There  are  always  men 
connected  with  them  that  are  making  salaries  out  of  them,  or  else 
they  would  not  go. 

Mr.  Platt.  Why  could  not  the  building  and  loan  associations 
handle  the  farm-loan  proposition  if  they  could  get  people  to  go 
into  it? 

Mr.  Quick.  These  banks  that  you  are  providing  for  in  here  will 
become  very  largely  the  same  thing.  What  you  are  doing,  as  I  see 
it,  gentlemen,  is  considering  the  matter  of  providing  the  applica- 
tion of  the  building  and  loan  association  idea  to  the  matter  of  farm 
loans  under  Federal  supervision.  That  is  about  as  big  a  thing  as 
you  can  do,  it  seems  to  me. 

Mr.  Woods.  Under  the  building  and  loan  association,  though,  a 
man  needs  but  very  little  money  to  take  advantage  of  it,  but  under 
the  provisions  of  this  system  a  man  must  be  reasonably  well  off;  he 
would  need  considerable  cash  to  take  advantage  of  it :  he  would  have 
to  have  sufficient  funds  to  stock  the  farm,  buy  the  machinery,  and 
have  50  per  cent  of  its  value. 

Mr.  Quigk.  Yes ;  the  benefits  will  not  go  to  the  man  who  has  noth- 
ing except  his  integrity  and  industry.  And  that  is  not  what  it  is  for. 
Yet  it  will  help.  Mr.  Woods,  enormously,  a  lot  of  men  who  are  very, 
very  close  to  the  line  of  bankruptcy  in  the  less  developed  parts  of  the 
country.  I  am  not  thinking  of  Iowa,  where  I  was  born  and  brought 
up.  Folks  out  there  are  pretty  Avell  off;  they  are  getting  along 
pretty  well.  I  am  speaking  of  the  northern  part  of  Michigan,  Minne- 
sota, and  a  whole  lot  of  the  country  which  is  pretty  good  country 
if  it  were  only  on  the  map  financially;  and  your  job  is  to  put  it  on 
the  map  financially,  and  see  that  the  people,  where  they  have  plenty 
of  money,  can  part  with  it  and  let  it  go  down  to  help  these  people, 
with  a  good  prospect  that  the  interest  is  coming  back  annually  and 
that  their  principal  is  going  to  be  paid. 


820  RURAL   CREDITS. 

Mr.  Plait.  Do  you  think  it  would  put  the  extreme  northern  part 
of  Minnesota  on  the  map  financially  for  the  farmers  and  citizens  of 
some  little  town  of  a  thousand  people  to  establish  a  little  bank  of 
$10,000  capital  and  issue  debentures? 

Mr.  Quick.  I  think  that  when  there  are  100  of  these  banks  in 
Minnesota  under  proper  Government  control  that  it  will. 

Mr.  Woods.  Would  they  not  get  more  benefit  if  those  loans  were 
known  as  coming  from  the  State  instead  of  some  particular  local 
community  ? 

Mr.  Quick.  I  am  inclined  to  think  they  would :  and  I  think  if  they 
are  given  permission  to  get  together  that  way  and  federate  that  they 
will  do  it.  If  your  law  makes  it  permissive  for  them  to  do  that,  so 
they  can  get  the  name  of  the  State  back  of  them,  it  will  help. 

Mr.  Seldomridge.  Would  there  not  be  some  danger,  Mr.  Quick,  of 
any  number  of  farmers  getting  together  in  these  small  towns  and 
forming  banks  simply  for  the  purpose  of  making  loans,  just  as  they 
did  years  ago — make  loans  and  then  go  away  ? 

Mr.  Quick.  If  your  Government  inspection  allows  them  to  do 
that.  But  your  bill  is  no  good  unless  it  has  an  inspection  system  that 
will  prevent  that. 

Mr.  Seldomridge.  I  recognize  that  is  something  that  must  be  gov- 
erned. 

Mr.  Quick.  It  must  be;  yes,  sir. 

Mr.  Seldomridge.  But  the  opportunities  for  doing  that,  in  my 
judgment,  are  greater  than  they  would  be  under  a  properly  consti- 
tuted system  that  would  compel  them  all  to  work  up  to  one  plan  and 
be  controlled  from  one  central  unit. 

Mr.  Quick.  Oh,  I  don't  know.  You  have  not  felt  very  much  evil 
effects  from  the  organization  of  national  banks  for  any  such  illegiti- 
mate purposes,  simply  because  you  have  a  bank-inspection  system. 

Mr.  Moss.  I  would  like  to  ask  you  a  question,  with  the  chairman's 
permission. 

Under  the  terms  of  any  bill,  the  land-mortgage  bank  could  not  be 
established  without  the  permission  of  the  Federal  authorities,  just  as 
a  national  bank,  and  would  you  not  presume  that  the  National  Gov- 
ernment would  inquire  close  enough  in  regard  to  the  character  of 
persons  asking  for  the  charter,  and  the  chances  for  success,  to  pre- 
clude the  organizing  of  any  bank  purely  for  speculative  purposes,  as 
suggested  by  Mr.  Seldomridge? 

Mr.  Quick.  I  should  say  so,  but  any  system  that  does  not  provide 
for  the  local  units  receiving  service — I  do  not  mean  a  blow  on  the 
head  to  prevent  them  from  doing  bad  things,  but  they  ought  to 
have  service  from  the  Government  in  establishing  these  banks,  so 
that  the  people  may  be  helped  by  experts  to  see  that  they  are  well 
organized.    What  we  need  is  not  so  much  inspection  as  service. 

Mr.  Moss.  That  is  exactly  the  idea — that  they  can  not  organize  the 
bank  under  Federal  control  without  permission  of  the  Government 
itself — and  an  investigation  not  only  into  the  character  of  the  men 
who  apply  for  the  charters  and  their  motives,  and  they  also  take  into 
consideration,  I  think,  in  applications  for  national-bank  charters 
the  chances  for  success.  I  think  that  is  true  in  regard  to  national 
banks  and  would  be  true  in  regard  to  land-mortgage  banks. 

Mr.  Quick.  I  should  think  it  ought  to  be  true. 


RURAL   CREDITS.  821 

Mr.  Woods.  That  would  be  true  for  a  year  or  two,  but  I  do  not 
think  it  would  apply  to  them  25  or  30  years  after  their  organization, 
as  the  conditions  will  change  and  the  owners  of  the  bank  will  change. 
It  is  an  entirely  different  proposition  with  a  land-mortgage  bank 
than  a  commercial  bank.  I  should  think  that  would  apply  with  the 
organization  of  the  bank. 

Mr.  Quick.  I  think  if  the  system  is  once  in  operation  it  will  have 
passed  its  critical  period. 

Mr.  Woods.  I  do  not  think  so.  I  think  the  critical  period  will 
come  in  after  some  8  or  10  years,  when  the  ownership  of  the  stock 
will  have  changed. 

Mr.  Quick.  I  suppose  there  is  some  provision  in  the  bill  against 
the  monopolizing  of  stock. 

Senator  Hollis.  Yes;  it  provides  that  only  10  per  cent  can  be 
owned  by  any  one  individual. 

Mr.  Platt.  What  is  the  objection  to  having  some  large  capitalist, 
for  instance,  go  through  the  country  and  organize  a  chain  of  these 
banks? 

Mr.  Quick.  That  would  be  true  of  the  capitalists'  land  banks. 
There  would  be  no  objection  to  that  at  all  in  the  case  of  capitalists' 
land  banks,  but  does  not  your  bill  provide  for  the  organization  of 
two  kinds  of  banks? 

Mr.  Platt.  Yes. 

Mr.  Quick.  One  cooperative?  When  you  come  to  the  cooperative 
bank  I  believe  it  is  important  that  nobody  should  have  a  large 
enough  interest  so  as  to  go  out  as  a  minority  stockholder  and  start 
injunction  proceedings.  The  stock  in  a  cooperative  bank  ought  to  be 
held  in  small  amounts,  but  where  the  bank  is  not  cooperative  is  there 
any  provision  for  ownership  of  the  stock  ? 

Senator  Hollis.  No. 

Mr.  Quick.  I  should  think  one  man  ought  to  be  able  to  own  all 
of  the  stock. 

Mr.  Moss.  The  mere  matter  of  having  a  limited  ownership  in  the 
cooperative  bank  is  another  idea  that  would  tend  to  preclude  the 
organization  of  a  cooperative  bank  unless  there  was  a  widespread 
demand  for  it. 

Mr.  Quick.  Yes;  that  is  true. 

Mr.  Moss.  The  idea  of  cooperation  is  to  get  a  number  of  persons 
actively  interested  in  it.  If  you  limit  the  ownership  it  precludes  the 
organization  of  a  cooperative  bank  except  in  those  localities  where 
there  is  a  large  number  of  people  that  want  it.  There  is  the  funda- 
mental proposition.  When  the  question  was  asked  Col.  Ousley,  of 
course,  I  knew  the  reason,  but  I  did  not  refer  to  the  section  of  the 
bill  and  I  did  not  give  the  reason.     That  is  the  reason,  however. 

Mr.  Bulkley.  Mr.  Quick,  the  par  value  of  the  shares  bears  some 
relation  to  another  subject  which  we  have  been  discussing.  Suppose 
you  had  shares  as  low  at  $5,  how  good  would  your  double 'liabil- 
ity be? 

Mr.  Quick.  Well,  I  suspect  when  you  come  to  organize  these  banks 
you  will  find  that  the  most  of  the  people  subscribing  stock  will  have 
to  put  up  just  as  much  money  if  the  par  value  of  the  stock  is  small 
as  if  it  is  large? 

Mr.  Bulkley.  What  I  mean  is  this:  That  you  might  have,  theo- 
retically, a  double  liability  of  stockholders,  but  if  you  find  that  the 


822  BUBAL   CBEDITS. 

greater  portion  of  your  stock  was  held  in  $5  blocks  it  would  cost  more 
than  $5  a  trip  to  collect  it. 

Mr.  Quick.  That  is  something  that  I  have  not  thought  of.  I  do 
not  believe  it  would  be  so,  but  that  is  a  point  upon  which  I  am  not 
prepared  to  say. 

Mr.  Seldomridge.  Would  it  not  be  easier  to  get  five  people  to  take 
five  shares  of  $5  each,  with  double  liability,  than  it  would  be  to  get 
one  person  to  take  one  share  of  $25  ? 

Mr.  Bulkley.  What  I  am  talking  about  is,  that  if  you  have  the 
double-liability  feature  at  all  it  ought  to  be  good.  If  you  get  into 
a  situation  where  you  can  not  enforce  double  liability  you  might  as 
well  admit  it  and  not  delude  yourself  that  you  have  such  a  thing 
when  it  is  not  there. 

Mr.  Quick.  The  money  will  all  have  to  be  furnished  by  people 
in  the  community  that  are  interested.  They  will  have  to  put  it  up 
or  they  can  not  organize. 

Mr.  Seldomridge.  Do  you  think  the  Government  of  the  United 
States  could  safely  invest  any  of  its  funds  in  land-mortgage  bonds? 

Mr.  Quick.  I  do  not  see  why  it  could  not. 

Mr.  Pratt.  You  do  not  think  that  is  necessary,  do  you?  You  do 
not  think  it  will  be  necessary  to  the  success  of  the  system? 

Mr.  Quick.  I  think,  perhaps,  cooperative  banks  might  very  prop- 
erly be  aided  somewhat  in  the  beginning  by  a  deposit  of  funds  or 
the  purchasing  of  some  of  the  bonds.  Of  course,  it  is  a  dangerous 
innovation  for  the  Government  to  start  these  things,  because  there 
will  grow  up  a  cry  for  them  to  do  that  everywhere. 

Mr.  Platt.  You  do  not  think,  ordinarily,  that  these  joint-stock 
banks  provided  for  would  be  sufficiently  attractive  for  outside  capital 
to  come  in  and  organize  them  ? 

Mr.  Quick.  It  would  depend  upon  how  much  money  they  can 
make  out  of  it. 

Mr.  Platt.  There  must  be  money  in  doing  that  kind  of  business 
or  the  Woodward  Trust  Co.  and  such  concerns  would  not  be  in  it. 

Mr.  Quick.  That  is  the  question. 

Mr.  Woods.  They  do  a  larger  business  on  their  capital  stock ;  they 
are  not  limited. 

Mr.  Quick.  You  see,  here  you  have  a  provision  for  limiting  the 
amount  of  business  to  be  done  on  the  capital  stock  such  as  no  other 
financial  organization  that  I  know  of  is  subjected  to. 

Mr.  Platt.  That  very  limitation  is  one  of  the  things  that  we  have 
not  absolutely  and  positively  accepted  yet,  and  it  is  subject  to  dis- 
cussion. 

Mr.  Quick.  Any  other  bank  can  loan  any  quantity  of  money  no 
matter  what  its  capitalization  is,  but  at  the  same  time  this  limiting 
of  the  volume  of  business  is  bound  to  make  the  double  liability  of 
stockholders  actually  mean  something,  which  it  does  not  where  the  op- 
erations are  too  large.  It  is  a  movement  in  the  right  direction.  But 
it  does  take  away  the  opportunity  of  engaging  in  large  operations  on 
a  small  capital.  I  have  not  given  the  matter  enough  thought  as  to 
be  able  to  say  whether,  in  my  opinion,  it  would  or  not,  but  I  believe 
that  it  would  be  a  good  thing.  I  do  not  want  a  rural  land  bank 
started  in  every  community  in  the  country  all  at  once  under  any 
bill  you  pass.  It  would  be  too  fast,  too  rapid,  and  absolutely  sure 
to  be  fatal.    I  just  would  like  to  see  some  arrangement  under  which 


RURAL   CREDITS.  823 

some  communities  that  are  intelligent  enough  and  live  enough  and 
are  conscious  of  their  needs  be  able  to  do  something  with  their  farm 
loans  in  such  a  way  as  to  work  themselves  out  of  their  difficulties, 
because  if  they  do  not  work  themselves  out  it  is  no  good  to  them 
anyhow. 

Mr.  Platt.  Speaking  of  that  question  of  profit,  now,  if  a  bank 
of  $10,000  capital  makes  loans  of  $150,000  and  has  a  margin  of  1 
per  cent,  it  would  make  $1,500,  and  its  overhead  charges  ought  not 
to  be  more  than  $500,  I  should  think,  and  that  would  leave  a  profit  of 
10  per  cent  on  its  capital. 

Mr.  Woods.  How  are  you  going  to  sell  your  bonds  ? 

Mr.  Platt.  I  do  not  say  that  would  be  the  cost  everywhere,  but  it 
seems  to  me  that  in  a  great  many  communities  they  would  make  10 
per  cent. 

Mr.  Quick.  I  am  not  a  banker,  and  I  can't  say ;  but  they  might  be 
able  to  do  that.    How  often  could  they  make  their  turnover? 

Mr.  Platt.  As  fast  as  their  amortization  payments  came  in  they 
could  make  new  loans;  they  could  keep  out  that  amount,  I  presume, 
right  along.  Of  course  that  contemplates  that  these  banks  will  be 
run  more  like  the  building  and  loan  associations,  and  not  be  open 
all  day,  but  perhaps  only  one  or  two  days  a  week,  or  something  like 
that.  ' 

Mr.  Quick.  There  is  no  reason  why  a  bank  of  this  kind  should  be 
open  all  the  time. 

Mr.  Platt.  I  do  not  see  why  it  should. 

Mr.  Quick.  They  ought  to  be  handled  very  economically. 

Mr.  Platt.  That  brings  in  another  question.  The  bill  allows  these 
banks  to  take  deposits  up  to  50  per  cent  of  their  capital.  Do  you 
think  that  is  a  good  thing  or  not  ? 

Mr.  Quick.  They  will  naturally  have  some  money  on  hand  at 
times;  people  will  come  in  and  get  a  loan  and  might  not  want  to 
take  it  out  immediately. 

Mr.  Platt.  It  would  be  a  great  convenience  in  many  cases  to  allow 
them  to  take  deposits,  of  course. 

Mr.  Quick.  It  might  be  all  right  to  allow  them  to  take  a  limited 
amount  of  deposits. 

Mr.  Platt.  That  brings  in  another  question.  What  are  you  going 
to  do  with  these  deposits? 

Mr.  Quick.  I  suppose  they  would  have  to  put  the  deposits  in  a 
bank  somewhere. 

Mr.  Platt.  Would  you  allow  them  to  loan  them  out  on  personal 
credit — to  do  any  kind  of  banking  business? 

Mr.  Quick.  I  am  afraid  that  would  be  unsafe.  Just  as  soon  as 
they  get  into  the  personal-credit  business  you  have  got  to  hire  a 
man  with  a  horse  and  buggy  to  look  after  that,  and  it  is  subject  to 
loss. 

Mr.  Platt.  Mr.  Moss  is  here  to  speak  for  himself,  but  I  believe 
it  is  his  idea  that  the  present  small  State  banks  which  are  doing  a 
mortgage  business  and  a  personal-credit  business  would  reorganize 
into  these  banks  if  they  were  given  the  chance  to  do  so. 

Mr.  Quick.  That  they  would? 

Mr.  Platt.  Yes.  What  do  you  think  of  that?  Of  course  there 
are  a  great  many  of  these  small  banks. 


824  RURAL    CREDITS. 

Mr.  Quick.  I  think  the  present  banks  are  much  more  likely  to 
organize  branch  farm  banks  for  the  purpose  of  giving  the  farmers 
accommodations,  and  let  their  clerks  take  charge  of  the  books.  You 
will  find  that  a  lot  of  these  little  banks  will  be  organized  if  you  pass 
this  law,  and  that  not  very  long  hence,  and  they  will  be  organized 
in  the  main  around  local  capital. 

Mr.  Platt.  Around  the  present  banks? 

Mr.  Quick.  Around  the  present  banks,  where  they  can  get  the 
folks  to  come  into  the  bank  when  they  come  into  town  in  the  after- 
noon and  keep  on  good  terms. 

Mr.  Platt.  That  is  one  thing  Mr.  Moss  expects  could  be  done. 

Mr.  Quick.  I  think  that  will  help.  But  I  do  not  believe  that  they 
will  reorganize  very  much  into  land  banks,  because  I  do  not  believe 
they  can  make  as  much  money  as  they  can  doing  a  commercial 
business. 

Mr.  Platt.  Of  course,  in  places  where  there  are  other  banks,  and 
these  banks  are  organized  around  them,  it  would  not  be  necessary 
to  allow  them  to  receive  deposits,  because  they  could  go  into  the 
banks  already  there;  but  in  places  where  there  is  no  bank  would  it 
not  be  convenient  to  allow  the  banks  to  receive  deposits  and  handle 
them  in  some  way  that  would  be  profitable? 

Mr.  Quick.  The  man  that  is  in  control  or  manager  of  one  of  these 
land  banks  out  in  the  country  somewhere,  who  keeps  deposits  on 
hand,  will  be  a  mark  for  every  yeggman  in  the  United  States.  They 
would  have  each  of  these  chaps  marked  down  and  go  and  blow  his 
little  tin  safe  and  take  the  deposits  out. 

Mr.  Platt.  I  think  that  is  so,  too. 

Mr.  Quick.  The  best  business  for  the  enterprising  man  to  go  into 
would  be  burglary  in  that  event. 

Mr.  Platt.  Robbing  the  post  office  seems  to  be  pretty  profitable. 

Senator  Hollis.  Have  you  completed  substantially  everything  you 
wanted  to  say? 

Mr.  Quick.  I  think  I  have. 

Senator  Hollis.  Will  you  let  us  have  these  reports  from  Wiscon- 
sin, if  you  have  them  ? 

Mr.  Quick.  They  relate  merely  to  the  matter  of  capital  on  farms. 
I  would  suggest  that  your  secretary  write  to  Prof.  D.  H.  Otis,  pro- 
fessor of  the  University  of  Wisconsin,  and  ask  him  for  them. 

Senator  Hollis.  We  are  very  much  obliged  to  you. 

(Whereupon,  at  1.05  o'clock  p.  m.,  the  subcommittees  adjourned 
until  Monday,  March  16,  1914,  at  10  o'clock  a.  m.) 


MONDAY,  MARCH  16,   1914. 

House  of  Representatives, 

Washington,  D.  C. 
The  subcommittees  assembled  in  joint  session  at  10  o'clock  a.  m., 
Hon.  Robert  J.  Bulkley  presiding. 

Present:  Senator  Hollis  and  Representatives  Stone,  Seldomridge, 
Weaver,  Hayes,  Woods,  and  Piatt. 

ADDITIONAL  STATEMENT  OF  S.  D.  SCUDDER,  OF  NEW  YORK  CITY. 

Mr.  Scudder.  Mr.  Chairman  and  gentlemen  of  the  committee,  you 
will  recollect  that  in  my  testimony  of  February  24,  1914  (p.  5  of 
the  joint  hearings) ,  the  two  chief  reasons  I  gave  for  granting  "  de- 
posit "  and  "  short-term-discount "  privileges  to  these  "  stock-mort- 
gage companies  "  or  "  land  banks  "  were :  First,  the  immediate  and 
really  more  important  need  for  giving  some  "  personal-credit  help  " 
to  that  largest  portion  of  our  agricultural  citizenship  now  entirely 
outside  the  pale  of  any  banking  facility  (and  I  do  not  include  in 
this  category  the  shiftless,  lazy  farmer).  Second,  the  physical  im- 
possibility of  starting  these  capital-stock  institutions  unless  made 
sufficiently  profitable  to  warrant  their  initial  creation.  This  latter 
reason  can  perhaps  be  met  by  eliminating  deposits  entirely  and  pro- 
viding some  such  simple  management  as  possessed  by  building  and 
loan  associations. 

I  am  still  of  opinion,  if  placed  under  the  Federal  reserve  board 
through  a  separate  State  or  "  regional "  system,  that  sufficient  de- 
posit and  discount  "  safeguards  "  could  be  effected  to  make  these  con- 
cerns as  solid  as  "  commercial  banks,"  and  that,  with  ample  Govern- 
ment backing  and  supervision,  the  investor  would  not  mind  this 
"banking  feature"  if  entirely  satisfied  respecting  the  bond  issues 
against  mortgages  on  the  amortization  plan.  If  later  on  this  com- 
mittee should  be  interested  in  seeing  an  outline  of  such  conservative 
rules  governing  "  mortgage  and  deposit  companies "  I  will  be  glad 
to  submit  same. 

In  order  to  meet  the  evidently  strong  opposition  to  such  a  "  com- 
bination of  banking  powers  " — which  opposition,  by  the  way,  ema- 
nates from  two  separate  and  distinct  sources,  viz,  from  those  who 
really  believe  that  a  mortgage-bond  feature  "  might  be  weakened  " 
through  a  deposit  and  personal-credit  department,  and,  secondly, 
from  those  who  look  with  alarm  on  that  kind  of  competition  which 
would  surely  develop  from  such  popular  institutions  as  "national 
mortgage  and  deposit  companies"  could  become — and  in  order  to 
bring  together  "  for  some  prompt  action  of  relief "  all  those  who 
have  thought  on  the  subject  and  who  earnestly  desire  a  beginning 
made  toward  personal-credit  aid  I  submit  the  following  simple 
remedy  in  the  belief  that  it  will  help  all  people  of  small  means, 

825 


826  RURAL   CREDITS. 

whether  they  be  farmers  or  cattle  raisers  or  artisans  or  clerks  or 
laborers,  etc. 

Allow  me,  first,  to  say  that  50  years  ago,  when  the  national-bank- 
ing system  was  inaugurated,  the  theory  then  prevailing  was  that 
"  if  the  commercial  and  industrial  interests  of  the  country  could  be 
duly  protected  and  fostered  the  agricultural  interests  would  take 
care  of  themselves."  It  was  a  great  mistake,  but  the  affairs  of  the 
nation  were  then  absolutely  in  the  hands  of  the  commercial  and 
industrial  classes — a  very  small  minority — who  proceeded  to  make 
laws  to  suit  themselves. 

At  the  last  election,  however,  whatever  may  have  been  their  differ- 
ences as  to  methods  or  plans,  all  the  people,  without  reference  to 
party  lines,  agreed  that  hereafter  our  governmental  credit  aid 
should  be  extended  to  all  alike.  And  by  "  all "  was  meant  not  only 
those  subdivisions  originally  left  entirely  out  of  the  reckoning,  i.  e., 
the  farmer  and  the  cattle  raiser,  but  also  "the  small  borrowers  of 
every  class,"  those  people  sometimes  forgotton  but  who  are  still  very 
much  in  evidence,  and  in  fact  are  absolutely  necessary  to  complete 
the  economic  life  of  a  nation,  in  my  opinion  the  very  foundation  of 
this  Republic. 

Therefore,  in  pleading  for  a  vital  rural-credit  bill,  allow  me  to 
urge  avoidance  of  the  error  made  50  years  ago,  when  that  plan  of 
finance  was  formulated  which  never  helped  the  small  man  in  a  direct 
way,  if  it  ever  did  aid  him  at  all  as  long  as  he  remained  on  the  lower 
strata  of  our  economic  system.  That  a  comparatively  few,  even,  suc- 
ceeded by  dint  of  many  privations,  and  through  fierce  struggles  with 
the  money  changers,  to  raise  themselves  and  "  to  finally  reach  the 
higher  level  of  those  who  could  get  bank  accommodation,"  has  been 
due  to  the  wonderful  resources  of  a  new  and  remarkable  country  and 
constitutes  no  argument  for  further  continuance  of  such  an  unjust 
and  shortsighted  policy. 

It  is  well  known  that  the  Glass-Owen  currency  bill  purposely 
omitted  any  attempt  at  governmental  credit  help  to  the  agricultural 
interests  of  the  country  in  order  that  this  subject  might  later  on  be 
considered  under  a  separate  act.  And  now,  as  you  are  completing 
this  program,  it  would  seem  appropriate  to  pause  and  consider  that 
after  all  the  new  Federal  bank  act  is  a  financial  solution  only  for 
those  people  who  during  the  past  50  years  have  been,  and  now  are, 
in  the  higher  levels  and  therefore  "  fortunate  enough  to  enjoy  the 
privileges  of  the  larger  capitalizations  of  money."  In  recent  years  a 
slight  concession  was  made  by  changing  the  national  banking  law's 
restrictions  from  $50,000  to  $25,000.  But  the  whole  idea  and  phrase- 
ology of  these  restrictions  is  monopolistic,  because  it  shuts  out  the 
small  capitalization  entirely  from  the  facilities  granted  to  the  others. 

This  it  is  which  has  helped  during  the  past  two  generations  to 
build  up  throughout  the  United  States  that  "  system  of  peonage " 
referred  to  by  Mr.  Quick  in  his  testimony  before  you  last  Saturday, 
preventing  people  of  small  means  doing  their  business  directly  with 
the  banks  and  compelling  them  to  go  there  through  the  "  middle- 
men." In  the  country  districts  this  middleman  is  sometimes  the 
farm-supply  merchant,  whether  for  money  advanced  or  for  clothing 
or  machinery  or  groceries,  etc. ;  sometimes  only  a  lawyer  who  stands 
between  the  farmer  and  the  bank;  but  quite  and  more  frequently  the 
very  man  who  owns  the  land  on  which  his  less  fortunate  brother 


EUEAL  CREDITS.  827 

lives.  In  the  city  this  middleman  is  only  known  as  the  "  money 
shark,"  he  who  covers  and  ruins  those  thousands  of  respectable  peo- 
ple referred  to  in  Mr.  Morris's  recent  testimony  here. 

It  rests  with  your  committee  to  bring  some  relief  to  these  worthy 
millions  of  our  population,  irrespective  of  whether  they  are  of  the 
rural  or  of  the  urban  class.  And  if  it  is  done  through  the  simple 
amendment  I  am  now  suggesting,  it  will  add  to  and  not  detract  from 
the  authority  which  you  have  heretofore  vested  in  the  Federal  Keserve 
Board.  Gentlemen,  I  do  not  claim  in  doing  this  you  will  at  once  set- 
tle every  question  now  troubling  the  country,  but  you  can  be  certain 
that  a  long  stride,  at  least,  will  have  been  taken  toward  the  economic 
freedom  of  our  people.  We  must  build  from  the  bottom  up.  "  Mort- 
gage help  "  is  the  second  step,  "  personal  credit  aid  "  being  the  first. 
It  is  the  absence  of  the  latter  which  to-day  constitutes  the  chief  cause 
for  that  momentous  movement  in  the  United  States,  from  "  occu- 
pancy of  the  farm  by  ownership  "  to  "  occupancy  of  the  farm  through 
the  landlord."  Then,  "  after  a  period  of  peonage,"  comes  the  final 
abandonment  of  the  farms.  Poor  souls,  they  do  not  realize  that  in 
eluding  the  country  usurer  they  are  only  running  into  his  prototype 
of  the  city. 

You  may  find  it  wisest,  Mr.  Chairman,  to  keep  "  farm-land  credit " 
entirely  separate  and  distinct  in  its  financial  organization  from  "  per 
sonal  credit."  But  it  does  not  follow  that  some  beginning  toward 
the  latter  can  not  be  incorporated  here.  Bring  the  Glass-Owen  bill 
"  down  further  to  the  people,"  to  those  who  never  yet  have  directly 
enjoyed  that  peculiar  initial  "  credit  aid  "  which  emanates  from  the 
whole  people  when  united;  i.  e.,  the  Government.  There  is  nothing 
incongruous  in  this  suggestion.  It  is  easy  of  accomplishment  and 
can  be  made  safe  and  sane.  Authorize  the  Federal  Reserve  Board 
to  establish  smaller  banks  than  $25,000  whenever  they  see  fit  to  do  so. 
In  some  cases  I  would  favor  capitalization  even  as  low  as  $5,000, 
provided  a  reasonable  surplus  is  paid  in  at  the  start  by  the  sale 
of  stock  at  a  premium.  For  the  country,  instead  of  a  population 
qualification,  let  formation  of  these  small  national  banks  rest  on  a 
rigid  requirement  for  such  a  number  of  resident  stockholders  as 
shall  insure  success  from  the  beginning,  say,  not  less  than  50  adults, 
each  subscribing  for  at  least  one  share.  This  would  allow  reasonable 
banking  facilities  at  small  places,  which,  while  not  necessarily  "  in- 
corporated," should  at  least  possess  ample  railroad  and  telegraph 
facilities.  Doubtless  some,  if  not  many  of  the  present  small  State 
and  private  banks,  would  come  into  this  system,  for  which  the  Fed- 
eral board  would  define  "  acceptable  farmers'  paper  "  for  rediscount 
at  the  regional  banks.  As  to  the  cities,  the  Federal  board  should 
also  be  authorized  to  establish  smaller  national  banks  than  the  act 
now  allows,  especially  for  those  particular  city  districts  entirely 
given  over  to  that  smaller  class  of  people  not  sought  after  by  the 
larger  national  banks.  Here,  too,  the  Federal  board  would  issue 
rules  making  loans  absolutely  safe. 

Mr.  Chairman,  the  charge  can  and  should  be  refuted  that  "  the 
United  States  has  already  gone  to  its  full  credit  limit,  and  that 
consequently  there  is  nothing  left  for  the  little  fellow."  On  the 
other  hand,  to  say  that  the  national  banking  act  as  now  worded, 
which  allows  no  institution  of  less  than  $25,000  (and  prohibits  even 
these,  except  in  the  smallest  places),  "can  materially  aid  the  man  of 


828  RURAL   CREDITS. 

small  means,"  except  in  isolated  instances,  is  not  borne  out  by  the 
facts.  I  can  certify  from  personal  observation  that  it  does  not  do 
so  for  the  western  and  southern  farmer,  excepting  at  exhorbitant 
and  life-taking  rates. 

The  five-year  mortgage  clause  inserted  in  the  Federal  reserve  act 
will  be  practically  inoperative,  excepting  in  a  few  localities  or  sec- 
tions, because  short-term  notes  and  bills  of  exchange  will  be  defined  as 
"  proper  paper  for  rediscounting  purposes."  And,  even  if  the  Fed- 
eral board  should  permit  it,  how  many  banks  are  likely  to  tie  up 
much  of  their  depositors'  funds  in  five-year  mortgages?  When 
long-term  mortgages  are  coupled  up  with  the  "  amortization  plan," 
they  become  the  basis  for  bonds,  which  are  recognized  the  world 
over  as  the  best  and  most  liquid  of  assets.  I  heartily  agree  with  all 
who  have  testified  here  to  the  only  practical  way  of  marketing  these 
bonds,  to  wit,  by  federation  of  some  sufficient  number  of  responsible 
and  capitalized  units,  through  either  a  State  or  a  regional  associa- 
tion, itself  possessing  not  less  certainly  than  $500,000  capital  (prefer- 
ably $1,000,000).  But  allow  me  to  say  again,  with  all  the  emphasis 
at  my  command,  not  so  without  some  kind  of  Government  credit 
backing.  I  mean  something  more  than  mere  governmental  "  super- 
vision "  or  "  O.  K.ing." 

The  very  best  kind  of  credit  for  the  bonds  would,  of  course,  be 
the  "  Government's  guaranty."  In  this  case  the  people  and  not  the 
banks  would  get  the  benefit  of  the  lower  interest  rate  obtainable; 
and  I  can  see  how  such  a  "  guaranty  "  could  be  safely  arranged  and 
without  injuring  the  Government's  credit. 

The  only  other  practical  and  effective  plan  would  be  a  limited 
actual  purchase  of  these  bonds  through  the  postal  savings  and  other 
strictly  Government  moneys  now  enjoyed  by  the  national  banks. 

Gentlemen,  I  thank  you  for  your  attention. 

Senator  Hollis.  Mr.  Scudder,  I  want  to  ask  you  one  question. 
Do  you  think  it  would  be  of  any  substantial  benefit  if  State  banks, 
those  that  are  not  qualified  to  enter  the  Federal  reserve  system, 
should  be  permitted  the  privileges  of  the  system  so  far  as  rediscount- 
ing their  paper  with  member  banks  of  the  system  is  concerned? 
That  is  a  suggestion  of  Mr.  Bulkley,  I  think  I  ought  to  state. 

Mr.  Scudder.  State  banks  of  $25,000 

Mr.  Bulkley  (interposing).  That  was  Mr.  Morris's  suggestion. 

Mr.  Scudder  (continuing).  State  banks  of  $25,000  capital  and 
complying  with  the  conditions 

Senator  Hollis  (interposing).  No;  banks  of  any  smaller  capital 
l hat  would  not  be  eligible  to  join  the  Federal  reserve  system;  you 
know  that  at  present  they  are  not  allowed  to  avail  themselves  of 
the  privileges  of  the  system  through  other  banks.  That  was  done 
tor  the  purpose  of  compelling  them  all  to  come  in  that  were  eligible. 

Mr.  Scudder.  Yes. 

Senator  Hollis.  But  now  that  so  many  have  come  in  and  the 
system  is  bound  to  be  a  success,  it  might  not  be  necessary  to  keep 
up  the  bars.  Do  you  think  that  it  would  give  these  little  State  banks 
any  substantial  help  on  the  commercial  side  if  they  were  allowed  to 
rediscount  through  the  member  banks  of  the  Federal  reserve  system  ? 

Mr.  Scudder.  I  should  say  it  might  be  helpful  if  it  were  really 
practical.    There  is  a  great  deal  of  local  jealousy  to  be  considered. 


RURAL   CREDITS.  829 

Senator  Hollis.  You  think  it  would  be  helpful,  but  how  far  you 
are  not  able  to  state  ? 

Mr.  Scudder.  No;  undoubtedly  you  would  have  to  put  certain 
safeguards  and  restrictions  and  limitations  as  to  the  amount,  because 
when  a  panic  comes  in  a  community  it  hits  all  the  banks  alike,  and  if 
one  State  bank,  we  will  say,  should  be  allowed  to  rediscount  with  its 
neighbor  across  the  street 

Senator  Hollis  (interposing).  No;  that  would  be  with  one  that 
was  a  member  of  the  system. 

Mr.  Scudder.  Well,  but  your  suggestion  was  that  any  State  bank 
should  be  allowed  "  to  go  to  any  member  of  the  system,"  and  it 
might  be  in  the  same  place. 

Senator  Hollis.  Yes. 

Mr.  Scudder.  Here  is  a  city  or  a  town,  and  three  banks  are 
national  and  three  banks  are  State  banks,  and  the  three  State  banks 
would  be  allowed  under  that  proposition  to  "  rediscount "  with  the 
three  national  banks  of  their  city. 

Senator  Hollis.  Yes. 

Mr.  Scudder.  That,  if  it  really  did  happen  at  all,  might  bring 
about  a  very  serious  condition,  because  panics  generally  start  with 
local  conditions;  start  in  some  particular  spot  and  then  spread. 
And  that  being  the  history  and  the  course  of  "  panics,''  it  might 
come  about  that  conditions  would  be  very  much  aggravated  in  a 
given  locality  by  reason  of  the  fact  that  credit  was  "  overdone,'*  by 
reason  of  this  proposition.  In  other  words,  if  those  State  banks  are 
allowed  to  inflate  their  business,  for  that  is  what  it  would  be,  "  in- 
flation" by  reason  of  this  privilege,  they  might  inflate  to  such  ex- 
tent that  it  would  be  a  very  serious  matter  in  that  community. 

Mr.  Platt.  Well,  it  would  simply  be  giving  them  the  same  privi- 
lege that  the  national  banks  have,  would  it  not? 

Mr.  Scudder.  Yes,  it  would;  but  without  any  direct  supervision 
from  the  Federal  reserve  board  over  the  State  institutions. 

Mr.  Platt.  The  national  banks  with  whom  they  deal  would  pre- 
sumably send  their  paper  right  on  to  the  Federal  reserve  banks; 
they  could  do  so,  at  least. 

Mr.  Scudder.  Yes;  if  the  present  law  is  amended;  but  if  you  had 
the  thing  separate,  as  it  is  now,  there  is  a  check  to  the  national 
bank's  operation. 

Mr.  Plait.  You  mean  the  State  bank's  operation. 

Mr.  Scudder.  No;  the  national  banks.  They  would  not  unduly 
inflate  their  business.  The  Federal  Reserve  Board  would  not  allow 
it.  Is  it  not  evident,  if  you  have  two  systems  in  one  city  or  town, 
one  is  a  public  check  against  the  other?  Here  are  three  national 
banks  in  a  town  and  three  State  banks,  and  if  the  three  State  banks 
are  being  watched  all  the  time  by  the  three  national  banks  the  State 
banks  are  certainly  not  going  to  inflate  their  business,  i.  e..  borrow, 
either  directly  or  through  rediscounting,  to  such  an  extent  as  to  make 
their  statements  appear  in  an  inflated  way. 

Mr.  Platt.  Well,  it  seems  to  me  that  you  are  arguing  against  your 
own  position.  A  few  minutes  ago  you  took  the  ground  that  these 
small  banks  should  be  allowed  to  come  into  the  Federal  reserve 
system. 


830  RURAL   CREDITS. 

Mr.  Scudder.  Yes;  but  I  am  talking  about  a  different  proposition 
now. 

Mr.  Platt.  What  difference  does  it  make  whether  the}'  are  allowed 
to  come  in  directly  or  whether  they  are  allowed  to  come  in  through 
the  other  banks? 

Mr.  Scudder.  Because,  in  one  instance,  the  suggestion  that  I  made 
was  that  they  all  be  allowed  to  come  in  equally  with  the  others  and 
under  direct  supervision  of  the  Federal  Reserve  Board,  but  the  sug- 
gestion I  understand  Mr.  Bulkley  made  was  that  only  for  "  redis- 
counting  purposes  "  these  State  banks  be  allowed  to  use  the  national 
banks.     Is  not  that  it,  Mr.  Bulkley  ? 

Mr.  Bulkley.  That  they  be  permitted  to  rediscount  through  the 
member  banks. 

Mr.  Scudder.  Yes.     Now,  I  say  with  proper  limitations 

Mr.  Platt  (interposing).  That  is,  to  send  their  paper  on  through 
the  member  bank  to  the  Federal  reserve  bank. 

Mr.  Scudder.  Yes ;  and  I  do  not  see  why,  under  proper  restrictions 
and  in  the  absence  of  local  feelings  of  natural  rivalry,  that  could  not 
be  done.     But  you  have  got  to  provide  against  "  too  much  inflation." 

Mr.  Bulkley.  What  restrictions  do  you  suggest? 

Mr.  Scudder.  Well,  the  suggestion  is  a  new  one  to  me,  and  I  have 
not  thought  over  it,  but  I  think  that  could  be  worked  out  very  easily. 
There  might  be  restriction  as  to  capitalization,  so  that  there  would 
not  be  too  much  inflation  of  the  bank's  business  by  excessive  borrow- 
ing or  rediscounting  liability. 

Mr.  Platt.  I  do  not  suppose  there  is  anything  in  the  Federal  re- 
serve act  that  prevents  a  State  bank  from  rediscounting  with  the 
national  bank  now,  provided  the  same  paper  is  not  sent  on  to  the 
Federal  reserve  bank. 

Mr.  Scudder.  No;  I  do  not  know  anything  in  the  present  law  that 
would  prevent  that.  But  we  all  know  it  wouldn't  likely  happen, 
unless  such  paper  were  made  "acceptable"  for  rediscounting  pur- 
poses at  the  regional  banks. 

Senator  Hollis.  Well,  the  idea  here  would  be  to  allow  the  mem- 
ber bank  to  issue  notes  on  it  and  pass  it  along.  We  thank  you  very 
much,  Mr.  Scudder,  for  your  statement. 

ADDITIONAL  STATEMENT  OF  JOHN  LEE  COULTER,  SECRETARY 
OF  THE  UNITED  STATES  COMMISSION  TO  INVESTIGATE  AND 
TO  STUDY  RURAL  CREDITS. 

Senator  Hollis.  Mr.  Coulter,  you  have  attended  most  of  the  hear- 
ings we  have  had  on  this  question,  and  I  presume  you  have  some 
additional  suggestion  which  you  can  offer,  in  the  light  of  the  state- 
ments made  by  the  other  witnesses. 

Mr.  Coulter.  There  are  a  few  points  concerning  which  I  would 
like  to  say  a  few  words. 

I  believe,  after  considering  absolutely  everything  that  has  been 
said  before  the  committee,  that  there  is  no  need  for  Congress  to 
provide  legislation  authorizing  or  making  it  necessary  for  the  Na- 
tional Government  to  lend  directly  or  through  local  institutions 
money  to  farmers  on  farm  mortgages. 


RURAL  CREDITS.  831 

I  believe  that  I  have  personally  talked  with  everyone  who  ap- 
peared before  the  committee  who  claimed  to  be  himself  a  farmer,  and 
in  no  case  could  I  ascertain  that  any  of  them  had  obtained  from 
the  farmers  any  material  sentiment  or  any  definite  sentiment  at 
all  in  favor  of  having  the  National  Government  make  direct  loans 

Mr.  Bulkley  (interposing).  Was  that  true  in  the  case  of  Mr. 
Atkeson  ? 

Mr.  Coulter.  It  was  true  of  Mr.  Atkeson.  I  talked  with  him 
afterwards,  and  I  joked  with  him  about  the  fact  I  had  been  on  the 
farm  15  years  as  a  hard-laboring  boy  after  he  had  left  the  farm, 
and  after  he  became  a  college  professor,  and  a  college  president,  and 
he  acknowledged  that  at  the  time  the  resolution  was  introduced 
which  the  grange  seems  to  have  accepted  as  its  motto — that  is,  those 
who  speak  on  the  subject  at  all  seem  to  have  accepted  it — not  only 
had  no  other  proposition  been  advanced,  but  even  the  proposition 
of  direct  loans  had  not  been  extensively  studied.  One  man  was  chair- 
man of  a  subcommittee  of  three  and  drew  up  the  resolution,  ano 
that  was  about  all  that  has  been  done. 

All  the  letters  I  have  received  seem  to  indicate  that  if  some  sort 
of  an  institution  is  provided  which  can  act  as  a  go-between  between 
the  farmer  and  the  investing  public  that  is  all  that  is  really  necessary. 

Senator  Hollis.  Do  you  refer  now  to  the  Manchester  (N.  H.)  reso- 
lution? 

Mr.  Coulter.  Yes;  and  to  various  local  resolutions.  I  have  had  a 
few  hundred,  and  possibly  a  few  thousand,  letters  in  the  last  10  or 
12  months  on  this  subject,  and  I  can  not  find  any  sentiment  at  all 
practically  for  direct  Government  loans. 

The  nearest  concrete  sentiment  of  any  significance  at  all,  outside 
of  once  in  a  long  while  an  occasional  letter  where  some  farmer  will 
say,  "  Would  it  not  be  possible  for  the  Government  to  make  some 
direct  loan,  just  the  same  as  it  used  to  give  land  away"  that  seemed 
to  intimate  the  desirability  of  Government  loans,  comes  from  Okla- 
homa. The  Oklahoma  Farm  Journal  has  been  on  the  firing  line  for 
a  year  or  two  trying  to  get  the  State  to  loan  all  school  funds  to  the 
farmers. 

Oklahoma  has  about  $5,000,000  worth  of  school  funds  held  in  trust, 
and  it  has  loaned  about  $4,000,000  directly  to  the  farmers  at  5  per 
cent  interest. 

But  there  is  about  $1,000,000  in  the  school  fund  not  loaned  to  the 
farmers,  but  loaned  to  counties  on  current -expense  bonds,  at  5  per 
cent  interest,  and  this  journal  frequently  has  little  paragraphs  inti- 
mating that  the  State  should  lend  directly  to  the  farmers,  and  on  one 
occasion  I  believe  it  said  that  it  would  not  be  entirely  out  of  place 
for  the  State  even  to  borrow  money  to  lend  to  the  farmers. 

Well,  that  is  the  only  illustration  that  I  can  get,  although  I  per- 
sonally wrote  a  letter  to  every  farm  paper  in  the  United  States,  and 
have  been  trying  to  get  their  sentiment  and  their  judgment.  I  think 
editors  of  farm  papers  come  as  close  to  knowing  the  needs  and  the 
ideas  of  the  farmers  as  anybody  you  can  get,  because  they  try  to 
please  the  farmer  as  well  as  the  advertiser.  And  I  can  not  find  that 
they  have  any  idea  of  Government  loans. 

The  only  farm  paper  that  has  made  any  big  fuss  at  all  on  this 
subject — I  was  looking  around  to  see  whether  Mr.  McMurchee  was 
here — is  the  farm  paper  for  which  Mr.  McMurchee  writes,  which  has 


832  RURAL   CREDITS. 

taken  occasion  to  everlastingly  go  after  the  proposition  for  farm- 
land banks,  but,  I  believe,  only  on  two  grounds;  and  I  fully  expect 
that  later  numbers  of  the  Farm  Magazine  of  Nebraska,  which  is  the 
only  one  out  of  stacks  of  papers  that  I  have  got  that  makes  any  par- 
ticular point,  will  have  something  to  say  about  this. 

It  makes  two  suggestions.  One  of  them  is  that  the  whole  propo- 
sition before  the  committee  was  the  product  of  Mr.  Breitung,  of 
Pine  Street,  New  York ;  and  Mr.  Breitung  appeared  before  this  com- 
mittee and  said  that  he  had  appeared  before  the  United  States  com- 
mission, but  that  that  commission  found  that  it  could  not  use  any  of 
his  ideas— which  seems  to  be  all  that  is  necessary  on  that  point. 

The  other  idea  was  that  exemption  from  taxation  would  place  a 
terrible  burden  on  the  farmers,  while,  of  course,  the  idea  was  to 
make  cheaper  money  for  the  farmers  by  exempting  the  bonds  and  the 
mortgages  from  taxation.  I  think,  in  passing,  that  I  am  telling  the 
truth  when  I  say  that,  if  my  memory  serves  me  right,  I  met  Mr. 
Odell,  of  the  Farm  Magazine,  some  years  ago,  and  he  is  one  of  the 
enthusiastic  single  taxers  in  the  United  States,  so  that  his  position 
on  taxation  would  be  wTell  known  by  all  who  have  looked  into  the 
question  of  taxes  at  all. 

In  passing  that,  however,  I  am  passing,  so  far  as  I  have  informa- 
tion, practically  all  that  has  been  said  on  the  subject  of  taxation.  I 
want  to  read  the  section  which  the  commission  wrote  originally,  but 
which  was  later  changed,  as  you  will  see.    The  section  reads : 

The  collateral  trust  bonds  or  debentures  issued  by  any  national  farm-land 
bank  organized  under  this  act  shall  be  forever  exempt  from  the  imposition  of 
any  tax,  assessment,  or  charge  [other  than  income  tax],  whether  national, 
State,  or  municipal :  Provided,  That  under  the  laws  of  the  State  under  which 
said  bank  is  operating,  the  mortgages  or  deeds  of  trust  [or  bonds  or  obligations 
secured  thereunder]  deposited  as  security  for  these  collateral  trust  bonds  or 
debentures  of  the  said  bank  are  likewise  exempt  under  the  laws  of  the  said 
State  from  all  taxes  [other  than  income  tax],  assessment,  or  charges  imposed 
by  the  said  State  or  by  any  subdivision  thereof  or  municipality  thereunder ; 
but  no  collateral  trust  bonds  or  debentures  issued  by  a  national  farm-land 
bank  shall  have  the  privileges  of  such  exemption  from  taxation  under  this  act 
unless  and  until  the  mortgages  and  deeds  of  trust  [or  notes  or  obligations 
secured  thereunder]  which  are  deposited  to  secure  the  said  collateral  trust 
bonds  or  debentures  of  the  said  bank  are  likewise  exempted  from  taxation  by 
the  State  in  which  the  bank  is  operating,  as  herein  provided. 

In  other  words,  we  originally  tried  to  work  out  a  clause  providing 
for  exemption  of  the  bonds  on  condition  that  the  States  would  ex- 
empt the  mortgages  or  deeds  of  trust.  That  seemed  to  be  a  very 
roundabout  way,  and  we  decided,  after  a  search  through  the  consti- 
tutional decision,  etc.,  that  it  would  be  possible  for  the  National 
Government  directly,  by  specific  enactment,  to  exempt  all  paper 
held  by  the  institution. 

I  personally  think  that  it  is  unnecessary,  and  possibly  even  unwise,  to 
exempt  the  income  of  the  banks  from  taxation.  But  I  certainly  would 
exempt  the  mortgages,  deeds  of  trust,  or  similar  instruments — that 
is,  the  primary  instruments — and  I  would  exempt  in  the  same  way 
the  bonds  or  instruments  issued  by  the  institution.  And  I  would 
do  it.  not  for  the  sake  of  the  bank  or  anybody  on  the  outside,  but 
clearly  and  fairly  believing  that  it  would  redound  to  the  benefit  of 
the  borrower.  I  have  studied  enough  about  matters  of  that  sort  to 
know  that  that  is  where  the  benefit  would  finally  be  lodged. 


RURAL   CREDITS.  833 

So  much  for  those  two  points — the  matter  of  direct  Government 
loans  and  the  matter  of  taxes. 

I  think  that  the  most  important  subject  of  policy  really  is  the  mat- 
ter of  whether  the  institutions  provided  should  be  large  numbers  of 
small  institutions  or  a  small  number  of  large  institutions. 

I  have  not  heard  any  ideas  brought  out  on  that  point,  except  a 
conflict  of  judgment.  Several  gentlemen  have  said  that  if  you  have 
a  large  number  of  small  institutions,  literally  none  of  them  could 
sell  the  bonds. 

On  that  point  I  would  merel}'  say  that  those  gentlemen  really  did 
not  know  anything  about  that  subject.  I  have  told  each  one  of  them 
about  that  afterwards,  because  I  knew  they  would  not  all  be  here  for 
me  to  tell  them  en  masse. 

The  fact  is  that  over  1.000,000  farmers  right  now  have  money  bor- 
rowed on  the  land  as  security,  giving  mortgages  or  deeds  of  trust ; 
and  those  1,000,000  farmers  have  borrowed  over  $2,000,000,000, 
according  to  their  replies  to  the  Government  inquiry  on  that  sub- 
ject. Each  farmer  operating  his  own  farm  was  asked  only  two  years 
ago  whether  he  had  any  mortgage,  and,  as  I  say,  over  1,000,000  said 
yes.  They  were  asked,  How  much  is  the  mortgage?  And  when  the 
amounts  given  by  them  freely  and  voluntarily,  without  threat  of  pun- 
ishment or  anything  else — when  the}7  voluntarily  said  how  much 
they  had— were  added  together  it  was  found  to  total  $2,000,000,000. 
Now,  that  money  comes  to  the  farmers  without  any  great  central 
institution  to  place  it.    I,  also,  in  my  home  community — ■ — 

Senator  Hollis  (interposing).  Do  you  not  think  it  is  fair  to  say 
that  a  very  large  part  of  it  comes  through  the  efforts  of  middle  men, 
who  are  getting  large  commissions,  and,  if  you  withdraw  that,  the 
money  is  not  very  likely  to  come  in  ? 

Mr.  Coulter.  I  think  that  much  more  than  half  of  it  comes  from 
the  home  community.  It  does  come  through  the  channel  you  men- 
tion, but  it  comes  from  the  local  community.  And  that,  I  think,  is 
the  foundation  of  the  whole  proposition.  Much  of  it  comes  from 
the  local  community.  Unfortunately  the  man  who  lends  it  gets  a 
low  rate  and  the  man  who  borrows  it  pays  a  high  rate ;  but  the  big 
point  is  that  much  of  it  comes  from  the  local  communities,  and  a 
local  institution  lending  to  the  farmer  could  immediately  sell  the 
bonds  to  the  local  investor. 

Even  Mr.  Jones,  from  Colorado,  who  argued  most  enthusiastically 
for  a  central  institution,  at  another  time,  discussing  another  point, 
said  that  Colorado  was  just  literally  full  of  money;  that  they  were 
sending  it  out  during  the  threatened  panic  of  1907  in  carloads  to 
San  Francisco,  Portland,  New  York,  and  Chicago,  to  help  to  relieve 
the  situation. 

I  know  that  it  is  literally  a  fact.  I  had  a  letter  from  an  uncle 
of  mine  a  few  days  ago,  who  is  a  retired  farmer  and  sold  his  farm 
for  about  $65,000  or  $70,000,  and  he  loans  all  that  out  on  local  mort- 
gages. He  averages  about  5  per  cent,  and  the  farmers  pay  about  8 
per  cent — aside  from  commissions,  etc. 

My  point  is  that  in  many  sections  of  the  country  you  do  not  have  to 
go  to  Europe  or  to  Japan  or  to  the  moon  or  to  any  place  else  that  is 
distant  to  get  the  money  that  the  farmers  need.     What  you  want  most 

37031—14 53 


834  RURAL   CREDITS. 

is  an  institution  which  will  be  the  clearing  house  and  which  will 
be  an  instrument  to  sell  and  from  which  the  local  investors  will  buy, 
which  can  get  the  money  from  the  investor  to  the  borrower.  The 
farmer  needs  the  money;  he  is  getting  much  of  it  now,  but  he  gets 
it  through  such  an  unfortunate  channel  that  the  investor  gets  little 
and  the  borrower  pays  much. 

I  believe,  therefore,  that  local  institutions  would  succeed.  But  I 
should  say,  further  than  that,  that  we  have  3,000  counties  in  the 
United  States,  most  of  which  have  some  bonded  indebtedness,  and 
these  counties  are  able  to  market  their  bonds,  and  they  do  not  have 
to  have  one  institution  as  a  clearing  house. 

We  have  in  the  United  States  over  14,000  incorporated  cities,  towns, 
and  villages.  I  believe  that  between  8,000  and  10,000  of  them  have  a 
small  bonded  indebtedness.  Most  of  that  is  sold  to  the  local  com- 
munities, although  in  some  cases,  to  be  sure,  in  some  parts  of  the 
country,  they  do  carry  their  bonds  outside. 

The  big  financial  journals  of  New  York  which  record  the  standing 
of  municipalities,  counties,  townships,  road  districts,  etc.,  that  have 
outstanding  debts — in  order  to  have  the  bonds  listed  and  in  order  to 
furnish  information  to  prospective  investors — are  often  presumed 
to  list  all  of  the  little  cities,  counties,  etc.,  that  have  any  debt.  In 
fact,  they  often  have  such  a  small  percentage  of  them  that  it  is  insig- 
nificant. 

Senator  Hollis.  Small  percentage  of  what  ? 

Mr.  Coulter.  A  small  percentage  of  all  local  governments  that 
want  to  borrow — that  issue  bonds.  They  have  chiefly  those  that  come 
to  the  East  and  North  to  borrow.  The  Government  is  now  making 
a  canvass,  through  one  of  the  departments  here,  to  ascertain  the 
extent  to  which  townships  and  counties  and  precincts,  and  cities, 
towns,  villages,  boroughs,  and  States  are  in  debt,  and  what  sinking- 
fund  assets  they  have  to  take  care  of  those  debts;  and  yet  we  were 
told  that  all  you  had  to  do  was  to  go  up  there  to  New  York  and  take 
the  published  journals  and  you  could  get  a  list  of  all  of  them,  how 
much  debt  they  had,  and  what  their  standing  was,  etc. — absolutely 
overlooking  the  fact  that  literally  hundreds  and  hundreds,  if  not 
several  thousands,  of  counties  and  townships  and  little  villages  issue 
bonds  which  never  get  out  of  the  home  community  at  all ;  the  local 
investor  takes  them  up. 

Mr.  "Woods.  Dr.  Coulter,  the  foundation  of  the  payment  of  these 
bonds  depends  upon  taxation,  does  it  not  ? 

Mr.  Coulter.  Of  course.  My  only  point  is  whether  you  need  a 
central  institution  to  market  your  bonds,  or  whether  there  is  local 
investment  money  available;  and  my  point  is  that  great  amounts 
of  these  loans  are  taken  in  their  home  communities  by  home  investors. 

Mr.  Woods.  Where  did  you  get  that  information? 

Mr.  Coulter.  I  get  it  from  two  facts.  First,  I  have  the  whole  list 
that  is  published  in  New  York  of  cities,  counties,  townships,  and 
villages  that  have  debts. 

Mr.  Woods.  No;  where  do  you  get  the  information  that  farm 
mortgages  are  taken  by  the  local  investors? 

Mr.  Coulter.  From  all  the  statistics  that  I  can  get  hold  of  as  to 
the  amount  the  big  insurance  companies  loan  and  the  amount  that 
goes  through  the  big  loaning  companies  that  have  eastern  connec- 
tions. 


RURAL   CREDITS.  835 

Mr.  Woods.  You  have  got  hold  of  the  wrong  statistics  then,  that 
is  very  evident,  because  anybody  that  investigates  the  local  condi- 
tions knows  that  the  majority  of  those  permanent  investments  and 
mortgages  go  outside  of  the  local  community. 

Mr.  Coulter.  I  think  that  may  be  true  in  your  State. 

Mr.  Woods.  It  is  true  all  over  the  United  States. 

Mr.  Coulter.  No ;  I  am  quite  confident  that  is  not  the  case. 

Mr.  Woods.  You  would  need  to  get  statistics  that  were  very  re- 
liable to  make  people  believe  that. 

Mr.  Coulter.  The  other  fact  is  that  I  think  the  local  towns,  vil- 
lages, etc.,  the  great  majority  of  them,  never  are  listed  at  all  in  the 
big  bond  markets;  they  do  not  go  there;  they  find  lots  of  local 
money.  And,  as  I  mentioned  a  few  moments  ago,  the  strongest 
advocates  of  the  other  idea,  such  as  Mr.  Jones,  come  out  and  say 
that: 

We  have  got  all  the  money  we  need  in  our  State;  we  do  not  need  to  go  to 
New  York  for  a  cent  of  it;  all  we  need  is  an  institution  to  connect  the  two. 

Mr.  Woods.  Now,  Mr.  Chairman,  that  statement  is  very  unfair. 
Mr.  Jones  did  not  make  that  statement  in  the  first  place,  and  in  the 
second  place  he  was  referring  to  commercial  money,  and  not  money 
for  farm  investment. 

Mr.  Coulter.  I  believe  he  afterwards  made  the  same  statement 
with  reference  to  farm  investment. 

Mr.  Woods.  I  understood  what  he  said;  and  his  statement  should 
stand  as  it  is  in  the  record,  without  any 

Mr.  Coulter  (interposing).  I  think  I  understood  it;  however, 
what  he  said  is  in  the  record. 

Mr.  Woods.  It  is  in  the  record,  and  it  will  show  for  itself. 

Senator  Hollis.  You  always  have  to  have  the  counsel  tell  the  jury 
in  a  court  case  what  is  in  the  record.     [Laughter.] 

Mr.  Weaver.  I  make  the  point  that  the  record  is  the  best  evidence. 

Mr.  Coulter.  Now,  there  is  an  illustration  of  the  point  that  I 
do  not  believe  it  is  necessary  in  a  great  part  of  the  country  to  have 
great  central  institutions.  I  recollect  the  statement  in  that  con- 
nection of  Mr.  Moss,  that  Indiana  has  the  best  road  system  in  the 
United  States,  and  they  issued  millions  of  dollars'  worth  of  road 
bonds,  and  those  road  bonds  are  just  snapped  up  at  such  rates  as  4£ 
per  cent,  and  selling  at  par  or  above  par  in  that  State,  and  that 
they  never  drift  away  or  seldom  drift  away  to  outside  districts. 

I  have  a  great  many  concrete  illustrations  which  I  would  be 
glad  to  give  if  time  permitted,  but  I  do  not  want  to  take  too  much 
time  of  the  committee. 

On  the  other  hand,  I  do  know  that  there  are  many  communi- 
ties that  need  outside  money,  and  will  have  to  send  their  bonds,  or 
whatever  instruments  are  provided  for,  to  outside  districts,  either 
to  other  parts  of  the  same  State,  or  to  outside  States,  and  even  some 
to  Europe.  I  am  not  aware  of  the  extent  to  which  our  mortgages, 
or  similar  instruments,  go  to  Europe  now.  I  have  been  over  there, 
and  I  have  examined  them  concretely  on  that  side,  as  well  as  here. 
I  know  that  the  Scottish  connections  are  important,  my  own  folks 
coming  from  Scotland  and  being  foreign-born  people.  I  know,  in  a 
concrete  way,  by  personal  experience,  in  the  actual  inspection  of 
them,  to  what  extent  we  now  go  out  of  the  country  for  funds. 


836  RURAL   CREDITS. 

I  know  that  there  will  be  many  national  farm-land  banks  that  will 
need  outside  connections,  and  I  would  not  want  to  prohibit  any  big 
institutions  or  federation  of  small  institutions;  but  on  the  other  hand, 
I  know  in  a  large  part  of  the  country  it  is  not  absolutely  necessary, 
as  I  suggested ;  and  therefore  I  am  thoroughly  in  favor  of — and  con- 
tinue to  be  in  favor  of — a  provision  for  small  institutions,  letting 
large  ones  form  themselves  where  they  find  that  they  are  needed. 

Mr.  Platt.  That  is,  you  would  not  compel  a  federation  at  the 
start? 

Mr.  Coulter.  No;  I  would  not  compel  a  federation.  I  believe, 
however,  that  the  suggestion  of  the  commission  can  be  very  mate- 
rially improved  upon  in  the  section  which  provides  for  selling  agen- 
cies. I  think  it  would  be  wise  to  provide  for  more  than  merely  selling 
agencies.  I  think  it  would  be  wise  to  provide  for  a  voluntary  federation 
of  local  institutions,  and  that  the  federated  institution  should  not 
only  sell  the  bonds  of  the  locals,  but  actually  issue  them,  or  certify  to 
them.  I  feel  confident  that  many  small  institutions,  however,  would 
not  go  into  such  a  system. 

Senator  Hollis.  Mr.  Coulter,  Senator  Norris  would  like  to  ask  you 
a  question. 

Mr.  Coulter.  Certainly. 

Senator  Norris.  I  wanted  to  get  your  judgment,  Dr.  Coulter,  on  a 
suggestion,  thrown  out  by  the  gentleman  who  preceded  you,  about 
the  guarantee  of  these  bonds  or  other  evidences  of  indebtedness  by 
the  Government. 

Mr.  Coulter.  I  really  do  not  believe  that  is  necessary.  That  would 
place  the  National  Government  in  the  position  of  having  to  go  out 
and  decide  upon  the  value  of  farm  land.  Now,  we  have  had  in  the 
Department  of  Agriculture  for  several  years  an  Office  of  Farm 
Management. 

Senator  Norris.  If  that  was  done,  would  it  reduce  the  rate  of  in- 
terest the  farmer  has  to  pay  for  his  loan  ?  In  other  words,  would  it 
enable  the  bank,  or  whatever  institution  was  between  the  farmer  and 
the  money,  to  get  money  cheaper  and  to  float  bonds  for  a  less  rate  of 
interest? 

Mr.  Coulter.  I  have  not  the  faintest  idea  what  effect  it  would 
have,  because  I  can  not  imagine  the  Government  going  into  the  busi- 
ness of  absolutely  setting  the  value  of  the  land.  How  are  they  going 
to  decide  what  the  value  of  the  land  is?  What  is  land  worth?  Now, 
if  the  Government  is  going  to  go  into  the  matter  of  either  lending 
directly,  or  guaranteeing  loans,  they  must  go  into  the  business  of  de- 
ciding what  that  land  is  worth,  and,  if  they  go  into  that,  the  Government 
has  a" bigger  job  on  its  hands  than  it  has  ever  had  in  the  past  in  any 
of  its  dealings  in  agriculture.  Now,  I  live  on  a  farm  of  1,000  acres, 
over  800  acres  of  which  is  in  actual  cultivation,  and  has  been  for 
from  18  to  25  years,  in  Minnesota,  and  literally  we  can  not  figure 
out,  as  Mr.  Quick  said  here  the  other  day,  what  that  land  is  worth. 
Wo  know  what  we  can  get  for  it  and  what  we  would  have  to  pay  for 
it  when  Ave  want  to  buy;  but  it  is  a  matter  of  guesswork — of  supply 
and  demand — and  it  depends  upon  who  wants  to  sell  and  who  wants 
to  buy.  and  who  has  got  a  little  money  ahead ;  it  is  more  of  a  question 
of  a  home  than  anything  else. 

Senator  Norris.  This  question  has  to  be  determined  by  the  people 
of  the  bank,  or  whatever  institution  makes  the  loan. 


RURAL   CREDITS.  837 

Mr.  Coulter.  Yes;  people  must  determine  their  own  financial 
transactions,  and  working  with  each  other,  buying  and  selling  and 
doing  business  with  each  other,  rather  than  for  the  Government, 
the  political  side  of  the  people,  going  into  such  a  matter  and  trying 
to  determine  the  values  of  land;  what  income  it  will  produce,  and 
what  it  will  cost  to  do  that,  and  how  thick  to  plant  the  trees  in 
order  to  increase  the  income,  and  all  that  sort  of  thing.  I  can  not 
imagine  that.  I  have  tried  for  several  years  to  figure  out  what  really 
is  the  value  of  farm  land 

Senator  Norris  (interposing).  Well,  would  your  bank  have  to 
determine  how  thick  they  would  have  to  plant  the  trees  before 
they  would  lend  the  money  on  the  farm  ? 

Mr.  Coulter.  I  think  the  institution  would  have  to  have  about 
the  same  relationship  with  the  farmer  as  now  exists  between  the 
present  mortgagor  and  the  mortgagee. 

Mr.  Scudder.  Mr.  Chairman,  I  think  Dr.  Coulter  has  misunder- 
stood my  suggestion  of  guaranty. 

Mr.  Coulter.  You  were  speaking  of  commercial  credit,  while  I 
am  talking  now  about  mortgage  credit. 

Senator  Norris.  I  understood  you  to  be  speaking  of  mortgage 
credits,  Mr.  Scudder. 

Mr.  Scudder.  I  was.  Dr.  Coulter,  however,  is  arguing  from  the 
standpoint  of  no  federation,  whereas  I  was  arguing  from  the  stand- 
point of  the  same  kind  of  federation  that  the  Federal  reserve 
board  covers.  In  other  words,  my  proposition  is  that  the  Govern- 
ment does  not  find  out  what  the  merchant  is  worth.  Why  is  it 
necessary  for  the  Government  to  find  out  what  farm  land  is  worth? 
It  depends  on  the  system. 

Senator  Norris.  That  is  what  I  understood.  Now,  I  would  like  to 
ask  Dr.  Coulter  if  that  is  not  what  we  have  done  in  the  banking 
and  currency  law.  The  Government  guarantees  the  currency,  all  the 
bank  notes  that  are  issued  ? 

Mr.  Coulter.  They^put  up  $40  in  gold  for  each  $100  of  currency, 
besides  all  the  rest  of  the  security. 

Senator  Norris.  Yes;  but  it  not  only  guarantees  it,  but  it  guaran- 
tees payment  on  demand,  and  in  gold. 

Mr.  Coulter.  Yes;  but  it  does  not  put  out  35-year  debentures, 
does  it? 

Senator  Norris.  No;  it  rests  on  the  system;  it  is  guaranteed.  It 
supposes  that  what  the  bank  has  loaned  on  and  what  the  reserve 
bank  has  guaranteed  will  be  good. 

Mr.  Coulter.  For  a  period  of  six  months  and  not  more  than  that? 

Senator  Norris.  Yes.  Now,  I  am  asking  for  information.  Would 
it  be  a  practical  proposition,  after  this  system,  whatever  s3^stem  you 
have,  is  built  up,  and  after  these  debenture  bonds,  or  whatever  you 
have  in  the  way  of  indebtedness,  are  issued,  for  the  Government  to 
add  its  guaranty,  for  the  purpose  of  floating  the  bonds  at  a  very  low 
rate  of  interest? 

Mr.  Coulter.  I  do  not  think  so.  I  understood  Mr.  Scudder  to  be 
considering  entirely  paper  that  ran  for  not  exceeding  six  months; 
commercial  paper,  which  had  a  big  guarantee  of  gold  back  of  it — 
$40  on  $100,  if  I  remember  right — in  other  Avords,  a  short-time  busi- 
ness where  there  could  be  no  change. 


838  RURAL   CREDITS. 

But  here  we  are  going  into  a  matter  of  valuing  real  property 
and  issuing  instruments,  which  we  are  going  to  guarantee,  and  which 
are  going  to  be  outstanding  for  35  or  40  years,  and  in  some  countries 
for  50,  60,  or  70  years;  and  I  do  not  believe  they  can  be  put  in  the 
same  class  at  all.    I  do  not  believe  the  same  arguments  hold. 

I  think  in  the  case  of  commercial  paper,  from  that  other  stand- 
point, it  is  all  right.  I  do  not  object  to  State  guaranty  there,  or 
national  guaranty;  but  I  do  not  see  how  the  Government  can  go 
into  the  business  of  actually  valuing  land  and  putting  their  stamp 
on  the  bonds,  and  saying,  "This  is  the  value  now,  and  you  can 
issue  bonds  on  it  and  let  them  stand  out  any  place  in  the  world  for  35 
years,  and  we  will  stand  back  of  them  and  see  that  they  will  be 
taken  up  at  that  time."  I  do  not  believe  that  the  two  things  can  go 
together. 

Mr.  Bulkley.  You  think  it  is  better  for  the  small  investor  to  take 
that  risk,  do  you  ? 

Mr.  Coulter.  I  think  it  is  better  for  the  people  themselves  to  do  it ; 
the  local  institution  which  knows  the  conditions  there.  If  property 
values  commence  going  down,  the  local  institution  can  take  the  neces- 
sary steps  to  protect  them. 

Mr.  Bulkley.  You  do  not  understand  that  the  Government  guar- 
anty would  relieve  that  liability  of  the  local  institution,  do  you? 

Mr.  Coulter.  No;  but  still  the  Government,  after  all,  would  be 
the  one  you  would  rely  on. 

Mr.  Bulkley.  Not  to  the  exclusion  of  the  local  institution? 

Mr.  Coulter.  No;  I  mean  after  the  local  institutions  had  failed. 

Mr.  Bulkley.  The  point  is  that  the  local  institution  would  have 
the  same  motive  for  safeguarding  the  loan  if  the  Government  guar- 
anteed it,  as  if  the  Government  did  not  guarantee  it. 

Mr.  Coulter.  Well,  but  this  would  bring  the  Government  on  top 
of  this  and  into  a  field  that  I  really  think  is  not 

Mr.  Bulkley  (interposing).  You  do  not  think  that  a  local  insti- 
tution would  be  any  less  vigilant  to  protect  its  own  interests  just 
because  the  Government  is  behind  the  bond  issue,  do  you? 

Mr.  Coulter.  Yes;  I  do. 

Mr.  Bulkley.  Why?  Because  they  would  stand  to  lose  their 
money  anyhow? 

Mr.  Coulter.  Not  entirely;  because  if  it  were  made  up  of  mem- 
bers the  people  who  were  borrowers  would  be  to  some  extent  the  same 
people  who  had  money  invested. 

Mr.  Bulkley.  Weli,  explain  how  much  more  they  would  lose  if 
the  Government  did  not  guarantee. 

Mr.  Coulter.  Well,  they  could  clear  out  of  the  country,  the  same 
as  they  have  done  in  the  past,  getting  all  the  money  they  could  out 
of  it,  and  then  getting  out  of  the  country. 

Mr.  Bulkley.  Why  could  they  not  do  the  same  thing  either  way? 

Mr.  Coulter.  I  suppose  there  is  a  possibility  of  that. 

Mr.  Platt.  You  think  if  the  Government  guarantees  a  man's  ob- 
ligation he  is  going  to  create  a  few  more  of  them  than  if  they  did 
not  guarantee  them,  do  you?  Of  course,  that  is  what  the  Govern- 
ment does  for  the  banks. 

Mr.  Coulter.  The  thing  is  that  if  you  garantee  you  ought  to  know 
what  you  are  guaranteeing,  and  here  you  would  be  guaranteeing  the 


RURAL   CREDITS.  839 

value  of  property  which  I  can  not  see  how  you  could  get  at.  If  you 
take  the  buying  and  selling  price  of  property  as  a  basis  for  that, 
it  is  a  dangerous  thing  for  the  Government  to  get  into. 

Senator  Norris.  Right  on  that  point,  Dr.  Coulter,  it  would  be 
a  dangerous  thing,  of  course,  for  the  Government  to  guarantee  any- 
thing that  would  fail.  But  take  the  banking  system  that  we  have 
provided  for  by  law ;  the  Government  guarantees  that  the  obligations 
of  those  banks  shall  be  paid  on  demand. 

Mr.  Platt.  Well,  that  is  a  difference 

Senator  Norris  (interposing).  It  is  not  as  severe  an  undertaking 
to  guarantee  that  something  shall  be  paid  in  35  years;  at  the  end  of 
35  years,  if  it  were  not  paid  promptly,  it  would  not  interfere  with 
the  Government  operations  or  with  its  credit;  but  anything  that 
would  float  as  money  would  have  to  be  kept  right  up  to  the  top 
notch  all  the  time. 

Senator  Hollis.  I  think  it  is  fair  to  say,  in  order  to  straighten 
this  out,  that  the  real  reason  is  that  the  Federal  reserve  notes  are 
Federal  obligations;  they  are  not  guaranteed  by  the  Government; 
they  are  all  the  Government's  direct  primary  obligation,  loaned  to 
the  banks  on  what  is  supposed  to  be  good  security. 

The  real  reason  for  that  is  that  the  Democratic  Party  feels  itself 
pledged  for  the  Government  to  issue  all  the  money  that  is  issued  in 
the  country.  Now,  they  did  that,  and  probably  if  that  had  not 
been  so,  the  banks  would  have  been  allowed  to  issue  this  reserve  note 
currency  without  any  Government  guaranty. 

But  the  point  is  here,  as  I  understand — I  want  to  clear  up  Mr. 
Scudder's  position.  Mr.  Scudder,  as  I  understood  it,  made  his 
guaranty  position  apply  only  to  mortgages. 

Mr.  Scudder.  Yes;  that  is  correct. 

Senator  Hollis.  That  is  the  way  I  understood  him;  and  we  want 
to  set  him  right  on  that. 

Now,  we  are  on  a  very  important  point,  because  if  I  understand 
the  views  of  the  committee  correctly,  they  are  going  to.  if  they  can, 
find  some  way  by  which  the  Government  can  assist  effectively  in 
getting  capital  that  can  be  loaned  to  farmers  on  farm  land ;  and  the 
guaranty  proposition  will  probably  be  very  carefully  considered,  as 
well  as  the  purchase  of  some  of  these  bonds  as  an  investment  by  the 
Government,  whereby  they  can  get  some  revenue,  by  selling  a  4 
per  cent  obligation  or  a  5  per  cent  obligation  and  borrowing  money 
on  Government  bonds  at  a  less  rate. 

It  is  a  good  thing  to  get  the  honest  conviction  and  judgment  of 
everybody  who  has  studied  the  subject  right  on  this  point.  We  can 
all  differ;  but  I  want  to  get  it  clear,  and  say  that  I  do  think  there 
were  special  reasons  for  the  Government  issuing  these  Federal  reserve 
notes,  that  were  political 

Mr.  Platt  (interposing).  Do  you  mean  that  the  Government  would 
never  have  done  that,  if  it  had  not  been  for  the  language  of  the 
Democratic  platform — which  is  true  enough  I  have  no  doubt? 

Senator  Hollis.  I  do  not  mean  merely  any  one  Democratic  plat- 
form; but  I  mean  that  all  the  traditions  as  well  as  the  platforms  of 
the  Democratic  Party  were  on  the  theory  that  the  Government  should 
issue  the  money  of  the  country. 

Mr.  Platt.  It  was  wrong;  but  the  Democratic  Party  had  to  do  it. 


840  RUKAL   CREDITS. 

Senator  Norris.  If  the  Democratic  Party  thought  it  was  right, 
that  was  the  thing  to  do.  But  I  do  not  believe  we  should  legislate 
on  a  certain  theory  if  we  do  not  believe  it  is  right. 

Senator  Hollis.  All  of  us  who  are  Democrats  believe  that  is  was 
right,  and  not  only  that,  but  that  we  are  committed  to  it. 

Mr.  Seldomridge.  Our  party  has  definitely  taken  a  position  of  op- 
position to  the  national  bank  currency,  and  any  legislation  that 
countenances  that  issue  we  regard  as  improper. 

Mr.  Phelan.  May  I  ask  the  witness  a  question? 

Senator  Hollis.  Yes. 

Mr.  Phelan.  In  the  Federal  reserve  act  the  guaranty  of  notes  ap- 
plies to  only  a  small  portion  of  the  assets  of  the  Federal  reserve  bank. 
That  is  necessarily  so,  if  for  no  other  reason,  because  of  the  40  per 
cent  reserve.  Now,  in  this  case,  if  the  Government  guarantees,  will 
they  not  be  guaranteeing  practically  all  of  the  funds,  or  all  of  the 
investments  of  the  banks  which  are  proposed  to  be  created?  You 
see  the  differences  between  the  two  cases,  do  you  not? 

Mr.  Coulter.  Yes.  I  think  it  would  be  going  way  beyond  the 
other  situation;  I  think  it  is  an  entirely  different  field.  So  far  as 
the  political  side  is  concerned,  it  is  absolutely  nothing  to  me;  I  have 
not  any  politics  with  me  when  considering  this  question. 

Mr.  Phelan.  Here  is  the  Government  guaranteeing  these  Federal 
reserve  notes 

Mr.  Bulkley  (interposing).  I  deny  that  there  is  any  guaranty 
about  that.  The  Federal  reserve  notes  are  the  direct  obligations  of 
the  Government. 

Mr.  Phelan.  Well,  I  am  taking  it  the  way  it  works  out.  As  a 
final  liability,  the  Government  can  go  back  upon  the  Federal  reserve 
banks,  which  will  have  assets  far  beyond  what  the  Government  is 
guaranteeing  in  the  Government  notes.  Now.  tell  me  what  the  dif- 
ference will  be  in  that  respect  with  reference  to  the  guaranteeing  of 
these  bonds  in  this  new  system  of  rural  credits  ? 

Mr.  Coulter.  That  is  what  was  in  my  mind.  If  the  Government 
guarantees  at  all,  it  guarantees — let  us  say,  that  the  bank  may  issue 
bonds  equal  to  fifteen  times  its  paid-up  capital;  it  would  have  to  be 
allowed  to  issue  at  least  fifteen  times  its  capital  and  surplus. 

Senator  Hollis.  We  can  place  it  nearer  than  that.  If  the  Govern- 
ment guarantees  these  loans,  undoubtedly  the  rate  of  interest  will 
be  so  small  that  they  will  take  up  practically  all  the  farm  loans  in  the 
eountry ;  a  very  large  proportion  of  them,  at  least. 

Mr.  Coulter.  Yes. 

Senator  Hollis.  So  that  we  have  got  to  face  the  idea  of  the  Gov- 
ernment guaranteeing  some  billions  of  these  loans;  I  think  we  can 
be  sure  of  that. 

Mr.  Coulter.  Yes ;  it  will  be  sure  to  go  up  to  three  or  four  billions 
of  these  bonds  that  would  be  issued,  because  the  farm  property  sub- 
ject to  mortgage  is  worth  about  $35,000,000,000,  accord  i  ng  to  going  mar- 
ket prices — exchange  prices — and  the  present  outstanding  indebted- 
ness with  mortgages  as  the  security  shows  clearly  that  it  would  be 
that  amount. 

Senator  Hollis.  There  is  evidence  somewhere  in  the  record,  al- 
though I  have  forgotten  by  whom  it  was  given,  that  one  of  the  large 
mortgage  houses  in  the  West,  out  of  all  the  loans  they  have  placed, 
had  onlv  had  to  foreclose  a  very  limited  number,  and  in  every  case 


RURAL   CREDITS.  841 

except  one  they  had  worked  out  the  entire  debt,  and  in  that  one  case 
they  had  not  lost  the  whole  amount.  So  that  the  testimony  is  that 
loans  on  farm  land,  carefully  looked  after,  are  as  safe  as  any  loan 
you  can  make. 

Mr.  Coulter.  I  think  that  is  true;  and  I  will  go  on  further  to 
say  that  for  that  reason  I  believe  that  it  would  be  unnecessary  to 
provide  Government  guaranty.  First,  it  would  be  unwise;  and, 
further,  I  contend  that  it  would  be  absolutely  unnecessary.  It  is 
like  jumping  into  the  water  when  you  might  just  as  well  step  across 
the  puddle. 

Farmers  in  the  last  Government  report  available  were  asked  how 
much  their  mortgaged  property  was  worth ;  what  they  considered  it 
was  worth,  if  it  was  mortgaged — just  the  land  and  the  fixtures,  not 
the  personal  property.  And  the  values  reported  by  them  showed 
that  the  average  debt  was  only  27  per  cent  of  the  value  of  the  prop- 
erty mortgaged. 

Well,  now,  I  think  that  lenders  generally,  taking  the  country  as  a 
whole,  are  sufficiently  close  to  the  farmers  and  the  farmers  are  suffi- 
ciently acquainted  with  their  business,  to  know  that  it  is  not  wise  to 
go  to  too  high  a  percentage.  I  realize  that  some  of  the  members  of 
the  subcommittees  are  from  districts  where  land  is  quite  commonly 
mortgaged  up  to  one-half  of  its  value,  but  in  the  whole  country  the 
farmers'  obligations  are  only  27  per  cent  of  the  value  of  their 
mortgagable  property. 

Farmers  living  on  their  property  and  operating  the  same  as  going 
concerns,  the  same  as  a  merchant  operating  his  store,  are  a  good  risk, 
if  they  can  make  their  security  available;  and  I  think  you  can  get 
to  the  investor  without  any  Government  guaranty.  I  think  you  can 
do  that  by  creating  an  institution  or  set  of  institutions  with  power 
to  issue  a  proper  instrument,  such  as  mortgage  bonds,  and  giving 
those  mortgage  bonds  a  standing. 

It  seems  to  me  that  it  might  be  possible  to  add  to  the  privileges 
suggested  by  the  commission  in  section  34  of  the  bill,  which  has  been 
more  or  less  referred  to,  H.  R.  12585.  But  I  think  even  if  you  did 
not  go  further  than  that  you  would  have  given  those  bonds  such 
standing  that  the  investors  throughout  the  country  would  grab  at 
them  and  at  a  low  rate  of  interest.  I  have  only  heard  one  suggested 
idea  to  that  section  which  appealed  to  me.  That  section  now  reads 
as  follows: 

Sec.  34.  That  the  national  land-bank  bonds  of  any  national  farm-land  bank 
shall  be  available  for  the  following  purposes: 

First.  As  security  for  the  deposit,  of  postal  savings  funds  in  such  national 
farm-land  banks  and  all  other  banks  authorized  to  receive  such  deposits. 

Right  there  you  could  take  care  of  all  the  postal  savings  deposits, 
because  not  only  could  these  banks,  if  created,  use  their  bonds  as 
security,  but  national  banking  associations  could  buy  these  bonds 
and  use  these  bonds  as  security  with  the  Government  for  the  deposit 
of  postal  savings  funds.  In  that  way  you  practically  say  that  those 
mortgage  bonds  are  absolutely  as  good  as  anything  can  be  made; 
otherwise,  the  National  Government  would  not  take  them  as  the 
fotmdation  for  the  postal  savings  of  the  country,  which  should  be 
absolutely  safe.  __ 

Second.  As  a  legal  investment  for  time  deposits  of  national  banking  associa- 
tions  


842  KURAL   CREDITS. 

Senator  Hollis  (interposing).  Well,  it  is  my  understanding  that 
the  Government  is  under  direct  obligation  to  repay  its  postal  sav- 
ings, whether  they  have  invested  them  wisely  or  not. 

Mr.  Coxtlter.  Yes.  I  think  I  would  go  with  the  committee  right 
to  the  point  of  using  any  such  funds  available,  just  the  same  as  in 
the  States;  I  would  use  any  trust  funds,  such  as  school  funds,  to  lend 
on  mortgages.  I  think  that  is  a  good  proposition,  a  good  revenue  for 
the  schools  and  good  for  the  trust  funds  and  also  a  good  thing  for 
the  farmers  of  the  States  as  borrowers.  But  I  certainly  would  not 
go  into  the  business  of  having  the  State  issue  bonds,  borrow  money, 
and  lend  it  out  directly  again  to  the  citizens.  I  think  there  is  a  very 
decided  difference  there,  between  attempting  to  use  to  the  very  best 
advantage  the  trust  funds  or  obligations  of  that  sort,  including 
postal  savings,  and  going  into  the  business  of  borrowing  money  to 
lend  to  somebody  else. 

Second.  As  a  legal  investment  for  time  deposits  of  national  banking  associa- 
tions, as  provided  in  the  Federal  reserve  act,  and  for  funds  accumulated  in 
sayings  banks  orgnized  and  doing  business  in  tbe  District  of  Columbia. 

I  think  that  would  be  a  demonstration  of  the  feeling  of  the  Gov- 
ernment of  the  security  of  the  instruments. 

Third.  As  a  legal  investment  for  trust  funds  and  estates  under  the  charge  of 
or  administered  by  any  of  the  courts  of  tbe  United  States. 

Fouxth.  Asa  security  for  loans  from  national  banking  associations  to  national 
farm-land  banks  or  to  individuals,  for  not  exceeding  five  years,  to  an  amount 
aggregating  not  over  25  per  cent  of  the  capital  and  surplus  or  to  one-third  of 
the  time  deposits  of  the  national  banking  association  making  such  loan. 

The  idea  was  that  the  national  banking  associations  themselves 
probably  would  not  go  into  the  business  of  lending  on  mortgages  to 
farmers.  It  is  a  fact  that  practically  every  State  bank  in  the  United 
States  now  could  legally  lend  with  real  estate  as  security.  I  have 
got  the  banking  laws  of  every  State  and  have  studied  them  to  see 
to  what  extent  the  State  banks  and  private  banks  could  lend  with 
real  estate  as  security,  and  there  is  almost  no  limitation. 

But  at  the  same  time  the  State  banks  and  private  banks  do  not 
lend  to  a  very  large  extent  to  the  farmers.  What  is  the  reason  for 
that?  Because  they  are  in  the  same  system  with  the  national  bank- 
ing associations  and  have  to  do  the  same  sort  of  business,  in  order 
to  keep  in  the  same  class  and  get  their  paper  discounted,  for  instance. 
They  imitate  the  national  bank  because  the  national  bank  is  the 
standard;  that  is  the  style;  that  is  the  method  of  doing  business. 
They  have  constant  intercourse  and  follow  the  lead  of  the  national 
banks.  Now,  I  do  not  believe  that  the  national  banking  associations, 
in  spite  of  the  Federal  reserve  act.  will  materially  extend  their  loans, 
as  they  are  authorized  to  do.  However,  they  could,  if  this  sugges- 
tion were  carried  through,  do  it  indirectly,  because  they  could  pur- 
chase these  farm-mortgage  bonds,  which  would  be  the  same  thing 
as  lending  to  the  farmers,  because  they  get  the  same  sort  of  paper 
and  get  the  same  sort  of  result.     Mr.  Jones  said 

Mr.  Smith  of  Minnesota  (interposing).  Right  there,  do  you  think 
that  the  principal  reason  the  State  banks  do  not  loan  on  farm  mort- 
gages is  that  the  national  banks  do  not  do  it,  and  they  imitate  what 
the  national  banks  do? 

Mr.  Coulter.  They  are  accustomed  to  that  sort  of  business.  I 
have  talked  with  a  number  of  State-bank  officers,  and  although  they 


RURAL   CREDITS.  843 

do  lend  to  some  extent  (all  told,  only  about  18  per  cent  of  their 
resources  are  in  securities  with  mortgages  of  some  sort  back  of 
them.)  They  have  told  me  over  and  over  the  reason  they  did  not 
go  into  it  further 

Mr.  Smith  of  Minnesota  (interposing).  Do  you  not  think  that 
the  real  reason  is  that  a  State  bank  is  a  bank  of  discount  and  deposit, 
and  that  a  farm  mortgage  represents  investment  money,  and  they 
are  an  entirely  different  kind  of  security 

Mr.  Coulter  (interposing).  Oh,  yes;  there  is  a  difference  between 
the  two ;  and  I  think  they  ought  to  be  kept  entirely  apart. 

Mr.  Platt.  What  the  State  bank  does  is  to  loan  money  for  short 
terms  with  mortgages  as  collateral,  which  national  banks  could 
not  do? 

Mr.  Coulter.  Well,  only  up  to  five  years;  under  the  Federal  re- 
serve act  the  national  banks  are  now  allowed  to  do  that. 

Mr.  Platt.  Yes. 

Mr.  Coulter.  Up  to  the  extent  of  25  per  cent  of  the  capital  and 
surplus,  or  one-third  of  the  time  deposit.  Now,  I  say  this  provision 
would  make  it  possible  for  the  national  bank  to  accept  these  bonds, 
instead  of  having  to  go  out  themselves  and  supervise  the  mortgage 
business. 

Mr.  Jones  suggested  this :  That  these  bonds  should  be  accepted  by 
the  Secretary  of  the  Treasury  as  security  for  the  deposit  of  funds 
of  whatever  character  in  national  banks. 

Our  recommendation  here  was  that  they  be  accepted  as  security 
for  the  deposit  of  postal  savings  funds  in  national  banks.  That 
will  be  a  considerable  extension,  since  that  would  practically  make 
them  acceptable  as  good  security  for  every  possible  purpose;  that 
would  be  the  final  limit. 

Now,  I  am  not  a  practical  banker,  although  I  have  been  pretty 
close  to  a  small  country  bank,  and  know  its  workings,  and  I  do  not 
know  whether  that  would  be  a  good  thing  or  not.  But  that  would 
be  going  in  the  direction  of  further  Government  recognition,  and 
would  probably  have  its  effect  in  the  standing  of  the  bonds  in  the 
investing  market. 

Senator  Hollis.  It  would  not  have  any  practical  effect  under  the 
present  law,  because  the  Secretary  of  the  Treasury  will  now  put  the 
Government  funds  in  the  Federal  reserve  banks,  where  no  security 
is  required,  and  he  can  not  put  any  in  the  member  banks. 

Mr.  Coulter.  No. 

Senator  Hollis.  They  could  be  put  in  the  regional  reserve  banks, 
but  not  in  the  member  banks;  so  that  that  would  not  be  very  prac- 
ticable to  use  these  bonds  as  security  for  the  deposit  of  Government 
funds  in  member  banks. 

Mr.  Coulter.  That  is  true.  Probably  I  should  not  have  tried  to 
discuss  those  subjects  that  I  have  discussed,  because  they  are  matters 
more  of  broad,  general  policy  than  of  detailed  questions  of  the  mort- 
gage  business,  but 

Senator  Hollis  (interposing).  I  think  you  have  discussed  exactly 
the  point  the  committee  wanted  to  hear  you  discuss,  Dr.  Coulter. 
That  is  where  we  are  going  to  have  our  argument,  on  those  points 
you  have  discussed. 

Mr.  Coulter.  There  are  some  other  points  on  which  I  have  a  very 
strong  feeling,  and  some  little  information,  I  think,  particularly  with 


844  RURAL   CREDITS. 

reference  to  the  small  mortgage  banks.  A  question  has  been  raised 
as  to  whether  small  institutions  would  pay.  In  that  connection  it 
has  been  said  a  great  many  times  that  we  are  unlike  Europe;  that 
there  is  nobody  in  the  country  districts,  and  in  the  thousands  and 
thousands  of  communities  of  this  country — we  have  about  45,000 
townships — that  there  is  nobody  that  either  has  the  capacity  or  the 
willingness  to  serve  free,  or  for  small  compensation,  to  help  in  the 
operation  of  these  small  institutions  if  they  were  launched. 

In  the  first  place,  we  are  not  so  very  different  from  Europe.  We 
are  merely  the  same  people,  a  little  bit  removed,  and  when  we  go  back 
there  we  find  that  there  is  not  much  difference  after  all.  We  may 
speak  a  little  different  language,  or  one  thing  or  another,  but  there 
is  not  so  much  difference  atter  all. 

Mr.  Weaver.  What  do  you  mean  by  Europe — what  part  of  it  ? 

Mr.  Coulter.  Oh,  practically  all  of  Europe,  from  the  heart  of 
Russia  to  my  own  old  home  up  in  Scotland,  and  the  north  of  Ireland. 
I  walked  into  a  home  900  miles  from  the  boundary  of  Russia,  on  the 
nearest  side,  and  a  little  girl  about  that  size  [indicating],  came  rush- 
ing out  and  said,  "  Oh,  that  is  the  American  that  was  coming."  She 
said  that  in  good  English.  I  was  amazed  at  the  incident.  It  was 
merely  a  Russian  planter's  daughter,  who  had  had  an  English 
governess,  and  she  said,  "  Why,  he  looks  just  like  dad."  Her  father 
did  not  look  very  different  from  me.  He  wore  a  little  beard;  but  I 
could  raise  one  if  I  wanted  to.  They  hoed  potatoes  in  the  same  way, 
and  they  went  out  and  weeded  beets  in  the  same  way.  There  is  a 
difference  in  the  wages  to  be  sure.  They  make  sugar  in  the  same 
way — in  the  factories.  The  bulls  have  to  have  rings  in  their  noses  or 
they  will  horn  you  just  the  same.  Most  things  are  alike,  we  differ 
in  secondary  ways.  The  difference  between  the  countries  is  not  great. 
However,  I  do  not  make  anything  particular  of  that.  But  I  do 
want  to  mention  these  facts  concerning  our  own  country.  We  do 
have  in  our  local  communities  people  of  the  very  character  needed 
for  this  sort  of  thing  as  they  do  in  Europe.  We  know  that  in 
a  large  part  of  this  country  the  grange  is  strong,  in  thousands  of 
little  communities  the  prosperous  farmers  are  masters  of  the  grange 
or  hold  some  other  office,  and  they  go  through  all  the  forms  and  hear 
all  the  talk  that  you  will  hear  anywhere  else.  The  master  of  the 
grange  is  not  a  fool.  He  is  an  intelligent  citizen.  He  may  not  have 
many -aspirations  outside  of  that  community,  but  he  is  likely  to  be  a 
successful,  progressive,  prosperous  farmer,  and  I  am  speaking  of 
thousands  of  them.  In  other  parts  of  the  country  the  Society  of 
Equity  is  the  thing;  in  still  others  it  is  the  Farmers'  Union;  in  others 
it  is  the  Gleaners.  Every  part  of  the  United  States,  at  the  present 
time,  has  some  type  of  farmers'  organization  of  that  general  class. 
There  is  scarcely  a  part  of  the  United  States  that  is  not  pretty  well 
covered,  and  some  of  them  have  all  of  these  organizations. 

Mr.  Bathrick.  I  understood  that  Mr.  Moss  said  in  his  testimony 
(hat  the  farmers  are  not  organized.  You  do  not  agree  with  that,  do 
you? 

Mr.  Coulter.  No;  I  very  strongly  disagree  with  that,  unless  he 
means  something  different  from  what  I  am  going  to  show  you  here 
as  to  the  extent  to  which  they  are  organized.  I  am  speaking  of  hun- 
dreds of  communities  here,  because  I  have  wandered  around  over 
every  State  in  the  country.    I  am  from  Minnesota;  my  wife  is  from 


RURAL   CREDITS.  845 

Texas;  and  my  youngest  child  was  born  here.  So  we  are  all  scat- 
tered in  that  way.  I  have  lived  in  country  districts  all  my  life,  ex- 
cept the  few  months  that  I  have  been  here  in  Washington.  I  know 
that  the  farmers  are  organized  in  that  way  first.  I  know,  second, 
that  the  telephone  companies — the  farmers'  telephone  companies, 
owned  by  the  farmers — are  operating  in  hundreds  of  districts  now. 
Then,  there  are  the  mutual  insurance  companies.  The  farmers  have 
gone  into  the  insurance  business  in  many  States. 

Senator  Hollis.  Anything  besides  fire  insurance? 

Mr.  Coulter.  Yes;  live-stock  insurance.  Recently  I  was  at  a 
farmers'  meeting  where  they  were  talking  about  crop  insurance, 
and  they  talked  as  learnedly  about  it  as  Mr.  Jones  would  talk  about 
forming  a  central  bank  tor  mortgage  business.  They  said,  for 
instance: 

Now,  for  fear  that  the  bail  comes  across  Huntsville  Township,  and  ruins 
the  crops  of  15  or  20  farmers,  had  we  not  better  put  off  organizing  our  mutual 
crop-insurance  company,  until  all  parts  of  the  State  come  in,  so  that  we  can 
spread  the  possible  losses,  and  there  will  not  be  any  very  heavy  premiums  or 
assessments  upon  one  little  locality. 

They  were  all  farmers  who  were  present.  But  they  have  their 
building  insurance,  and  their  live  stock  and  equipment  insurance. 
In  Minnesota  there  are  152  of  these  farmers'  mutuals  reporting  regu- 
larly every  year  to  the  State  insurance  commissioner ;  and  they  have 
cut  the  cost  of  insurance  in  half.  That  is  merely  one  State ;  I  have 
data  for  other  States,  if  the  committee  should  desire  them. 

Then  we  have  possibly  2,000  farmers'  elevator  companies  which 
the  farmers  operate.  Mr.  Woods,  of  Iowa,  is  from  the  center  of 
them,  and  knows  the  conditions  under  which  they  operate  out  there. 
But  we  have  them  in  a  very  large  part  of  the  country. 

Then  another  thing  is  that  we  have  this  country  divided  up  into 
townships,  very  largely,  or  precincts,  or  similar  communities,  and 
the  township  officers  are  reasonably  intelligent  people,  I  think.  I 
know,  for  instance,  that  a  brother  of  mine  never  did  anything  else 
but  farm  work  practically;  yet  before  he  actively  took  up  farming 
he  took  a  course  in  bookkeeping  at  a  local  business  college;  and  I 
think  he  makes  a  successful  town  clerk  or  treasurer;  and  similarly 
I  think  if  he  can  operate  a  farm  worth  $50,000  and  do  it  successfully, 
all  that  shows  that  he  is  a  man  of  considerable  capacity  and  compe- 
tency— and  he  is  merely  one  of  a  type,  because  I  know  of  thousands 
of  others  like  him. 

Our  township  officers,  our  county  officers,  out  school-district 
offiecrs — you  take  a  clerk  of  a  school  board,  and  he  handles  as  much 
money  as  would  come  in  in  the  annual  interest  payments  in  a  small 
banking  institution  of  this  sort.  He  handles  that  amount  of  money 
in  a  year. 

Then  our  drainage  districts,  irrigation  districts,  and  road  districts 
are  operated  by  competent  men.  Further  than  that,  every  community 
lias  its  churches.  In  Europe,  to  be  sure,  there  is  only  one  church 
generally  in  a  community;  but  here  we  are  so  prolific  in  manage- 
ment and  directing  power  and  individuality,  that  we  want  half  a 
dozen  churches  in  a  community;  we  want  half  a  dozen  sets  of 
officers. 

Instead  of  being  less  able,  we  are  better  equipped  than  they  are 
over  in  Europe  from  that  standpoint. 


846  RURAL  CREDITS. 

I  personally  met  a  number  of  the  priests  in  Europe,  whom  I  have 
already  referred  to,  and  the  local  priest  is  frequently,  in  Europe,  the 
officer  of  a  local  institution  of  some  kind.  We  have  preachers  in 
this  country  who  might  be  used. 

Then  there  are  the  farmers'  clubs  of  all  sorts,  which  are  not  con- 
nected with  the  grange  or  the  society  of  equity  of  those  other  societies; 
they  are  just  farmers'  clubs.  There  are  scads  of  them  in  the  country. 
You  hear  of  them  all  the  time. 

Mr.  Sixdomridge.  To  what  extent  have  the  secret  orders  been  ex- 
tended in  the  country? 

Air.  Coulter.  I  was  just  going  to  mention  them.  In  my  particular 
part  of  the  country  if  you  are  not  a  Woodman,  you  are  not  in  it; 
all  the  dances  and  everything  of  that  sort  are  conducted  under  the 
Woodmen  or  the  Workmen. 

Mr.  Weaver.  That  is  not  a  farmers'  organization. 

Mr.  Coulter.  No  ;  but  farmers  belong  in  large  numbers. 

Mr.  AVeaver.  It  is  not  so  in  Oklahoma;  they  are  not  all  farmers 
there. 

Mr.  Coulter.  Yes ;  but  the  farmers  are  in  them. 

Mr.  AVeaver.  Of  course  there  is  no  prohibition  against  the  farmers 
joining  any  of  them. 

Mr.  Coulter.  The  point  I  was  making  is  that  the  farmers  can 
form  their  own  institutions,  and  have  their  own  schemes  and  put 
them  through,  and  that  they  do  not  need  outside  assistance  in  many 
matters. 

Mr.  Seldomridge.  Do  they  operate  the  public-school  system  in 
those  districts? 

Mr.  Coulter.  Yes:  there  is  the  public-school  system.  And  then 
we  have  hundreds  of  creameries  owned  and  operated  by  the  farmers 
with  $10,000  capital  each.  In  Minnesota  they  each  have  about 
$10,000  capital ;  in  that  State  there  are  about  TOO  cooperative  cream- 
eries;  they  are  absolutely  owned  and  managed  by  the  farmers.  They 
hire  their  butter  maker  and  send  their  butter  to  New  York  by  car- 
loads, and  instead  of  getting  12  or  15  cents  a  pound  for  the  butter, 
as  they  used  to,  they  now  get  from  34  cents  to  35  cents  in  the  New 
York  market;  and  they  handle  it  on  such  a  close  margin  that  I  often 
wonder  how  they  can'  do  it.  And  they  are  not  hiring  outsiders  to 
come  in  and  manage  it  for  them. 

Mr.  AAtoods.  Do  your  creameries  in  Minesota  have  a  limited  lia- 
bility? 

Mr.  Cottlter.  Yes;  a  limited  liability;  and  I  am  in  favor  of  a 
limited  liability.  They  are,  I  think/ uniformly  limited-liability 
societies. 

Senator  Hollis.  They  are  corporations,  are  they  not? 

Mr.  Coulter.  Yes;  they  are  small  corporations  organized,  how- 
ever, under  a  cooperative  law.  Instead  of  each  share  having  a  vote 
each  member  has  a  vote,  and  instead  of  distributing  all  profits  to  the 
capital  it  is  distributed  back  in  proportion  to  the  milk  supply;  they 
have  the  cooperative  features. 

Senator  Hollis.  Are  you  able  to  tell  us  how  far  the  cooperative- 
store  plan  is  in  effect  in  this  country,  among  farmers,  or  elsewhere? 

Mr.  Coulter.  Now.  the  store  has  developed  much  less  rapidly  than 
these  other  cooperative  plans,  because  they  started  off  back  in  grange 
davs.  with  a  number  of  defective  features;  it  was  before  the  cooper- 


RURAL   CREDITS.  847 

ative  store  had  really  succeeded  in  Europe,  too.  In  fact,  the  Roch- 
dale stores  had  barely  started  in  Europe  when  we  tried  it  and  made 
a  failure  of  the  system  in  this  country,  and  then  it  practically  died 
out,  all  except  15  or  20  scattered  stores,  like  at  Olathe,  Kans.,  or  some 
others  of  that  kind,  where  there  will  be  a  dozen  in  a  group. 

Now,  however,  the  cooperative  stores  are  starting  up  again;  and  I 
have  in  my  list  in  the  office  something  over  100,  and  possibly  125,  that 
have  started  within  the  last  15  years.  One  of  them  has  a  $35,000 
plant  now,  and  about  500  members;  it  is  about  7  years  old.  So  that 
they  are  starting  now,  in  a  comparatively  small  way,  in  several  parts 
of  the  country. 

Senator  Hollis.  Is  not  the  thing  that  wrecks  those  cooperative 
stores  that  are  not  successful,  the  making  of  bad  debts  to  members? 

Mr.  Coulter.  Yes.  And  the  new  rule  is  absolutely  cash,  or  your 
note  for  a  short  time,  and  the  note  when  it  gets  to  a  certain  point 
must  be  protected  by  mortgage.  So  that  they  are  absolutely  protect- 
ing themselves  against  the  weak  principles  that  they  had  at  fir>t. 

Senator  Hollis.  Yes;  I  understand. 

Mr.  Coulter.  I  might  go  en  and  name  the  fairs  and  the  live-stock 
associations,  and  so  on ;  but  I  find  that  the  Senate  called  on  the 
Secretary  of  Commerce  to  compile  a  list  of  farmers'  associations,  so- 
far  as  it  was  available,  and  even  the  Government,  which  has  paid  no 
attention  to  the  farmers'  organizations,  practically,  in  the  past,  got 
up  a  list  of  over  1,000  farmers'  organizations. 

Senator  Hollis.  Will  you  give  the  number  of  that  document? 

Mr.  Coulter.  It  is  Senate  Document  1107,  Sixty-second  Congress,, 
third  session. 

Senator  Hollis.  Will  you  give  the  title? 

Mr.  Coulter.  The  title  is  Commercial  and  Agricultural  Organiza- 
tions of  the  United  States.  This  lists  the  Live-Stock  Breeders' 
Association,  and  all  that  class  of  organization. 

I  wanted  to  bring  that  point  up  only  in  order  to  refute  so  many 
things  that  have  been  said.  Farmers  are  not,  as  a  matter  of  fact, 
in  such  a  terribly  bad  condition  after  all,  outside  of  the  frontier 
settler  who  has  just  got  started,  the  cropper  or  tenant  class  in  the 
Southern  States,  etc. 

The  farmer  is,  however,  generally  speaking,  throughout  the 
country,  unfortunate  in  having  to  pay  pretty  high  rates  for  what  he 
gets.     I  know  that  from  hundreds  of  illustrations. 

You  would  think,  for  instance,  that  a  man  like  my  father,  who 
runs  a  farm  of  1,000  acres,  and  lives  out  there  on  it  could  get  money 
easily  up  in  Minnesota ;  he  has  been  on  the  same  farm  for  about  40 
years. 

And  yet  he  sometimes  sends  to  me  to  get  him  $1,000,  because  I  can 
get  it  2  or  3  per  cent  cheaper ;  and  yet  I  have  not  got  one-hundredth 
part  of  what  he  is  worth ;  but  his  property  is  in  lands  and  the  farm 
and  its  equipment  there,  and  he  has  got  to  go  through  all  the  process 
of  mortgaging  it  and  tying  things  up,  and  paying  big  commissions, 
and  so  forth ;  and  the  farm  has  been  in  his  hands  almost  since  it  left 
the  Indians;  and  yet  he  has  got  to  have  the  title  inspected,  and  pay 
the  fees,  etc.  I  cite  that  because  it  would  seem  that  he  would  be 
in  the  best  position  to  borrow. 

Mr.  Smith  of  Minnesota.  Yet  there  is  no  doubt  that  there  is- 
plenty  of  money  right  in  the  State  for  that  sort  of  business? 


848  RURAL   CREDITS. 

Mr.  Coulter.  Yes ;  there  is  no  doubt  about  that ;  because  I  happen 
to  know  that  when  my  father  spoke  about  borrowing  some  money  to 
buy  a  farm  for  one  of  my  brothers  he  was  looking  around  about  bor- 
rowing the  money,  and  I  said  to  him  how  about  so-and-so — I  named 
a  neighbor  of  ours.  He  said  "  I  do  not  know."  I  said  "  I  under- 
stood that  he  had  sold  all  of  his  land  and  that  he  is  lending  his  money 
out."  We  went  around  there  and  found  that  you  could  get  money  3 
per  cent  cheaper,  because  we  were  dealing  directly  with  the  investors. 
The  big  job  is  to  get  the  investor  and  the  borrower  together  for 
legitimate  purposes.  I  believe  that  is  the  biggest  problem  we  have. 
I  think  there  are  plenty  of  investors,  and  plenty  of  funds  available. 
It  is  just  a  matter  of  getting  the  two  together  on  the  most  advan- 
tageous terms. 

The  question  has  come  up  and  has  been  discussed,  I  think,  as  much 
as  anything  else  before  the  committee,  as  to  the  purpose  of  the  loan, 
whether  it  should  be  absolutely  limited  in  the  law,  or  specified  in 
the  law ;  for  instance  that  the  loan  shall  be  made  only  for  a  partial 
payment  on  the  farm  or  for  improvement  and  equipment  of  the 
farm,  or  for  refunding  outstanding  debt. 

I  went  through  a  number  of  European  laws  that  I  have  available 
to  see  what  their  rules  were,  and  it  seems  to  be  the  experience,  on  the 
Continent  at  least,  that  the  purpose  of  the  loan  is  not  specified  in  the 
laws;  but  I  did  find  all  the  way  through  reference  to  the  fact  that 
details  or  conditions  under  which  loans  shall  be  granted  were  pre- 
scribed by  the  institution  in  its  by-laws. 

That  is  true  in  Germany;  it  is  true  in  Denmark  and  in  other  coun- 
tries.   The  general  German  mortgage-bank  act  says  further: 

That  mortgages  on  land  which  does  not  yield  a  permanent  retnm  are  excluded 
as  cover  for  mortgage  bonds. 

That  is  to  say,  they  have  that  limitation.  Lands  which  are  not 
actually  producing  lands  are  not  available  for  loans.  So  far  as  T  can 
find,  however,  that  is  the  only  specific  limitation. 

On  the  matter  of  the  value  of  the  land  there  is  a  clause  that  hits 
on  that  point.    It  says : 

Such  as  the  land  might  continue  to  give  an  owner  under  ordinary  husbandry. 

That  is  to  say,  in  deciding  upon  the  value — the  producing  capacity 
of  the  land — they  say  an  income  such  as  might  be  expected  "  under 
ordinary  husbandry  "  shall  be  the  standard. 

There  is  a  feature  of  some  of  these  various  laws  which  might  be 
practical  here;  I  do  not  know  whether  it  would  or  not.  That  is  to 
say,  the  German  law,  for  instance — and.  if  I  remember  right,  the 
law  of  Denmark  is  the  same — specifies  a  maximum  loan.  The  loan 
must  not  exceed  three-fifths  of  the  value  of  the  land,  under  the  Ger- 
man law;  and  that  law  continues: 

The  central  authority  of  a  Federal  State  may  permit  the  mortgage  of  agri- 
cultural land  within  the  area  of  such  Slate,  or  partially  within  such  area,  up 
to  66  per  cent  of  its  value. 

The  Danish  law.  which  I  thought  was  the  best  one  I  found  in 
any  place  in  Europe,  and  which  I  had  translated  and  printed,  has 
many  similar  provisions.  The  law  is  national;  it  sets  a  level,  and  then 
leaves  it  to  any  Province  or  State  to  change  for  that  area  the  rules 
which  might  apply.  The  Danish  law  on  cooperative  mortgage  banks 
will  be  found  on'  page  580  of  Senate  Document  214.  Agricultural 


RURAL   CREDITS.  849 

Cooperation  and  Rural  Credit  in  Europe;  and  the  law  as  translated 
there  has  as  an  appendix,  a  copy  of  the  application,  the  form  of  the 
mortgage  bond,  and  the  form  of  the  mortgage  made  out  by  the 
farmer,  and  in  that  mortgage  made  out  by  the  farmer  you  will  find 
that  same  proposition,  "  We  submit  herewith  to  the  by-laws  of  the 
company  at  present  in  force."  And  the  matter  of  by-laws  of  the 
company,  then,  are  left  to  the  local  institutions  to  prescribe  all  sorts 
of  things,  such  as  the  purposes  and,  as  near  as  I  can  find  now,  al- 
though that  point  did  not  occur  to  me  as  strongly  then  as  it  has 
since,  the  experience  varies  greatly.  In  some  places  there  are  limita- 
tions and  in  some  there  are  not. 

Before  taking  up  this  subject,  I  have  been  interested  in  buying 
land  or  trying  to  buy  land  in  two  or  three  States,  and  I  have  assem- 
bled and  find  in  my  files  many  mortgages  used  in  this  country,  and 
I  find  that  it  is  a  common  thing  for  the  mortgage  to  specify  many 
things  which,  if  you  thought  of  it  and  made  a  point  of  it,  would 
seem  like  a  pretty  severe  restriction — that  is,  that  the  farming  must 
be  done  in  a  certain  way  and  the  farm  must  be  kept  up  in  a  certain 
way,  otherwise  the  mortgage  could  be  foreclosed. 

We  got  through  the  Minnesota  Legislature  a  few  years  ago  a  new 
law  providing  for  the  sale  of  school  land ;  and  in  the  law  they  required 
that  the  purchaser  must  either  fence  25  per  cent  of  the  land  or  pas- 
ture it — convert  it  into  pasture,  etc. — or  he  must  cultivate  at  least 
5  acres  on  each  tract,  or  he  must  build  him  home  on  it  and  actually 
reside  upon  it,  or  the  land  reverts  to  the  school  fund  again.  In  other 
words,  they  refuse  to  sell  unless  the  purchasers  are  actually  going  to 
become  farmers  and  settle  upon  the  land. 

I  also  find  as  extreme  a  case  as  this,  which  probably  is  not  ex- 
treme, because  it  is  the  form  of  instrument  used  by  the  largest  loan 
agency  on  farm  mortgages  in  two  or  three  counties,  John  Burkholz, 
of  Grand  Forks,  N.  Dak.    He  makes  a  very  strict  provision — 

That  he  (the  party  of  the  second  part)  will  properly  sow  and  plant  during 
each  and  every  year  of  the  continuance  of  this  contract  as  much  of  said  land 
as  can  be  profitably  sowed  and  planted,  and  will  have  in  crop  during  the  year 
not  less  than  160  acres  of  wheat — 

And  so  on.  It  goes  on  down  and  tells  how  the  buildings  shall  be 
be  kept  up  and  the  farm  shall  be  worked,  and  the  farmer  must  "  in 
all  respects  farm  and  cultivate  said  premises  in  a  careful  and  hus- 
bandlike manner."    Failure  to  do  these  things  results  in  foreclosure. 

Mr.  Platt.  Do  you  know  of  any  case  of  foreclosure  having  taken 
place  under  such  restrictions? 

Mr.  Coulter.  Yes.  In  fact.  I  made  a  little  study  of  that.  I  was 
interested  in  ^ans  made  in  the  neighborhood  with  which  I  was 
first  acquainted,  where  I  lived,  and  I  warned  one  company  against 
making  a  loan  to  a  certain  farmer,  and  said  that  he  was  a  slovenly 
farmer  and  I  doubted  whether  it  would  be  a  good  loan;  and  I  gave 
as  evidence  of  that  that  we  had  thrashed  for  him  two  or  three  years 
before  and  had  not  been  able  to  collect  from  him  for  that  thrashing. 
But.  the  company  went  ahead  and  loaned  the  money  to  him.  and 
within  two  years  they  foreclosed  the  mortgage;  and  I  thought  that 
they  did  it  deliberately  in  order  to  get  his  property.  I  remember 
that  people  around  there  said  that  it  was  very  bad  property,  because 
the  manure  was  piled  up  15  or  20  feet  around  the  back  of  the  stable 

37031—14 54 


850  RURAL   CREDITS. 

and  the  weeds  grew  15  or  20  feet  high.  But  in  talking  with  the 
manager  of  that  company  I  reminded  him  of  what  the  old  Roman 
said  when  he  advised  the  man  to  go  out  into  the  country.  You  know 
we  are  not  much  further  ahead  than  they  were  in  those  days  in  this 
respect. 

The  old  Roman  said: 

Go  up  and  down  the  country  roads;  go  up  and  down  every  countryside  be- 
fore you  decide  on  a  farm  to  buy;  and  then  pick  out  the  farm  where  the 
weeds  are  highest  and  the  manure  piles  arc  biggest  around  the  stables;  because 
that  farmer  has  not  exhausted  his  farm;  he  has  not  even  used  the  fertilizers 
that  are  most  easily  available,  and  probably  he  will  need  to  sell  his  farm  more 
than  other  fanners,  and  for  that  reason  will  probably  sell  cheaper;  and  you 
will  get  the  best  farm  at  the  best  price. 

Now,  I  think  this  loan  agency  made  the  loan  in  that  case  for  that 
purpose.  But  I  do  know  of  other  cases  in  that  countryside  where 
a  few7  foreclosures  have  taken  place. 

Mr.  Platt.  These  foreclosures  were  made  before  the  mortgages 
fell  due,  were  they? 

Mr.  Coulter.  Yes;  on  account  of  failure  to  keep  up  all  the  re- 
quirements. 

Mr.  Platt.  Yes. 

Mr.  Coulter.  And  I  felt  that  it  was  done  because  the  companies 
wanted  to  get  the  property,  and  they  had  good  reasons;  the  farmer 
had  not  lived  up  to  the  contract. 

Mr.  Platt.  Will  the  courts  enforce  a  contract  of  that  kind  before 
a  mortgage  is  due? 

Mr.  Coulter.  I  think  so. 

Mr.  Weaver.  You  will  find  a  great  many  cases  in  the  law  reports 
where  the  courts  have  refused  to  enforce  that  kind  of  contract. 

Mr.  Platt.  Yes;  I  think  so. 

Senator  Hollis.  That  kind  of  contract  will  not  be  enforced  unless 
it  provides  with  great  particularity  that,  in  case  of  default  in  any 
of  these  conditions,  it  shall  be  foreclosed  ? 

Mr.  Coulter.  Well,  these  contracts  were  all  carefully  worded  and 
put  on  record. 

Senator  Hollis.  That  is  as  far  as  my  observation  goes.  I  will 
not  say  that  that  is  absolutely  the  case. 

Mr.  Weaver.  You  will  generally  find  that  the  men  in  those  cases 
are  also  in  default  on  the  interest,  or  fail  to  pay  up  the  interest, 
or  something  of  that  kind. 

Senator  Hollis.  Yes. 

Mr.  Coulter.  Yes ;  I  believe  that  is  the  case. 

What  I  have  in  mind  by  giving  these  fewr  illustrations  is  this: 
I  think  it  is  very  doubtful  if  there  are  many  farmers,  except  in 
certain  sections  of  the  country  where  there  are  farmers  of  con- 
siderable prominence  and  standing  and  with  considerable  prop- 
erty, who  would  take  offense  at  this  provision  calling  for  special 
purposes  for  which  the  loans  should  be  made,  etc.  I  should  yield, 
however,  on  that,  to  Mr.  Quick,  whose  judgment  you  have.  He 
has  probably  observed  more  keenly  on  that  particular  point,  and 
I  think  he  would  go  much  farther  than  I  would,  because  he 
thinks  that  the  institution  loaning  money  should  render  a  very 
specific  service  in  the  way  of  specifying  many  things  to  the  farmer 
which  could  be  done  to  advantage,  and  probably  going  into  all  of  the 
details  of  the  farmers'  plans  before  actually  making  the  loan,  prob- 


BURAL   CREDITS.  851 

ably  advising  with  the  farmer  and  pointing  out  what  he  should  do 
and  what  he  should  not  do.  I  do  not  really  know  whether  that 
is  practicable  or  not.  I  have  thought  of  the  necessity  being 
largely  for  a  financial  institution  which  would  do  only  the  things 
which  such  an  institution  would  do  as  such,  and  not  go  into  the 
matter  of  running  the  farm  as  a  farm  business. 

Mr.  Platt.  None  of  these  illustrations  that  you  speak  of  in  mort- 
gages already  made  specify  what  disposition  shall  be  made  of  the 
money  loaned  on  the  mortgage,  but  simply  that  the  farm  should  be 
kepi  up? 

Mr.  Coulter.  Yes. 

Mr.  Platt.  But  they  do  not  anyone  of  them  attempt  to  say  what 
the  farmers  should  do  with  the  money? 

Mr.  Coulter.  No. 

Mr.  Platt.  Do  you  think  that  is  practicable? 

Mr.  Coulter.  I  would  personally  prefer  to  see  it  left  to  the  regu- 
lation of  the  institutions  themselves,  but  I  do  not  think  it  is  a  hard- 
ship to  lay  down  certain  general  rules.  Personally  I  think  the  local 
institutions  would  look  after  that  on  their  own  account,  and  I  have 
not  thought  that  it  was  extremely  important  to  put  it  in  here. 

There  are  two  or  three  other  points  on  which  I  want  to  say  just 
a  word. 

The  commission  has  recommended  that  these  institutions  be  lim- 
ited to  agricultural  loans  and  not  be  allowed  to  handle  city  loans. 
I  believe  they  will  not  handle  them  on  the  same  basis,  and  I  have 
a  letter  here  which  I  would  like  to  read,  and  I  think  there  will  be 
no  objection  on  the  part  of  either  the  sender  or  the  receiver  as  to 
having  it  given  as  a  sample  of  their  judgment  on  the  subject.  It 
is  from  Mr.  J.  R.  Cahill,  who  is  an  English  student  of  this  subject, 
and  interested  in  the  subject  very  greatly.  He  was  sent  by  the 
English  Government  to  travel  and  study  for  a  year  or  so  on  the 
Continent  of  Europe,  to  give  his  judgment. 

Mr.  Weaver.  His  report  is  a  Senate  document? 

Mr.  Coulter.  Yes;  he  is  the  author  of  this  Cahill  report,  Senate 
Document  17,  Sixty-third  Congress,  first  session.  He  wrote  this 
letter  to  Mr.  Gill,  of  either  Vermont  or  New  Hampshire,  and  Mr. 
Gill  handed  it  to  me.     He  says : 

As  to  your  query  respecting  the  relative  merits  of  joint-stock  mortgage 
banks  and  mortgage  credit  associations  of  the  landschaft  type.  I  myself  con- 
sider that  the  merits  of  the  latter  far  outweigh  those  of  the  former  as  far  as 
agricultural  mortgage  or  long-term  credit  is  concerned.  Let  me  give  a  few  of 
my  reasons :  In  the  first  place  the  credit  of  the  landschaft  tends  to  be  cheaper. 

I  wanted  to  explain  this  as  I  went  along. 

That  is  true,  so  far  as  the  landschaft  itself  is  concerned,  but  at  the 
same  time  you  must  remember  that  the  landschaft  does  not  do  all 
of  the  lending  business;  that  is  to  say,  it  just  carries  the  business  up 
to  the  point  where  it  issues  the  bonds,  and  then  the  business  from 
there  is  turned  over  to  the  landschaft  bank,  which  looks  after  the 
investment  part  of  it:  and  if  you  add  together  the  cost  of  the  busi- 
ness of  the  landschaft  and  the  landschaft  bank  it  comes  up  not  far 
from  the  same  as  the  mortgage  banks. 

Ordinary  joint-stock  mortgage  banks  are.  of  course,  commercial  undertakings 
with  share  capital  and  are  therefore  out  for  securing  as  high  profits  as  possible. 


852  RURAL   CREDITS. 

Thus  look  at  the  Credit  Fourier;  as  well  as  I   recollect  it  has  paid  dividends 
within  the  last  20  years  or  25  years  which  have  ranged  from  20  to  30  per  cent. 

I  wanted  these  facts  to  be  sure  to  be  brought  in,  because  the  Credit 
Foncier,  according  to  the  law  of  France,  is  prohibited  from  having  a 
larger  margin  between  the  mortgage  and  bonds  than  six-tenths  of  1 
per  cent. 

The  two  German  mortgage  hanks  doing  90  per  cent  of  all  the  rural  mortgage 
business  done  by  all  German  mortgage  joint-stock  hanks  have  paid — one  of 
them  an  average  of  over  9  per  cent  for  the  43  years  of  its  existence  and  the 
other  has  never  paid  less  than  12  per  cent  since  1890. 

That  is  23  years. 

The  joint-stock  mortgage  banks  show  a  distinct  tendency  to  sacrifice  rural 
mortgage  business  to  urban  mortgage  business.  I  need  only  refer  you  to  the 
Credit  Foncier;  to  the  German  joint-stock  mortgage  banks  (only  0  per  cent 
of  their  total  mortgage  business  is  rural),  and  if  you  take  the  German  banks 
(Prussian  Central  Land  Credit  Joint  Stock  Co.,  on  pages  36  to  38  of  my  re- 
port, you  will  find  its  history),  which  set  out  to  specialize  as  a  joint-stock  bank 
for  rural  mortgages  and  with  special  privileges  given  it  by  the  State,  you  will 
observe  (pp.  37,  38)  that  the  proportion  of  rural  to  urban  business  has 
steadily  declined  since  the  year  of  its  formation  in  1873,  when  the  rural 
mortgages  were  £2,447,000,  the  urban  £585,000,  down  to  1911,  when  the  rural 
were  £12,806,000  and  the  urban  £28,13S,000. 

Which  shows  that  although  they  still  do  some  rural  business,  that 
the  urban  business  has  gone  forward  by  leaps  and  bounds,  being  56 
times  what  it  was  at  the  earlier  stage,  while  the  rural  business  is 
only  6  times. 

He  refers  to  the  Belgian  joint-stock  mortgage  banks: 

To  the  Belgian  joint-stock  mortgage  banks  (there  are  four  of  them,  and 
the  percentage  of  the  rural  mortgage  loans  is  practically  negligable)  ;  to  the 
Dutch  (that  is,  Holland)  joint-stock  mortgage  banks  (there  are  over  70,  and 
I  was  told  this  summer  by  several  persons  with  special  knowledge  of  the  sub- 
ject, that  extremely  little  business  is  done  by  them)  ;  to  the  Swiss  mortgage 
banks,  and  so  on. 

The  different  witnesses  who  have  appeared  before  you  have  all 
referred  to  the  one  German  bank  as  being  the  model,  assuming  that 
the  commission  had  only  seen  one  bank.  As  a  matter  of  fact,  the 
Danish  banks  and  the  Dutch  banks  and  the  Belgian  banks  and 
Swiss  banks  are  equally  good  and,  I  think,  better  illustrations, 
because  they  do  more  business  with  the  farmers  than  the  German 
banks,  which  do  not  pretend  to  do  practically  anything;  only  6 
per  cent  of  all  of  their  business  is  with  the  farmers,  and  they  de- 
pend on  the  Landschaft,  the  savings  banks,  etc.,  very  largely  to  do 
the  business  with  the  farmers.  I  think  in  this  country  we  want 
these  institutions  for  farm-mortgage  business,  and  we  ought  to 
specify  in  any  law  enacted  that  they  should  be  limited  to  farm-land 
mortgage  business. 

I  shall  ask  to  have  the  rest  of  the  letter  copied  in  the  record.  I 
think  it  is  worth  while. 

Senator  Hollis.  That  may  be  done. 

(The  portion  of  the  letter  referred  to  is  as  follows:) 

The  reasons  for  this  preference  are  not  far  to  seek.  The  organization  of 
commercial  joint-stock  banks  is  not  capable  of  sufficient  decentralization  con- 
sistent with  adequate  returns  upon  the  outlay  incurred,  by  means  of  main- 
tenance of  local  representatives  or  offices  for  such  business.  A  commercial 
mortgage  bank  operating,  for  instance,  over  Illinois,  and  with  its  head  office 
at  Chicago,  makes  4,000  loans  over  this  area  on  4,000  separate  farms.  How 
is  it  going  to  exercise  regular  supervision,  as  it  must,  unless  it  wants  to  court 


RURAL   CREDITS.  853 

disaster,  over  these  4,000  perhaps  isolated  properties,  very  many  of  them 
doubtlessly  many  miles  from  urban  centers?  All  this  supervision  must,  re- 
member, be  paid  for.  Well,  I  imagine  this  proposition  becomes  so  difficult  in 
practice  that  such  banks  quickly  recognize  that  they  must  confine  their  loans 
chiefly  to  urban  properties — to  rural  properties  close  to  centers  where  their 
other  business  is  important  enough  to  justify  the  upkeep  of  an  office  or  to 
lending  only  on  large  rural  properties.  Not  only  the  expense  of  supervision, 
but  the  expense  of  valuation,  or  realization  in  case  of  default,  etc.,  would 
not  otherwise  permit  of  profitable  transactions. 

Moreover,  such  banks  tend  to  be  permeated  with  the  urban  atmosphere,  to 
be  directed  by  men  who  have  been  town  bred  and  who  do  not  understand  or 
appreciate  the  conditions  of  the  agricultural  industry  or  of  agricultural  prop- 
erties generally.  When  proposals  for  rural  mortgages  are  made  they  are  in- 
clined to  look  askance  at  them,  and  should  they  be  taken  into  consideration  they 
must  rely  in  the  main  on  other  people's  judgment  and  valuations.  Another 
drawback  from  the  commercial  bank  point  of  view,  in  addition  to  difficulty  of 
supervision,  difficulty  of  realization  in  case  of  default,  and  the  initial  difficulty 
of  valuation,  is  the  relative  inferiority  of  regular  returns  from  agricultural 
property  which  depresses  the  rate  of  interest  it  can  count  upon  and  will  receive 
as  a  matter  of  course.  A  further  point  is  also  worthy  of  recollection.  In  the 
case  of  the  joint-stock  mortgage  bank  there  is  inevitably  an  antagonism  of 
interest  as  between  mortgagor  and  mortgagee  which  is  not  present  in  the  case 
of  the  Landschaft,  when,  all  borrowers  being  mutually  concerned  in  the  sta- 
bility, efficiency,  and  inexpensive  government  of  their  association,  there  is  a 
certain  community  interest. 

While,  therefore,  for  these  and  other  reasons  I  consider  that  the  ordinary 
joint-stock  profit-seeking  mortgage  bank  is  not  capable  of  being  permanently 
serviceable  to  farmers  (although  their  utility  to  urban  property  owners  is  far 
less  to  be  questioned),  there  is  much  to  be  said  for  the  establishment  of  joint- 
stock  mortgage  institutions  which  would  limit  their  dividends  to  a  moderate 
return  in  capital  (say,  5  per  cent)  and  whose  organization  would  permit  of 
decentralization  and  the  adequate  representation  of  landowners  in  its  councils. 
It  may  be  that  in  many  parts  of  the  States  the  time  is  ripe  for  bringing  into 
being  associations  of  the  Landschaft  type,  and  such  nonprofit-seeking  joint- 
stock  companies  might  prepare  the  ground,  and  transformation  might  afterwards 
take  place  more  easily  and  perfectly  in  due  course.  We  have  recently  seen  in 
the  continent  examples  of  such  institutions  being  formed,  though  perhaps  no 
intention  of  such  later  transformation  exists. 

As  to  the  special  advantage  of  Landschaften — many  of  their  merits  I  have 
already  indicated  by  implication — -they  provide  cheap  and  efficient  administra 
tion,  localization,  and  therefore  efficient  agents  for  valuation  and  supervision; 
they  insure  every  landowner  within  their  particular  areas  credit  to  that  amount 
for  which  his  property,  after  valuation  mainly  or  entirely  by  landowners,  offers 
security  in  accordance  with  their  regulations  at  reasonable  interest,  not  subject 
to  recall,  while  necessarily  reducible  by  regular  installments  or  payable  in  full 
on  short  notice  or  by  sending  in  bonds  of  value  equivalent  to  the  debt.  They 
can  serve  small  as  well  as  large  landowners :  they  benefit  their  members  by 
making  them  acquainted  in  a  minute  way  with  their  own  and  their  neighbors' 
estates;  and,  last  but  certainly  not  least,  by  treating  them  to  regular  rerluction 
of  any  capital  indebtedness  incurred  and  by  familiarizing  them  generally  with 
current  banking  and  business  practices,  and  bind  landowners  large  and  small 
into  firmly  knitted  self-help  associations  of  responsibility  and  power. 

There  is  just  one  other  point,  and  that  is  that  Mr.  Cahill's  report 
is  preferable  to  the  local  banks,  because  he  thinks  that  they  result  in 
a  closer  relationship  among  the  people  interested  and  that  they  do 
supervise  each  other  more  or  less;  at  least,  each  knows  what  the 
other  is  doing,  and  it  is  safer  in  that  way.  It  is  not  any  cheaper  if 
you  combine  it  with  the  Landschaft  bank,  which  does  the  other  part 
of  the  business.  I  may  say  that  my  idea  here  is  that  a  cooperative 
bank  of  some  sort  chartered  by  the  Federal  Government,  with 
foundation  capital  and  handling  the  whole  mortgage  business,  is  just 
a  combination  of  the  Landschaft  and  the  Landschaft  bank.  You 
make  it  cooperative  and  let  it  do  business  only  with  its  members;  it 
would  be  identical  then,  and  it  would  be  an  American  institution  or 


854  RURAL   CREDITS. 

something  we  are  easily  accustomed  to  and  at  the  same  time  carry 
the  principles  known  all  over  the  world. 

I  wanted  to  refer  just  a  moment  to  the  Wisconsin  banking  laws. 
Before  going  on  the  United  States  commission  I  made  a  study  for 
the  Wisconsin  farmers,  and  reported  at  the  farmers'  conference  over 
a  year  ago,  and  at  that  time  recommended  that  steps  be  taken  to 
form  land  mortgage  associations  under  State  laws,  and  also  credit 
unions  or  cooperative  credit  associations  under  State  laws.  I  do 
not  know  that  my  recommendation  had  anything  to  do  with  the  fact 
that  two  laws  were  passed  at  the  next  session  of  the  Legislature  of 
Wisconsin,  because  the  farmers  of  that  State  had  been  studying  it 
for  years,  many  of  them  being  recently  from  Europe  and  acquainted 
with  European  experiences  and  practices.  The  Wisconsin  land  mort- 
gage association  law  brings  in  two  or  three  variations  from  what 
the  commission  has  suggested  as  a  Federal  law,  but  only  two  or 
three.  It  provides  for  $10,000  institutions,  but  these  institutions 
must  leave  the  mortgages  with  the  proper  State  officials  before 
issuing  the  bonds  and  selling  them.  They  are  allowed  to  issue  bonds 
amounting  to  20  times  the  capital,  while  our  suggestion  here  is  15. 
I  believe  that  to  be  safer,  and  the  tendency  of  the  European  insti- 
tutions is  downward,  and  some  of  them  are  even  only  10  times,  when 
large  deposits  are  taken.  It  is  barely  possible  that  in  an  indi- 
vidual State,  under  close  State  supervision,  and  where  the  mort- 
gages are  actually  turned  over  to  the  State  to  hold,  that  it  is  prac- 
ticable to  issue  bonds  20  times  the  amount  of  the  capital  stock.  I 
think  it  would  be  somewhat  doubtful  as  to  a  national  act.  In  the 
first  place,  the  country  is  so  large  that  you  can  not  provide  anything 
like  bringing  mortgages  from  California  or  Texas  up  here  for 
deposit  in  any  bureau  that  might  be  established,  and  it  is  impos- 
sible to  carry  out  the  same  scheme  in  any  large  nation. 

Second,  the  Wisconsin  act  allows  such  loans  as  shall  not  exceed  65 
per  cent  of  the  value  of  such  real  estate  so  conveyed  if  the  same  is 
improved. 

Mr.  Cunningham,  from  Ohio,  thought  that  50  per  cent  was  too 
low  for  his  State,  and  I  think  North  Central  States,  probably,  where 
land  values  have  probably  become  more  stable  and  more  established, 
that  that  might  be  a  reasonable  provision;  but  if  you  are  legislating 
for  the  whole  country  and  have  in  mind  the  uncertainties  of  vast 
areas  in  the  country,  I  doubt  the  desirability  of  allowing  any  loan 
to  be  more  than  50  per  cent  of  the  appraised  value  of  a  productive 
property  and  40  per  cent  in  case  of  nonproductive,  which  is  similar 
to  the  Wisconsin  law  in  that  particular  respect. 

The  Wisconsin  law  provides,  if  I  remember  rightly,  that  no  loan 
shall  exceed  15  per  cent  of  the  paid-up  capital.  In  other  words, 
$1,500  in  the  case  of  a  small  bank.  The  commission  suggested  20  per 
cent,  and  that  is  purely  an  arbitrary  proposition,  it  seems  to  me.  I 
do  think,  however,  that  the  discussion  which  has  been  brought  out 
:)lished,  at  least  in  my  mind,  the  belief  that  it  would  be  wise  to 
limit  the  maximum  loan  to  any  one  individual;  but  I  would  limit 
it.  T  think,  in  a  little  different  way.  I  would  not  absolutely  compel 
land-mortgage  banks  in  any  State  to  join  a  system  or  federate.  I 
would  make  it  optional  with  them,  and  then  I  would  permit  any  one 
institution  or  member  of  the  same  federation  or  central  institution 
to  loan  not  more  than  $10,000  to  any  one  farmer,  and  I  think  $10,000 


SURAL  CREDITS.  855 

would  be  a  good  maximum.  So  that  if  any  farmer  had  two  or  three 
farms  and  there  were  two  or  three  competing  institutions  in  the  same 
general  area,  it  seems  to  me  it  would  be  reasonable  for  him  to  bor- 
row from  two  different  institutions  on  two  different  pieces  of  prop- 
erty in  the  same  State.  I  have  in  mind  in  that  connection  the  Rus- 
sian experience — and  we  have  many  Russians  in  this  country — and 
we  may  consider  it  for  that  reason  rather  than  because  of  expe- 
rience across  the  water,  if  we  are  afraid  of  foreign  precedent,  but 
the  Russian  law  prohibits  competing  }n  a  way.  I  think  the  difficulty 
in  competing  banks  is  overdoing. 

The  Russian  law  prohibits  the  competing  of  joint  stock  banks,  or 
mortgage  banks,  in  this:  It  provides  that  if  a  loan  has  been  negoti- 
ated by  one  institution  no  other  institutions  in  less,  if  I  remember 
rightly,  than  5  years  may  reappraise  the  property  and  take  over  the 
loan  outstanding  on  a  higher  appraised  valuation.  That  would 
make  it  impossible  for  institutions  that  had  gotten  good  connections 
in  competition  with  each  other  overappraising  and  building  up  of 
values  in  a  community  in  order  to  get  loans  in  order  to  sell  them  out 
to  outside  districts. 

Mr.  Moss.  Is  that  condition  not  precisely  reached  in  the  provi- 
sion of  this  bill  that  a  loan  can  not  be  paid  off  without  the  consent 
of  the  bank? 

Mr.  Coulter.  I  was  just  coming  to  that.  That  was  put  in  there 
with  malice  aforethought,  as  some  have  suggested  that  he  ought  to 
be  allowed  to  pay  it  off  at  any  time,  and  I  was  going  to  suggest  that 
if  you  change  such  a  provision  as  that,  in  case  such  institutions  are 
provided  for  at  all,  that  there  should  be  a  prohibition  of  a  complete 
reappraisal  and  constant  reappraising  and  changing  of  values  in 
order  to  refund  and  take  out  an  increased  loan  on  a  basis  which 
would  be  improper.  I  think  the  Russian  law  is  very  specific  and 
says  that  reappraisal  can  only  be  had  in  case  it  is  established  to  the 
ministry  that  the  farm  has  been  completely  changed  in  the  mean- 
time, such  as  better  equipped,  or  a  railroad  has  passed  by  it,  or  new 
sets  of  buildings  or  drainage  facilities  established,  or  some  good 
reason  why  is  should  be  reappraised  and  a  new  loan  granted  in  a 
shorter  period  than  five  years  in  order  to  make  possible  a  continua- 
tion of  the  enterprise  on  the  plan  outlined. 

There  is  one  other  point  I  wanted  to  mention:  In  studying  over 
the  recommendations  of  the  commission  under  "  Specific  powers  "  I 
am  fearful  that  the  suggestion  there  concerning  refunding  in  case 
interest  rates  go  down  is  not  clear.  I  have  been  trying  to  figure  out 
how  a  farmer  would  actually  pay  off  his  loan  at  the  end  of  five 
years  in  case  interest  rates  had  gone  down  and  it  was  going  to  be 
practicable  for  him  to  change  onto  a  new  basis,  and  I  think  that  that 
section  is  fundamental,  if  you  are  going  to  provide  for  all  institu- 
tions, because  if  an  institution,  for  instance,  started,  let  us  say,  in 
the  northern  part  of  Minnesota,  possibly  the  first  series  of  bonds  or 
the  first  two  or  three  series  would  have  to  be,  we  will  say,  at  6  per 
cent  actual  interest  on  the  bond  itself,  aside  from  the  amortization 
feature  and  carrying  charges,  because  the  country  has  not  estab- 
lished itself  and  it  is  not  well  known,  but  in  five  years  these  bonds 
getting  out  and  being  understood  and  the  investing  public  becoming 
accustomed  to  them,  I  see  no  reason  why  such  a  district  should  not 
get  its  money  at  5|  or  5  per  cent,  as  compared  with  the  present  con- 


856  RURAL  CREDITS. 

ditions,  depending,  of  course,  on  what  the  general  movement  of 
money  was.  How  would  the  farmers  pay  off  their  old  debt  and  re- 
fund on  a  5£  per  cent  basis?  I  am  inclined  to  think  that  the  pro- 
vision we  have  would  not  make  it  possible  for  them  to  actually  ac- 
complish that  purpose.  He  would  probably  have  to  go  elsewhere 
and  borrow  some  money  to  buy  some  bonds  and  pay  off  his  old  debt 
before  he  could  negotiate  the  new  one  on  the  new  basis  with  the 
first  mortgage,  because  the  bank  already  had  his  first  mortgage, 
unless  specific  provision  was  made  to  make  clearer  than  I  believe  it 
is,  that  the  same  institution,  after  five  years,  if  its  bonds  were  then 
being  placed  upon  the  market  at  a  lower  rate  of  interest  than  during 
the  earlier  periods,  could  refund  on  its  own  account  for  any  farmer, 
could  call  in  the  outstanding  bonds,  the  earlier  6  per  cent  series  at 
par,  and  issue  new  bonds  in  their  place,  and  change  the  loan.  I 
believe  that  there  is  a  weak  spot  there. 

The  only  other  point  that  I  care  to  speak  on  at  all  is  the  matter 
of  appraisement.  Appraisal  at  best  is  a  very  uncertain  thing. 
Assessed  value  would  be  absolutely  fatal  as  a  basis  for  loans,  because 
in  this  country  every  State  and  county  and  community  has  its  own 
assessment  basis,  and  in  some  places  it  is  10  per  cent  of  the  common 
exchange  value,  and  in  some  places  it  is  100  per  cent;  it  is  almost 
everything.  Appraised  value  in  this  country  is  almost  impossible 
to  place  on  the  actual  earning  capacity  of  the  property,  because  the 
farmers  do  not  keep  books,  and  you  would  immediately  weed  out  90 
per  cent  of  the  business  of  these  institutions  if  you  put  it  on  any 
such  book  account,  because  they  could  not  furnish  it,  and  they  would 
just  go  on  in  their  present  channels  and  do  their  business  as  they 
are  doing  it  now,  because  they  could  not  furnish  the  other. 

About  the  only  basis  Ave  have  is  exchange  value,  what  property 
buys  and  sells  for,  and  that  can  sometimes  be  misleading.  For  that 
reason  I  am  inclined  to  recommend  some  sort  of  a  provision  like  this : 
That  no  institution  shall  issue  a  series  of  bonds  less  than  $10,000  (or 
some  specified  amount),  and  at  the  time  of  issuing  the  same  shall  call 
for  an  appraiser  or  inspector  from  the  bureau,  if  one  is  created,  or 
an  agent  provided  for  by  the  Department  of  Agriculture,  or  some 
similar  officer,  who  shall  personally  visit  the  area  where  the  loans  are 
made  and  give  his  judgment  as  to  the  value  of  the  appraisements 
which  have  been  made,  and  if  in  his  judgment  the  appraisals  have 
been  too  high,  let  the  institution  be  prohibited  from  issuing  that 
series  of  bonds,  unless  such  additional  collateral  as  may  be  prescribed 
is  added,  or  until  such  time  as  certain  of  the  mortgages  have  been 
paid  off  or  reduced  to  a  point  where  they  come  within  the  limit 
prescribed. 

I  think  that  the  effect  of  that  would  be,  first,  to  absolutely  make 
sure  that  no  local  appraisers  or  officers  would  overappraise,  because 
they  would  be  wanting  to  issue  their  bonds,  and  would  be  afraid  that 
they  would  overdo  it ;  and  the  appraisals  would  be  more  conservative 
and  the  loans  safer,  and  it  Mould  be  a  great  protection  to  the  investor, 
and  would  result  in  cheaper  money  to  the  borrower.  I  am  inclined  to 
think  that  the  National  Government  might  go  so  far  in  its  assistance 
there  as  to  provide  such  appraisers  or  inspectors  at  Government 
expense,  except  traveling  and  the  actual  expenses  of  the  appraiser; 
that  is,  pay  their  salaries,  provide  them  as  a  part  of  the  Government 
force  of  employees,  and  let  the  local  institution  pay  the  cost  of  the 


RURAL   CREDITS.  857 

immediate  inspection.  However,  this  is  just  thrown  out  as  a  sugges- 
tion. I  believe  that  a  very  thorough  appraisal  or  conservative  guard  is 
necessary  there.  I  know,  for  instance,  in  my  home  county  there  has 
been  a  decrease  of  500  farms  in  10  years.  That  is  in  Minnesota, 
and  not  in  a  part  of  the  country  where  we  too  frequently  hear  about 
deserted  farms.  I  think  that  careful  appraisal  is  necessary  in  many 
such  cases.  I  know  of  some  farms  that  were  oversold  even  in  that  well- 
settled  district.  I  believe  that  this  covers  all  points  which  I  wished 
to  lay  before  you. 

Senator  Hollis.  We  thank  you  very  much. 

Mr.  Bulkley.  May  I  ask  one  question  there  before  Mr.  Bathrick 
begins?  Mr.  Bathrick  was  not  here  when  you  began.  Would  you 
mind  repeating  for  his  benefit  the  statement  you  made  that  the 
farmers  do  not  want  any  Government  help  ? 

Mr.  Coulter.  Yes;  I  was  saying  that  I  do  not  believe  the  farmers 
wanted  the  National  Government  to  make  direct  loans  (if  you  really 
consulted  the  minds  of  the  farmers)  as  such — that  is,  the  great  mass 
of  farmers,  who  would  be  the  patrons  of  any  institution  created.  So 
far  as  I  have  been  able  to  ascertain  the  only  demand  for  such  Govern- 
ment loans  comes  from  a  few  leaders  in  farmers'  organizations,  and 
so  far  as  I  can  ascertain  from  consulting  with  those  leaders,  they  are 
not  specialists  in  this  subject  of  rural  credits,  either.  They  believe 
that  that  would  be  a  thing  which  would  appeal  to  the  farmers.  I 
have  tried  for  over  a  year,  I  think,  since  my  early  correspondence 
with  you,  Mr.  Bathrick,  last  February  or  March,  to  get  some  idea  of 
the  farmers'  sentiment  on  that  point.  I  have  heard  so  many  of  them 
express  themselves  either  orally  or  otherwise  (I  think  I  have  been  at 
50  or  75  farmers'  meetings  since  I  returned  from  Europe)  that  it 
would  get  into  politics,  that  a  man  would  get  a  loan,  and  some  one 
else  would  try  to  get  a  loan,  and  if  there  was  some  complication  in 
it  all  they  would  have  to  do  would  be  to  write  to  their  Congressman 
to  go  to  somebody,  who  would  go  to  somebody  else,  and  that  somebody 
else  would  go  to  somebody  else  and  put  in  the  necessary  good  word  any- 
how. They  did  not  know  how  it  would  be  done,  but  farmers,  par- 
ticularly those  who  are  not  now  large  borrowers,  expressed  them- 
selves that  way. 

Mr.  Bathrick.  In  other  words,  the  farmers  who  do  not  borrow  the 
money  do  not  want  Government  loans  ? 

Mr.  Coulter.  They  said  that  would  be  a  dangerous  thing — to  get 
the  Government  in  it — and,  besides,  that  what  was  needed  was  an 
institution  which  would  make  it  possible  to  get  the  investor  and  the 
borrower  together  and  not  to  get  the  Government  into  it. 

Mr.  Bathrick.  Have  you  consulted  any  man  who  was  paying  10 
to  12  per  cent  interest  on  mortgages  on  the  matter? 

Mr.  Coulter.  Yes ;  I  have  a  number  of  letters,  and  I  have  also 
consulted  a  number  personally.  I  come  from  a  corner  in  Minne- 
sota— way  up  in  the  northwestern  corner  (Polk  County),  almost  the 
last  county  in  the  corner — where  there  has  been  a  decrease  in  the 
number  of  farms  in  the  last  10  years,  in  some  cases  because  of  the 
inability  to  make  both  ends  meet,  in  parts  of  the  county  where  mort- 
gaging is  pretty  extensive,  and  I  took  occasion  to  go  out  in  that  sec- 
tion where  I  knew  all  the  farmers  pretty  well — within  the  last  few 
months — and  to  a  number  of  the  farmers  I  said,  "  Is  it  Government 
loans  you  want,  or  a  chance  to  get  in  touch  with  the  investor?"  and 


858  RURAL   CREDITS. 

they  said,  "  What  I  want  is  a  more  reasonable  method  of  borrowing, 
and  that  is  about  all."  A  more  reasonable  method  of  borrowing  is 
what  they  want. 

Mr.  Woods.  Dr.  Coulter,  as  I  understand  you,  you  feel  that  these 
people  who  have  been  here  assuming  to  speak  for  the  farmers  have 
not  been  in  touch  with  the  farmers  as  to  their  actual  wants  to  the 
extent  that  you  have? 

Mr.  Coulter.  Well,  I  do  not  know  of  anyone  who  has  appeared 
here  who  has  asked  for  Government  loans,  but  one,  and  he  is  a  pro- 
fessor of  animal  husbandry,  and  I  know  he  has  not  been  working  on 
this  subject,  and  I  do  not  think  he  is  an  authority  on  it  at  all. 

Mr.  Woods.  To  whom  do  you  refer  ? 

Mr.  Coulter.  That  is  Mr.  Atkeson.  I  think  he  is  the  only  one  who 
has  expressed  himself  in  any  such  way.  Mr.  Alexander  is  about  the 
only  other  one  who  hinted  at  any  such  thing. 

Mr.  Platt.  Mr.  Doak  did,  I  think,  the  farmer  who  came  here  from 
Virginia.    He  asked  for  direct  Government  loans,  did  he  not? 

Mr.  Coulter.  I  did  not  so  understand  him.  I  should  like  to  have 
the  record  stand  on  that,  too. 

Mr.  Platt.  I  think  it  was  another  one  of  the  witnesses  who  asked 
for  Government  loans — came  here  and  advocated  direct  Government 
loans. 

Mr.  Stone.  That  was  the  gentleman  that  came  from  Arkansas. 

STATEMENT    OF   HON.   E.   R.    BATHRICK,    REPRESENTATIVE   IN 
CONGRESS  FROM   OHIO. 

Senator  Hollis.  Mr.  Bathrick,  before  you  begin,  please  state  for 
the  record  what  bill  you  propose  to  discuss. 

Mr.  Bathrick.  I  shall  discuss  particularly  the  bill  I  introduced, 
which  is  H.  R.  11897.     I  shall  speak  also  of  the  Moss-Fletcher  bill. 

Mr.  Chairman,  I  had  intended  to  take  up  this  question  of  who  is 
supporting  Government  loans  later  on  under  a  separate  head,  but  I 
think  I  might  as  well  take  it  up  now,  inasmuch  as  the  question  has 
been  raised,  and  Dr.  Coulter  has  implied  that  the  organized  farmers 
are  not  supporting  Government  loans. 

I  believe  some  of  those  who  are  opposed  to  Government  loans  are 
very  anxious  to  have  it  appear  that  the  farmers  of  this  country  are 
not  interested  in  it.  There  was  a  rumor — I  do  not  propose  to  sub- 
stantiate any  rumors  or  to  say  that  the  rumors  are  correct,  but  there 
was  a  rumor  which  went  around  the  House,  which  came  to  my  ears, 
that  there  was  really  no  official  indorsement  by  the  grange ;  that  the 
majority  of  the  members  were  against  it.  That  is  not  true.  One 
farmer  came  to  the  House,  whose  name  I  have  no  authority  to  men- 
tion, and  who  interviewed  Mr.  Bulkley,  and  I  think  it  was  said  that 
he  stated  that  he  was  opposed  to  the  Government  loan  plan. 

I  have  in  my  possession  a  letter  from  that  gentleman  stating  that 
he  is  for  Government  loans.  He  is  a  very  prominent  member  of 
the  grange  in  the  State  of  Pennsylvania. 

It  was  also  rumored  that  Washington  State  has  disagreed  with  the 
grange  in  the  matter  of  Government  loans.  I  have  a  letter  from  Mr. 
C.  B.  Kegley,  master  of  the  Washington  Grange,  in  which  he  supports 
the  plan  of  Government  loans  to  farmers. 


RURAL  CREDITS.  859 

I  will  read  Mr.  Kegley's  letter  to  me : 

Hon.  Ellsworth  R.  Bathrick, 

Washington,  D.  C. 
Dear  Mr.  Bathrick  :  I  have  been  reading  your  speech  "  Farm  credits — tne 
profit  for  the  people,  not  for  private  aggrandizement,"  and  want  to  say  that  it 
is  the  very  first  thing  that  I  have  seen  that  meets  my  approval  as  to  how  we 
are  to  solve  the  "  farm-mortgage  question  "  ever  offered  in  Congress. 

That  speech  deals  entirely  with  the  question  of  Government  loans. 
Here  Mr.  Kegley  states  very  strongly  a  fact  which  I  would  like  to 
have  more  generally  understood  in  this  country,  namely : 

No  banker  should  oppose  this  plan,  and  I  can  see  but  one  class  who  will, 
and  that  is  the  loan  companies  who  have  been  sucking  the  life's  blood  from 
the  farmers  of  this  Nation  until  there  is  left  no  hope  that  the  mortgage  in- 
debtedness will  ever  be  paid  off  under  the  present  plans  of  borrowing. 

Other  nations  and  countries  have  seen  the  wisdom  of  this  plan,  and  I  can 
not  for  the  life  of  me  see  why  our  great  Nation  should  not  give  the  debt-ridden 
farmer  a  show,  and  the  young  man  who  wants  a  home  an  opportunity  to  acquire 
one  and  pay  for  it  without  wearing  his  life  out  paying  interest,  which  means 
slavery  for  him  and  his  family  through  their  working  years  and  a  debt  scarcely 
reduced  when  incapacitated  old  age  overtakes  them. 

Give  us  a  measure  like  this,  with  a  reasonable  rate  of  interest  not  to  exceed 
4£  or  even  5  per  cent,  with  1$  per  cent  amortizing  the  loan,  and  we  would  see 
the  farmer  prosper,  and  that  would  mean  the  prosperity  of  the  Nation. 

I  shall  not  attempt  to  discuss  this  in  a  letter,  but  I  want  to  assure  you  that 
it  is  question  of  vital  importance  to  the  agricultural  people  and  one  when 
understood  will  receive  united  support.  I  am  asking  our  secretary,  Mr.  George 
P.  Hampton,  Washington,  D.  C.,  to  provide  you  with  our  mailing  list  that 
your  speech  may  go  to  all  subordinate  granges. 
Very  truly, 

C.  B.  Kegley. 

I  have  from  Nebraska  a  statement  that  the  State  grange  had 
indorsed  H.  R.  11897.  There  is  no  use  reading  all  these  letters;  I 
have  about  100  here  which  would  clog  the  record,  but  they  are  open 
to  inspection  by  any  member  of  this  committee  at  any  time.  They 
indorse  H.  R.  11897,  and  are  from  leading  farmers  and  from 
their  official  organizations.  I  have  many  hundreds  more  similar, 
some  from  the  officials  of  farm  organizations  and  some  from  persons 
speaking  for  themselves. 

Mr.  Moss  says,  on  page  23  in  his  hearings,  that  he  has  taken  par- 
ticular pains  to  secure  the  editorial  comments  of  the  agricultural 
press.    He  says : 

I  have  done  that,  because  it  is  a  difficult  matter  to  get  a  correct  expression  of 
the  agricultural  thought  because  the  farmers  are  not  organized. 

I  believe  the  Farmers'  Union  has  a  membership  of  something  like 
1,500,000  to  2,000,000.  The  grange  has  a  membership  of  about  the 
same — I  do  not  know  the  exact  figures.  There  are  several  other  well- 
known  farm  organizations  in  the  country,  and  I  know  that  Mr.  Moss 
is  mistaken  as  to  the  farmers  not  being  organized. 

I  will  refer  next  to  the  hearings  or  to  the  official  doings  of  the 
National  Grange,  at  Manchester,  N.  H.  It  appears  that  there  were 
three  resolutions  introduced,  and  the  one  that  was  finally  carried— 
and  in  this  report  statements  are  given  as  to  who  was  for  and  against 
and  what  amendments  were  made — was,  in  part,  as  follows : 

Resolved,  That  we,  the  members  of  the  National  Grange,  believe  that  the 
Government  of  the  United  States  should  borrow  money  by  the  issue  of  bonds 
at  a  rate  of  interest  not  to  exceed  3  per  cent  or  ?>±  per  cent,  and  lend  the  money 
at  a  rate  not  in  excess  of  4§  per  cent  to  the  farmers  upon  the  security  of  farm- 


860  RURAL  CREDITS. 

land  mortgages,  the  profit  to  the  Government  to  be  used  for  some  object  that 
will  benefit  the  whole  people. 

That  was  the  official  pronunciamento  of  the  National  Grange;  and 
proceeding  to  carry  out  that  resolution,  the  National  Grange  issued 
a  letter,  which  I  believe  Mr.  Moss  refers  to  on  page  23,  do  you  not, 
when  you  say : 

I  came  into  possession  of  a  letter  which  I  presume  had  been  widely  sent 
out,  suggesting  that  the  farmers  begin  writing  letters  to  their  Representatives. 

Mr.  Moss.  No,  sir;  I  have  no  reference  to  that. 

Mr.  Bathrick.  Was  not  that  the  one? 

Mr.  Moss.  No.  sir.  I  never  have  seen  the  grange  letters.  I  re- 
ferred to  the  letter  which  was  printed  in  the  hearings. 

Mr.  Bathrick.  Well,  then,  I  stand  corrected ;  but  I  desire  to  have 
placed  in  the  record  this  letter. 

Senator  IIollis.  That  will  be  done. 

(The  letter  referred  to  is  as  follows:) 
To  the  members  of  State,  Pomona,  and  subordinate  granges: 

Just  at  this  time  the  most  important  and  uricent  subject  before  Congress, 
so  far  as  the  farmers  are  concerned,  is  that  of  "farm  credit."  Recognizing  its 
paramount  and  immediate  importance,  the  National  Grange  at  its  last  session, 
and  many  State  granges  meeting  since  that  time,  have  given  it  careful  consider- 
ation. Many  bills  have  been  introduced  in  the  Senate  and  House  of  Representa- 
tives, and  many  mure  are  likely  to  be. 

Your  legislative  committee,  after  careful  consideration  of  the  "farm  credit" 
bills  pending  in  Congress,  find  that  the  bill  which  most  nearly  conforms  to  the 
resolutions  adopted  by  the  National  Grange  is  the  Bathrick  bill  (II.  R.  11S07) 
and  have  unanimously  agreed  to  support  that  bill. 

The  bill  provides  that  the  Government  shall  borrow  money  at  a  rate  of 
interest  not  in  excess  of  Si  per  cent  and  lend  on  farm  first  mortgages  at  a  rate 
not  in  excess  of  A\  per  cent. 

The  mortgage  contracts  are  payable  in  small  annual  installments.  The 
debtor,  however,  can  pay  all  or  any  part  of  the  mortgage  at  any  iuterest-paying 
period. 

Loans  can  be  made  direct  to  farmers  or  to  farmers  through  farmers'  farm- 
credit  associations.  The  rapid  organization  of  these  self-help  associations  will 
be  encouraged  by  employing  and  paying  them  to  attend  to  the  work  of  apprais- 
ing and  inspecting  mortgage  loans,  leaving  their  capital  free  to  care  for  local 
short-time  loans.  This  program  is  in  conformity  with  the  best  European  ex- 
perience, where  self-help  and  government  aid  go  hand  in  hand. 

Limitations  and  restrictions  on  loans  will  encourage  the  ownership  of  farm 
homes,  but  discourage  unwholesome  land  speculation  and  tenantry.  The  cost 
of  investigation,  appraisal,  and  inspection  in  making  a  loan  will  be  confined  to 
actual  expenses.  The  bonds  issued  to  secure  the  loan  fund  will  be  in  small  as 
well  as  large  denominations  and  their  total  will  at  no  time  exceed  the  amount 
of  mortgages  held  to  secure  them.  The  .money  borrowed  must  be  used  for 
the  discharge  of  obligations,  purchase  price,  or  the  improvement  of  the  property 
offered  as  security.  The  applicant  must  be  thrifty  and  of  good  character  and  no 
loans  shall  exceed  60  per  cent  of  the  value  of  the  farm.  All  applications 
must  be  sworn  to  and  a  heavy  penalty  is  provided  for  misrepresentation. 

Postmasters  and  other  Government  officials  will  be  employed  to  assist  in 
administering  its  provisions.  Without  detailing  the  administrative  features,  it 
can  be  said  that  they  seem  well  designed  to  carry  out  the  provisions  of  the  bill. 
Profits,  if  auy,  are  to  be  expended  in  building  and  maintenance  of  good  roads. 

This  bill  comprehends  the  best  plan  of  bettering  the  conditions  of  both 
long-time  mortgage  and  short-time  loans,  and  is  devoid  of  any  taint  of  private 
profit.  By  it  those  now  struggling  with  a  hopeless  mortgage  would  be  shown 
a  way  out.  Those  out  of  debt  would  be  awakened  to  the  advantage  of  a  safe 
credit,  and  those  who  wish  to  own  a  home  on  the  farm  would  be  given  substan- 
tial opportunities.  All  this  can  be  done  expeditiously  by  Government  loans, 
but  by  private  banks  or  by  any  unaided  self-help  plan  the  benefits  will  drag 
slowly  through  a  generation. 

All  the  leading  nations  of  the  earth  are  doing  as  much  as  is  intended  by 
this  bill.     England  and  Germany  lead  in  Government  and  State  aid.     The  bill 


RURAL   CREDITS.  861 

does  not  express  a  new  proposition.  It  is  not  even  new  to  the  United  States. 
Loans  to  banks,  gifts  and  guaranties  to  railroads,  loans  to  Philippine  farmers, 
irrigation  appropriation,  and  many  laws  give  color  of  practice  to  it. 

There  is  no  chance  of  loss  to  the  Government,  but  rather  a  sure  chance  of 
gain  for  all  the  people.  This  seems  preferable  to  a  new  system  of  private  mort- 
gage banks  gathering  profit  for  a  few. 

If  this  bill  is  class  legislation,  so  is  it  class  legislation  to  lend  money  to  the 
banks.  The  success  of  agriculture  is  as  important  to  the  whole  people  as  the 
banks. 

Government  bonds  issued  for  this  purpose  could  not  invade  the  public 
purse  or  the  taxing  power;  hence  could  not  affect  the  Government  credit  or 
cost  the  people  a  penny.  Nine  of  our  States  now  lend  their  school  funds  to 
farmers  and  lose  nothing. 

The  Bathrick  bill  at  once  removes  the  obstacle  of  taxation  on  mortgages 
and  the  debentures;  a  vitally  necessary  thing  to  do  before  interest  rates  on 
farms  can  be  reduced.  This  is  done  in  the  interest  of  food  producers  and 
consumers,  and  therefore  is  for  all  the  people.    It  is  for  all  and  not  for  a  few. 

Some  bills  attempt  to  cover  this  phase  by  exempting  private  profit-seeking 
banks  from  taxation.  These  are  distinctly  class  measures,  without  the  slightest 
warrant  of  Government  beneficence  for  their  special  privileges. 

Of  this  class  are  the  Moss  bill  in  the  House  and  the  Fletcher  bill  in  the 
Senate.  These  are  distinctly  private  profit-sharing  measures,  which,  in  our 
opinion,  will  do  little  to  aid  farm  credit,  but  will  build  up  a  new  class  of 
national  banks,  interfering  with  the  operation  of  the  new  banking  and  currency 
bill,  and  strengthen  the  hold  of  the  money  power  upon  the  people.  These  bills 
are  in  utter  opposition  to  the  resolutions  passed  at  the  last  National  Grange 
meeting. 

They  leave  the  important  question  of  interest  rates  uncertain  and  delegate 
the  great  national  policy  of  conservation  of  agriculture  to  individuals,  who 
can  be  actuated  only  by  a  desire  to  make  as  much  money  as  possible  out  of  the 
operation. 

If  it  is  constitutional  to  give  exemption  from  taxation  to  the  stock,  surplus 
profits,  bonds,  noles,  and  other  securities  of  these  individuals,  and  thereby  add 
to  their  profits,  who  will  raise  a  question  of  the  right  of  the  people's  Govern- 
ment to  lend  money  on  farm  securities,  free  from  taxation? 

Copies  of  the  Bathrick  bill  may  be  secured  by  writing  Hon.  E.  Pi.  Bathrick, 
Washington,  D.  C. 

Every  subordinate  grange  officer  who  receives  a  copy  of  this  circular  is 
urgently  requested  to  take  it  to  the  next  meeting  of  his  grange  and  have  it 
read  and  fully  discussed,  and  then  forward  to  Members  of  Congress  and 
Senate  from  your  State  carefully  prepared  resolutions  indorsing  direct  Govern- 
ment loans,  as  set  forth  in  the  Bathrick  bill.  In  the  meantime,  and  imme- 
diately upon  receipt  of  this  circular,  send  an  individual  letter  or  telegram  to 
-sour  Congressmen  and  Senators  indorsing  the  proposition  as  set  forth  in  this 
circular  and  follow  it  up  with  petitions  to  the  same  effect  signed  by  your 
farmer  neighbors. 

Prompt  action  is  imperatively  demanded  if  any  substantial  benefit  is  to  be 
secured  to  the  farmers  by  the  pending  farm-credit  legislation. 

Fraternally  submitted. 

Oliver  Wilson, 
T.  C.  Atkeson, 
H.    J.    Patterson. 
Legislative  Committee  of  the  National  Orange. 

That  letter  is  signed  by  Oliver  Wilson,  Peoria.  111.,  president  of 
the  grange ;  Mr.  T.  C.  Atkeson,  Morgantown,  W.  Va..  and  Mr.  Henry 
J.  Patterson,  College  Park,  Md.,  prominent  men  in  the  grange,  occu- 
pying some  office  which  I  can  not  name  now.  Mr.  Atkeson  came 
before  the  Bulkley  subcommittee  of  the  Banking  and  Currency  Com- 
mittee officially  representing  the  grange,  and  was  unalterably  in 
favor  of  Government  loans.  The  farmers'  union  sent  Mr.  Hobbs 
here  also  and  Mr.  Kennett.  Mr.  Hobbs  is  chairman  of  their  legisla- 
tive committee ;  and  they  came  before  the  committee  and  made  their 
statements  supporting  Government  loans. 


862  RURAL   CREDITS. 

I  am  speaking  about  the  people's  support  now  of  Government 
loans,  and  I  desire  the  gentlemen  here  to  know  that  I  do  not  care 
only  for  my  bill ;  I  am  mainly  interested  in  the  principle  involved 
therein.  I  have  never  thought  that  there  was  a  possibility  of  my 
being  immortalized  by  passing  my  bill  in  this  House,  but  I  have  put 
in  many,  many  weary  hours  in  the  last  two  years  trying  to  do  some 
good  to  the  people  of  this  country,  and  I  conceive  that  this  could  be 
best  worked  out  by  the  plan  I  have  proposed. 

Here  is  a  letter  dated  under  the  caption  "Granite  Cutters'  Inter- 
national Association  of  America,"  part  of  which  says: 

And  our  executive  council  appreciates  your  efforts,  ami  by  unanimous  vote 
indorsed  your  bill  and  your  activity  in  endeavoring  to  pass  ii  into  law. 

I  refer  to  these  labor  indorsements  particularly  because  somebody 
has  made  a  vicious  effort  to  show  that  it  is  a  drastic  class-legislation 
proposition,  to  loan  money  to  farmers  and  not  to  loan  money  to  the 
men  in  the  cities.  This  association  is  a  part  of  the  American  Fed- 
eration of  Labor 

Mr.  Hobbs,  representing  the  farmers'  union,  was  before  the  Ameri- 
can Federation  of  Labor  last  January  and  put  the  matter  up  to  them, 
with  the  result  that  they  passed  resolutions  conforming  to  that  which 
the  national  grange  passed  and  which  Mr.  Hobbs,  as  representative 
of  the  farmers'  union,  supported. 

I  have  here  a  copy  of  the  American  Federation  of  Labor  resolution 
and  the  letter  sent  to  Mr.  Hobbs  by  Mr.  Frank  Morrison,  secretary 
of  the  American  Federation  of  Labor.  I  will  read  the  letter  to  Mr. 
Hobbs  by  Secretary  Morrison : 

Mr.  S.  H.  Hobbs, 

National  Hotel.  Washington.  D.  C. 
My  Dear  Mr.  Hobbs  :  Inclosed  please  find  copy  of  letter  which  was  sent  to 
Mr.  A.  C.  Davis,  secretary-treasurer  of  the  Farmers'  Educational  and  Coopera- 
tive Union  of  America,  transmitting  to  him  the  action  of  the  executive  council 
in  indorsing  the  Bathrick  bill. 
Very  truly,  yours, 

Frank  Morrison, 
Secretary  American  Federation  of  Labor. 

This  is  the  letter  which  Mr.  Morrison  sent  to  Mr.  A.  C.  Davis: 

Washington,  D.  C,  February  2,  191J,. 
Mr.  A.  C.  Davis, 

Secretary-Treasurer  Farmers'  Educational  and 

Cooperative  Union  of  America,  Rogers,  Ark. 

Dear  Sir  and  Brother  :  At  the  meeting  of  the  executive  council  of  the  Amer- 
ican Federation  of  Labor,  held  at  headquarters  January  19-24,  the  representa- 
tives of  your  organization,  Messrs.  S.  H.  Hobbs  and  J.  C.  Kenuett,  appeared 
before  the  council  requesting  the  cooperation  of  the  American  Federation  of 
Labor  to  secure  the  rural-credit  system,  as  outlined  in  the  resolution  they  pre- 
sented, as  follows: 

"  Resolved,  That  it  is  the  opinion  of  the  national  grange  that  any  legislation 
for  the  purpose  of  bettering  farm  credit  is  a  part  of  the  great  national  policy 
of  conservation  of  food  supply,  and  as  such  it  can  not  properly  be  delegated  to 
private  capital  for  general  exploitation  and  profit. 

"  Resolved,  That  any  farm-credit  plan  which  does  not  include  a  direct  reduc- 
tion of  the  'prevailing  rates'  of  interest  as  well  as  a  long  term  of  small 
annual  payments  upon  farm  mortgages  will  not  meet  agricultural  «redit  re- 
quirements. 

"  Resolved,  That  the  Government  of  the  United  States  should  borrow  money 
at  a  rate  of  interest  not  to  exceed  3^  per  cent  and  lend  the  money  at  a  rate  not 
to  exceed  44  per  cent  to  the  farmers  upon  long-time  farm-land  mortgages,  with 
such  restrictions  as  may  be  necessary  to  make  the  Government  perfectly  secure: 


RURAL  CREDITS.  863 

and  the  profit  to  the  Government  to  be  expended  in  road  improvement  or  for 
some  other  object  that  will  benefit  the  whole  people." 

The  executive  council  gave  much  discussion  and  careful  consideration  to  the 
matter,  and  indorsed  the  farm-credit  bill  which  was  introduced  in  the  House  of 
Representatives  by  Congressman  Bathrick  of  Ohio.  Copy  of  that  bill  is  in- 
closed herein. 

Assuring  you  of  the  desire  of  the  American  Federation  of  Labor  to  cooperate 
with  your  organization  in  every  possible  way  for  the  advancement  of  the  best 
interests  of  the  organized  farmers  and  the  organized  wage  earners,  and  hoping 
to  hear  from  you  at  your  convenience,  I  am, 
Fraternally,  yours, 

Samuel  Gompers, 
President  American  Federation  of  Labor. 

Speaking  further  of  the  support,  Mr.  Moss,  on  page  23  of  his 
hearing,  submits  a  list  of  14  farm  papers,  three  of  which  are  owned 
or  dominated  by  the  same  man.  Mr.  Moss  offers  these  and  a  few 
editorials  from  them  as  representing  the  farmers  of  this  country. 
He  would  like  to  have  us  believe  that  this  is  a  better  representation 
than  the  three  or  four  million  members  of  the  Farmers'  Union  and 
the  National  Grange. 

None  of  these  papers  represent  the  farmers  in  any  official  capacity. 

As  better  evidence  and  a  more  authentic  conception  of  the  opinion 
of  the  farmers  of  this  country,  I  ask  to  be  printed  the  two  following 
editorials.  They  are  clipped  from  the  National  Grange  Monthly, 
the  official  organ  of  the  grange,  and  from  the  National  Field,  the 
official  organ  of  the  Farmers'  Union.  To  fully  establish  the  offi- 
cial status  of  these  two  farm  papers,  I  will  state  that  Mr.  Oliver 
Wilson,  president  of  the  grange,  and  Mr.  C.  S.  Barrett,  president  of 
the  Farmers'  Union,  are  editors  in  chief  of  their  respective  papers. 
I  submit  these  editorials  with  the  assurance  that  every  thoughtful 
person  will  accept  them  as  representative  of  the  organized  farmer's 
thought  more  than  the  individual  free-lance  expression  of  a  few 
editors  whose  papers  are  not  allied  with  farm  organization  in  this 
country. 

[Prom  the  National  Grange  Monthly,  official  organ  of  the  national  grange.] 
A  GREAT  ISSUE. 

Never  in  its  history  has  the  national  grange  faced  at  once  so  wonderful  au 
opportunity  and  so  tremendous  a  responsibility  as  now  looms  up  before  it  in 
the  proposition  to  establish  some  stable  and  sensible  system  of  rural  credit  for 
the  farmers  of  this  country.  Its  clear-cut  declaration  for  rural  credits,  and  its 
aggressive  purpose  to  accomplish  it,  has  already  won  for  the  grange  the  ap- 
proval and  backing  of  thousands  of  farmers,  heretofore  not  particularly  inter- 
ested in  the  order,  but  who  know  that  some  system  of  properly  financing  agri- 
cultural development  and  extension  is  the  present  supreme  need  of  the  Ameri- 
can farmer.  The  grange  has  therefore  put  its  hand  to  the  plow  at  exactly  the 
vital  spot. 

Out  of  the  demand  for  a  system  of  rural  credit  it  is  apparent  that  the  finan- 
cial interests  of  the  country  propose  to  exercise  a  dominating  influence,  while 
the  clever  politician  is  also  promptly  on  hand  to  help  shape  things  to  his  own 
ends.  Recognizing  that  rural  credit  is  going  to  be  a  live  issue,  at  a  time  when 
a  live  issue  is  in  demand,  both  the  bankers  and  the  politicians  are  eagerly 
trying  to  capitalize  the  situation  to  their  own  respective  advantage.  The  need 
is  the  farmer's,  but  so  far  as  the  bankers  and  the  politicians  can  prevent  it. 
he  will  have  little  to  say  how  that  need  shall  be  met.  It  is  history  repeated 
in  legislation,  but  this  is  the  most  serious  aspect  of  the  present  issue.  Already 
the  Moss-Fletcher  bill  has  appeared  in  Congress,  and  there  will  be  a  score  of 
others,  some  clever,  all  good  appearing,  and  perhaps  none  sincerely  in  the 
interests  of  the  farmer. 


864  RUKAL   CREDITS. 

[  Editorial  from  the  National  Field,  official  organ  of  the  Farmers'  Union.] 

The  fanner  must  be  saved  by  the  public  wbicb  he  serves  in  order  tbat  the 
public  itself  may  be  saved.  Who  is  the  public?  All  the  people.  Who  is  the 
Government V  All  the  people.  We  come,  therefore,  to  the  fact  that  the  Gov- 
ernment, which  is  nothing  but  a  corporate  name  for  all  the  people,  shall  dis- 
charge the  obligation  of  the  whole  public  to  the  farmer,  who  is  one-half  of 
that  public ;  and  the  only  power  on  earth  that  can  move  with  strength  and 
rapidity  enough  to  meet  the  demands  of  the  situation  is  the  Government.  We 
are  not  proposing  any  untried  experiment.  New  Zealand,  which  is  to-day  the 
most  prosperous  fanning  country  in  the  world,  and  resulting  therefrom,  the 
most  prosperous  country  altogether  in  the  world,  has  long  ago  thrown  over- 
board all  precedents  and  all  prejudices  and  gone  to  the  relief  of  its  farmers. 
To  the  landless  man.  it  will  sell  land,  and  furnishes  working  capital  to  the 
farmer  already  established.  It  will  furnish  working  capital,  whether  it  be  to 
make  a  new  farmer  or  to  help  an  old  farmer ;  it  will  furnish  that  money  upon 
any  time  desired — many  of  the  loans  running  3(U  years. 

We  may  as  well  face  the  situation  frankly  as  to  dodge  around  a  few  years 
longer  until  we  are  in  worse  condition  than  to-day.  We  have  got  to  face  it. 
There  is  not  enough  liquid  capital  in  the  United  States  to  meet  the  needs  of  the 
farmer  at  the  rate  of  interest  which  he  must  have  to  live  and  prosper.  What 
liquid  capital  we  have  is  not  content  with  what  is  a  living  rate  of  interest  for 
the  farmer.  Only  the  Government,  which  is  not  concerned  with  profits,  can 
afford,  under  present-day  conditions,  to  furnish  the  farmer  money  at  proper 
rates.  If  the  farmer  is  to  be  helped  adequately  and  promptly,  that  help  must 
come  from  the  Government. 

C.  S.  Barrett, 
President  of  the  Farmers1  Union. 


I  submit,  that  as  far  as  support  is  concerned,  that  the  plan  of 
Government  loans  has  the  united  support  of  the  two  biggest  farm 
organizations  of  this  country  and  of  the  American  Federation  of 
Labor,  and  that  support  should  be  concurred  in  by  every  member  of 
those  organizations  with  just  the  same  loyalty  that  we  are  supposed 
to  give  to  the  platforms  of  our  political  parties. 

Now,  I  understand,  also,  that  at  the  time  the  resolution  was  passed 
by  the  grange  there  were  delegations  there  from  nearly  40  States 
of  this  country. 

Nobody  who  knows  denies  that  the  farmers  are  organized,  and  if 
you  will  give  the  people  of  this  country  time  to  crystallize  their 
opinions  and  show  what  they  are  for  and  not  be  in  too  much  of  a 
hurry  in  getting  a  bill  out,  we  will  learn  what  people  we  are  repre- 
senting in  this  matter  and  whom  we  are  not  representing ;  but  if  you 
do  not  give  time  maybe  you  will  not  find  it  out  until  it  is  too  late. 

Mr.  Platt.  I  am  getting  letters  from  the  grange*  in  my  district 
that  are  pressing  me  to  vote  against  the  Panama  tolls  exemption 
bill. 

Mr.  Batiirick.  They  are  probably  organized  up  in  your  district. 

Mr.  Platt.  How  much  do  you  think  they  know  about  that  ques- 
tion? 

Mr.  Bathrick.  Well,  now,  I  want  to  say  on  that  point,  Dr.  Coulter 
has  just  said  that  the  farmers  are  "reasonably  intelligent"  and  he 
has  named  a  few  classes  that  he  claims  are  "  reasonably  intelligent." 
I  want  to  say  to  you  that  I  have  met  50  farmers  in  this  country  that 
knew  as  much  about  this  farm-credit  subject  as  I  do.  I  do  not  know 
that  they  know  as  much  about  the  subject  as  some  of  the  rest  of  you 
know.  I  can  not  say  about  that,  but  I  say  to  you  this,  that  when 
I  first  wept  into  this  subject  and  began  to  work  upon  it  I  found 


RURAL   CREDITS.  865 

there  were  farmers  all  over  this  country  that  had  been  studying 
before  I  struck  it,  and  I  have  been  working  on  it  for  two  or  three 
years;  and  it  is  a  misconception  to  think  that  the  farmers  of  this 
country  do  not  know  their  business,  that  they  are  not  organized,  and 
that  they  are  not  mighty  well  posted  on  these  subjects  that  we  are 
hoping  to  legislate  upon. 

Mr.  Platt.  Would  you  think  that  any  subordinate  grange  that 
indorses  the  Moss  bill  is  disloyal  to  the  organization?  Some  of 
them  have  done  that. 

Mr.  Bathrick.  I  guess  very  few  have  done  that.  The  only  thing 
I  would  say  about  that  is  that  I  would  not  think  they  were  educated 
both  ways;  they  have  not  had  an  opportunity  to  study  both  sides 
of  the  question.  That's  why  I  say.  don't  hurry.  I  will  admit  that 
Mr.  Moss  may  go  doAvn  to  his  district  and  talk  to  a  local  grange 
without  opposition,  and  not  put  up  the  other  side  of  the  proposition, 
the  Government  loans  proposition,  and  get  them  to  indorse  his 
banker's  bill. 

Mr.  Stone.  Is  not  the  converse  true? 

Mr.  Bathrick.  Oh.  I  suppose  so,  but  wherever  I  have  spoken  I 
have  had  opposition.  Gentlemen  of  great  prominence  and  accredited 
importance  have  preceded  me  and  spoken  against  Government  loans, 
and  the  people  discussed  this  proposition  pro  and  con. 

Gentlemen,  wdien  I  first  struck  the  idea  of  Government  loans  I 
looked  at  it  slantwise.  I  said  to  myself  that  it  might  be  drastic, 
that  it  might  be  foreign  to  the  exact,  ancient,  and  inossgrown  princi- 
ples of  free  government  as  enumerated  by  our  forbears.  I  backed 
off  a  little.  But  the  more  I  got  into  the  subject  and  began  to  think 
of  the  great  good  it  would  be  to  every  class  of  people,  both  urban 
and  rural,  the  more  I  kept  coming  back  and  considering  the  proposi- 
tion. Then  I  discovered  that  I  had  not  invented  a  thing.  I  thought 
at  first  I  had.  I  found  that  every  nation  on  earth  was  doing  the  same 
thing,  and  doing  it  also  to  a  larger  extent  than  I  now  propose. 

I  want  to  submit  to  this  committee  a  couple  of  propositions: 

First.  The  conservation  of  agriculture,  and,  as  a  legitimate  corol- 
lary, the  perpetuation  of  the  food  supply  is  a  vitally  important 
national  policy,  and  so  considered  by  all  nations.  I  think  we  can 
agree  on  that. 

Second.  That  this  important  national  policy,  so  vital  to  all  our 
people,  should  not  be  relegated  to  a  few  private  people  for  exploita- 
tion and  profit. 

This  much  being  agreed  upon,  I  contend  that  the  safest  and  best 
way  to  carry  out  this  policy  for  and  on  behalf  of  the  people  of  the 
Nation  is  for  the  Nation  to  do  itself.  Private  persons  do  not  act 
with  patriotic  deference  to  public  needs  in  the  conduct  of  business 
where  their  investments  and  livelihood  are  at  stake.  No  exigency 
could  be  greater  than  the  failure  of  agriculture,  and  no  greater 
danger  to  the  existence  of  government  could  arise  than  a  short  food 
supply.  No  tenet  of  free  government  can  quiet  a  hungry  people, 
and,  in  the  face  of  such  a  contingency,  the  true  government  phil- 
osophies would  avail  nothing.  We  do  not  stand  close  to  such  a  con- 
dition now,  but  we  face  the  steadily  rising  price  of  food,  whereby 
many  of  our  people  are  confined  to  a  pitiful  selection  of  edibles. 
The  condition  as  it  applies  to  production  and  consumption  of  food 

37031—14 55 


866  RURAL   CREDITS. 

is  bad  enough,  and  we  will  not  fulfill  our  best  functions  as  legisla- 
tors if  we  fail  to  choose  the  speediest  and  most  efficacious  remedy. 
K\  cry  leading  nation  on  earth  is  lending  money  procured  by  the  sale 
of  its  bonds,  or  appropriations  from  its  tax  funds  to  farmers,  either 
directly  to  the  borrower  or  through  mutual  credit  associations. 
Many  of  the  nations,  either  by  Federal  Government  or  by  pro- 
vincial or  State  government  are  guaranteeing  bonds  or  debentures 
issued  against  farm  mortgages.  From  my  research  of  authentic 
public  documents  and  official  reports  I  have  compiled  a  total  of  ex- 
penditures of  this  character  wherein  the  "faith  and  credit"  of  these 
Governments  were  pledged  to  the  extent  of  nearly  $5,000,000,000. 

I  do  not  believe  that  that  represents,  by  any  means,  the  total,  be- 
cause the  information  I  secured  was  based  on  the  outstanding  loans 
at  the  time  I  got  it  from  these  public  documents,  and  that  did  not 
include  the  money  that  had  been  loaned  prior  to  that. 

Germany,  Russia,  and  England  lead  in  the  sum  of  such  expendi- 
tures. Such  loans  were  not  made  at  a  loss  to  the  Government  in  any 
instance,  but  agriculture  was  wonderfully  benefited.  The  countries 
so  doing  are  Germany,  England,  France,  Russia,  Austria,  Hungary, 
Switzerland,  Denmark.  Canada,  New  Zealand,  Australia,  South 
Africa,  the  Philippine  Islands,  and  nine  States  of  the  United  States 
which  are  lending  their  school  funds. 

I  want  to  add  to  that  something  else  for  which  I  am  indebted  to 
Mr.  Moss,  which  I  think  is  a  very  important  addition  to  the  data 
respecting  government  loans. 

On  page  18  of  Mr.  Moss's  hearings,  he  says : 

Fiance  will  loan  $2,000  to  any  French  subject  for  the  purpose  of  acquiring 
a  homestead,  providing  he  does  not  own  a  homestead.  The  same  Government 
will  give  a  man  a  pension,  providing  he  lives  on  that  farm  until  he  is  65 
years  of  age.  And  when  I  asked  the  reason  for  such  provisions  of  law.  it  was 
said  France  considered  it  was  worth  $2,000  to  have  a  new  farm  home  estab- 
lished because  of  the  large  decrease  in  her  farm  population. 

The  same  conditions  prevail  here;  it  will  be  worth  just  as  much 
to  us  as  it  is  to  France. 

The  interest  rate  and  cost  to  the  farmer  is  lower,  and  the  deben- 
tures or  bonds  issued  against  mortgages  and  so  supported  by  the 
"  faith  and  credit "  of  these  Governments  sell  for  a  higher  price  at 
a  lower  rate  than  bank-mortgage  debentures;  the  interest  rates 
are  steadier  and  more  uniform  because  of  this  Government  aid. 
There  is  a  very  important  point.  That  the  cost  of  money  and  ex- 
penses of  appraisal  and  searching  titles,  collections,  etc.,  is  lower 
than  by  a  private-bank  plan,  where  investors  conduct  the  business 
solely  for  profit. 

It  is  true  that  upon  a  rate  of  interest  of  44  per  cent,  and  in  some 
cases  lower,  lending  as  high  as  75  per  cent,  none  of  these  Governments 
have  lost  money,  but,  on  the  contrary,  have  made  large  sums  in  cash 
profits  on  the  very  small  margin  between  the  rate  of  interest  on  farms 
and  the  rate  of  interest  the  borrower  paid,  and  have  used  this  profit 
for  various  public  works  or  the  reduction  of  taxation;  that  in  carry- 
ing out  this  work,  postmasters,  revenue  collectors,  and  other  public 
officials  have  been  utilized  by  the  Governments,  and  by  so  doing  large 
sums  of  money  in  detail  cost,  commisisons.  etc..  have  been  saved  to 
the  borrowers  that  they  would  have  paid  had  their  loans  been  made 
to  them  by  any  plan  of  private-bank  farm  credits. 


RURAL   CREDITS.  867 

The  loaning  of  Government  credit  in  various  forms  to  the  farmers 
in  other  countries  has  proven  to  be  sound  and  practical  in  its  every 
aspect  and  of  great  economic  value  to  the  whole  people  because  of  its 
immense  value  to  agriculture.  In  support  of  this  statement  I  quote 
from  some  gentlemen  whose  active  interest  in  the  subject  of  farm 
credit  is  internationally  known,  and  who  have  been  put  in  print  and 
often  quoted  as  authority  on  other  phases  of  this  subject  by  the  gen- 
tlemen who  are  active  now  in  opposing  Government  loans. 

Maurice  Dufourmantelle.  who  has  written  articles  upon  this  sub- 
ject, speaking  of  Government  aid,  says : 

Its  action  runs  parallel  with  that  of  private  initiative,  each  mutually  comple- 
menting the  other. 

Dr.  Moritz  Weeden,  of  Austria,  which  nation  has  loaned  nearlv 
$2,000,000,000  of  its  credit  and  cash,  says: 

The  cooperative  movement  for  the  Government  aid,  which  has  been  rendered 
to  it,  has,  in  turn,  rendered  abundant  cooperative  aid  to  the  Government. 

Sir  Horace  Plunkett.  the  well-known  English  student  of  interna- 
tional agriculture,  says: 

The  policy  of  strict  abstention  from  any  interference  by  any  Government  with 
the  business  of  the  people  is  withholding  the  kind  of  assistance  which  every 
other  European  Government  is  giving  to  its  farmers. 

Baron  von  Hermen-Schorn,  former  agriculture  expert  of  the  Ger- 
man embassy  here,  says : 

The  cooperative  rural-credit  systems  in  Germany  were  not  carried  on  as 
effectively  as  they  are  now  under  Government  assistance. 

He  also  says: 

The  system  started  by  bankers  and  run  by  bankers  could  in  no  sense  be  a 
cooperative  system  and  probably  would  not  help  the  interest  of  farmers  for  any 
length  of  time. 

Mr.  Reusch.  of  Weisbaden.  Germany,  speaking  of  the  land  bank  of 
Weisbaden  which  is  distinctly  a  Government  bank,  having  28 
branches,  says: 

The  taxes  upon  the  population  are  low  on  account  of  the  profits  made  in  lend- 
ing money  in  this  way. 

Sir  Arthur  Hawks,  Canadian  commissioner  of  immigration,  in 
speaking  on  Government  loans  called  attention  to  what  the  Govern- 
ment had  done  for  railroads  and  other  enterprises  which  is  quite 
applicable  to  much  legislation  in  this  country,  says : 

The  financing  of  a  settlement  as  a  function  of  Government  seems  now  to  be 
inevitable.  It  contains  nothing  revolutionary  in  principle.  It  would  be  diffi- 
cult for  those  whose  dividends  are  founded  on  Government  guarantees  and  sub- 
sidies to  oppose  application  in  Canada  of  a  principle  that  is  operated  in  the 
United  Kingdom.  Australia,  and  New  Zealand,  and  is  about  to  be  applied  in 
South  Africa.  The  Government  factor  in  the  use  of  public  credit  is  an  object 
to  be  achieved  and  not  the  incidental  advantage  that  may  alight  on  any  indi- 
vidual here  and  there. 

In  addition  to  the  authorities  I  have  thus  far  named  I  will  quote 
from  the  report  of  the  United  States  commission  which  is  behind 
the  Moss-Fletcher  bill,  which  is  distinctly  a  banker's  plan  of  farm 
credit.  These  gentlemen  oppose  Government  loans,  but  in  their 
report  they  say: 

In  every  instance  in  Europe  where  Government  capital  has  been  granted  to* 
establish  "mortgage  credit  the  results  have  been  favorable  to  the  agricultural 
interests  of  the  nation. 


868  RUEAL   CREDITS. 

That  is  what  the  United  States  commission  says.  Mr.  Moss  and 
Mr.  Fletcher,  the  authors  of  this  bank  farm-credit  bill,  were  members 
of  this  commission.  And  this  must  have  been  their  opinion  respect- 
ing Government  loans.  This  commission  pretends  to  be  a  superior 
authority  on  all  other  matters,  particularly  respecting  their  own 
creation,  the  Moss-Fletcher  bill.  Then  why  do  they  report  a  bank 
bill  where  greed  is  mixed  up,  strangely,  with  altruism? 

I  can  not  answer  this  question  and  do  not  insinuate  any  wrong- 
doing, but  will  state  plainly  the  exact  fact,  namely : 

The  first  official  information  promulgated  in  this  country  during 
the  last  administration  came  from  a  noted  banker  and  ex-president 
of  the  American  Bankers'  Association,  who,  in  his  official  report, 
gave  no  facts  respecting  the  operation  or  success  of  Government 
loans  in  Europe,  but,  on  the  contrary,  quoted  from  a  noted  antigov- 
ernment  aid  writer  in  a  palpable  effort  to  head  off  Government  loans 
in  this  country. 

That  may  or  not  mean  anything.  I  am  confident  that  this  com- 
mittee can  understand  and  discriminate  to  the  end  that  their  bill 
as  it  finally  comes  out  will  not  be  molded  to  help  a  few  profit  seekers 
to  make  money  out  of  this  extremely  important  Government  policy. 

It  is  an  undeniable  fact  that  Government  loans  to  farmers  on  farm 
first  mortgages  is  practical,  profitable  in  both  cash  and  economic 
advantages,  and  beneficent  to  every  man,  woman,  and  child  in  the 
United  States. 

(Whereupon,  at  1  o'clock  p.  m.,  the  committee  took  a  recess  to  2 
o'clock  p.  m.) 

AFTER    RECESS. 

The  subcommittees  reassembled  at  2  o'clock  p.  m.,  Hon.  Robert  J. 
Bulkley  presiding. 

STATEMENT  OF  HOW.  E.  R.  BATHRICK— Continued. 

Mr.  Bathrick.  Mr.  Chairman,  I  desire  to  give  a  very  brief  review 
of  the  purposes  and  operation  of  my  bill,  that  it  may  appear  in  this 
so-called  summing-up  hearing. 

My  proposition  is  that  the  Government  borrow  money  at  not  to 
exceed  3£  per  cent  and  lend  it  to  farmers  direct  or  through  farmers' 
farm-credit  associations,  and  not  through  capitalists'  farm-credit 
associations. 

Mr.  Bulkley.  How  do  you  draw  the  distinction  ? 

Mr.  Bathrick.  I  draw  the  distinction  this  way,  that  with  or- 
ganizations made  up  of  farmers  the  Government  can  encourage 
self-help  and  cooperation  among  farmers.  But  the  capitalists  can 
help  themselves,  and  in  a  farm-credit  bill  it  is  not  the  province  of 
Government  to  encourage  capitalists  and  assist  them  to  make  money 
out  of  agriculture.  By  my  bill  we  could  force  or  rather  assist  the 
farmers  in  helping  themselves  on  both  long  and  short  time  credit. 

We  would  have  mutual  organizations  for  the  purpose  of  carry- 
ing out  the  national  policy,  but  when  you  have  an  organization  that 
is  gotten  together  solely  for  the  purpose  of  making  profits  for  city 
investors  we  can  neither  carry  out  the  national  policy  nor  have  war- 
rant for  doing  anything  for  that  kind  of  an  institution. 


RURAL   CREDITS.  869 

Mr.  Bulkley.  Can  you  explain  how  we  would  confine  them  to 
farmers?     What  provisions  could  we  put  into  a  law  to  do  that? 

Mr.  Bathrick.  I  would  not  ask  a  law  preventing  anybody  from 
lending  money  to  the  farmers.  I  do  not  desire  to  confine  lending  to 
farmers :  but  if  we  will  pass  a  bill  which  is  a  combination  of  farmers' 
self-help  and  Government  aid  the  capitalist  lender  will  follow  our 
terms  and  interest  rates  without  amT  law  made  for  him  at  all.  It  is 
the  experience  all  over  the  world  that  joint-stock-mortgage  banks 
will  go  into  the  business  at  the  lower  rate.  No  country  on  earth 
does  for  joint-stock  banks  what  the  Moss-Fletcher  bill  proposes  to  do. 
There  are  two  or  three  concerns  in  the  United  States  now  doing 
what  the  European  joint-stock  banks  are  doing,  only  on  a  higher 
interest  rate.  We  need  no  national  laws  for  them.  WTiat  we  need  to 
do  is  for  the  Government  to  hammer  down  the  interest  rate,  and 
these  fellows  will  all  follow  without  law,  or  under  their  State  laws. 

If  we  would  do  as  I  want  to  do  in  my  bill,  say  to  a  farmers'  farm 
organization,  "  You  can  perform  all  the  duties  necessary  in  order  to 
assist  the  Government  in  making  loans  on  first  mortgages,  and  we 
can  reward  you  as  farm-credit  organizations  and  make  it  worth  your 
while  to  do  this  work.  We  will  take  up  the  farm  first  mortgages  in 
your  county  and  will  pay  you  a  commission  not  to  exceed  one-half 
of  1  per  cent  for  doing  the  work.  That  commission  will  be  incentive 
enough,  as  I  see  it.  to  make  these  farmers'  farm-credit  organizations 
spring  up  all  over  the  country,  and  once  they  are  sprung  up  and 
accept  the  benefits  which  this  will  give  to  them  it  will  be  a  sufficient 
reward,  so  that  the  Government  can  direct  the  operation  of  farmers' 
farm-credit  associations  without  the  intervention  of  the  repeal  or 
revision  and  making  of  new  laws,  that  all  the  States  must  surely 
make  if  the  Moss- Fletcher  bill  is  passed. 

Mr.  Bulkley.  Is  it  your  idea  that  these  farmers'  organizations 
shall  indorse  the  mortgages? 

Mr.  Bathrick.  Yes;  we  will  make  them  in  that  respect  respon- 
sible. Their  responsibility  will  not  amount  to  very  much,  but  at 
the  same  time  the  probable  loss  would  amount  to  practically  nothing, 
and  we  can  put  that  responsibility  upon  them.  Then,  by  giving  them 
the  benefits  such  as  I  propose,  we  can,  if  we  need  to.  say  to  them  at 
any  time:  "Here,  you  are  not  operating  a  cooperative  organization; 
you  are  robbing  your  neighbors ;  you  are  running  the  business  strictly 
for  profit ;  you  are  trying  to  get  the  highest  rate  in  your  community 
from  your  people,  while  we  are  giving  you  this  benefit.  Now.  stop, 
or  we  will  take  these  benefits  from  you.  and  we  will  have  a  real 
farmers'  farm-credit  organization  organized  in  that  county.  We 
will  do  this  and  insist  upon  the  conservation  of  our  food  supply,  our 
national  policy,  being  carried  out  through  them." 

That  would  carry  out  our  national  purpose. 

The  prevailing  rate  is  a  powerful  influence  working  against  the 
national  policy.  Unless  some  outside  more  powerful  influence  is 
brought  to  bear,  greed  is  pretty  hard  to  go  up  against,  as  has  been 
evidenced  by  every  condition  we  have  had  put  before  the  committee. 

In  my  hearings,  in  part  No.  8,  before  the  Bulkley  subcommittee, 
I  have  gone  into  the  details  in  regard  to  some  of  these  matters,  and 
I  would  request  those  who  are  interested  to  look  them  over,  that  they 
might  understand  my  proposition  more  in  detail.  It  has  been  stated 
that  the  Government  would  have  to  loan  too  huge  a  sum  of  money. 


870  RURAL   CREDITS. 

In  my  bill  the  probable  amount  the  Government  would  loan  is  lim- 
ited by  certain  requirements  for  agriculture.  Those  requirements 
would  be  lived  up  to,  and  if  it  be  put  into  the  contract  that  if  they 
were  not  lived  up  to  the  mortgage  will  become  due  and  payable 
instantly,  it  would  be  a  powerful  influence  to  force  them  to  comply. 
Besides  that,  my  bill  limits  the  sum  of  the  loan.  I  say  the  maximum 
sum  loaned  to  anybody  shall  be  $15,000.  There  is  some  question 
about  this  amount.  It  is  a  purely  arbitrary  amount  and  is  for  the 
committee  to  consider. 

So  that  with  these  and  the  other  limits  I  think  that  the  amount 
that  the  Government  would  loan  would  be  very  much  less  than  some 
people  have  assumed. 

I  want  to  take  up  some  objections  that  have  been  raised  to  the 
proposition  of  Government  loans.  That  is  a  matter  that  I  have  not 
touched  upon  before :  that  is,  not  to  any  great  extent.  One  of  the 
objections  is  that  Government  loans  would  increase  the  cost  of  land. 
So  would  a  low  interest  rate  procured  in  any  other  way,  if  low  rates 
would  do  it  at  all.  But  if  low  rates  of  interest  will  increase  the  cost 
of  land  so  that  it  will  be  prohibitive  to  people  who  wish  to  buy  farms, 
reverse  the  proposition  and  sa}T  we  will  raise  the  rate  of  interest  so 
that  land  will  be  cheaper.  You  could  make  it  cheap  enough  in  that 
way.  In  my  estimation  there  are  many  reasons  why  the  increased 
cost  of  land  will  not  be  very  much,  and  one  of  them  is  this,  that 
the  tenantry  proposition  is  going  to  enter  here  as  an  element  of  the 
cost  of  land,  if  we  reduce  the  rate  of  interest.  There  are  37  per  cent 
of  our  farms  operated  by  tenants.  Most  of  them  are  not  the  class  of 
farm  tenants  that  are  satisfactory  to  the  owners  of  the  land. 

The  thrifty  and  best  tenants,  if  we  offer  them  these  opportuni- 
ties, will  want  to  own  a  farm  themselves.  They  would  rather  have 
a  small  farm  that  they  own  themselves  than  to  operate  a  larger 
farm,  as  a  tenant,  well  rented  for  the  owner.  They  will  have  the 
40  per  cent  that  is  necessary  under  my  bill,  and  they  can  buy  a  farm, 
and  it  will  gradually  help  out  the  thrifty  tenants,  who  will  be  owners 
of  farms,  with  the  result  that  there  will  become  left  only  the  shift- 
less and  thriftless  farm  tenants.  Then  the  owner  who  is  operating 
by  tenants  will  find  the  operation  unprofitable,  and  will  be  perfectly 
willing  to  put  his  farm  on  the  market  for  sale,  and  when  you  put 
many  tenant  farms  on  the  market  for  sale  it  will  hold  the  price 
right.  But  suppose  low  interest  does  increase  the  price;  it  is  not 
going  to  increase  the  price  so  much  but  what  buyers  would  get  the 
benefits,  the  same  benefits,  that  accrue  to  a  man  in  the  city  that 
buys  a  home  on  installments.  A  wealthy  man.  having  money  to 
build  a  house  upon  a  lot,  can  say  to  the  poor  man,  "  Pay  so  much 
per  month  to  cover  amortization  payments  as  well  as  the  interest  on 
the  loan  and  by  and  by  you  will  have  paid  for  the  home,  and  you 
can  not  get  it  in  any  other  way."  That  is  true,  and  the  same  thing 
will  be  true  as  to  the  securing  of  these  farm  homes  by  my  process  of 
reducing  the  rates  of  interest,  and  increasing  the  time  within  which 
they  can  pay. 

Now,  another  question  that  is  brought  up  is  the  fear  that  Govern- 
ment bonds  will  not  sell.  Xobody  need  have  any  fear  that  the  Gov- 
ernment bonds  will  not  sell,  if  they  believe  that  these  proposed  pri- 
vate-bank bonds  will  sell.  This  would  be  the  best  bond  in  the  world. 
It  would  not  only  be  based  upon  mortgages  but  based  upon  the  taxing 


RURAL   CREDITS.  871 

power  of  the  Government  of  the  United  States  without  in  any  sense 
hazarding  the  taxing  power.  The  experience  of  the  whole  world  has 
proven  practically  that  there  is  no  loss  on  these  mortgages,  and  there- 
fore why  should  it  in  any  sense  strain  the  taxing  power.  France  has 
$6,000,000,000  of  bonds,  I  believe.  We  have  a  little  over  $1,000,000,000. 
Is  there  any  reason  why  we  could  not  issue  as  many  bonds  as  France  ? 
Our  resources  are  larger,  and  the  country  is  greater,  and  we  are  bet- 
ter able  to  sell  our  bonds  in  the  markets  of  the  world  to-day  at  a  less 
price  than  some  of  these  foreign  countries  are. 

I  do  not  believe  that  the  operation  of  my  bill  would  require  over 
$100,000,000  per  year,  and  as  we  went  on,  that  $100,000,000  per  year 
dropping  into  the  localities  of  this  country  where  the  rate  is  high, 
would  force  the  rate  on  private  loans  down;  and  that  has  been 
proven  by  every  practice  I  have  heard  of,  and  the  good  of  that  would 
be  very  great. 

Senator  Hollis.  Do  you  not  imagine  that  if  the  Government 
should  do  this  that  it  would  have  to  take  over  substantially  all  the 
farm  loans  of  the  country? 

Mr-  Bathrick.  Why,  Senator,  no.  The  Government  is  in  the 
same  position  that  every  other  lender  is,  and  there  is  no  law,  moral 
or  human,  that  will  compel  a  man  to  loan  money  if  he  does  not 
want  to. 

Senator  Hollis.  No  ;  not  compel,  but  if  you  are  going  to  make  the 
rate  4£  per  cent,  that  is  lower  than  pretty  near  all  the  mortgage 
loans  that  I  know  of,  and  I  understand  the  tendency  would  be  that 
when  a  man  came  to  make  a  new  loan  he  would  apply  to  the  Govern- 
ment. 

Mr.  Bathrick.  If  we  took  over  every  loan  that  would  be  satis- 
factory to  us  after  investigation,  we  would  take  not  more  than  half, 
perhaps. 

We  would  not  lend  on  every  application.  We  would  only  lend 
upon  those  who  are  willing  to  comply  with  our  regulations  respect- 
ing the  use  of  the  money  for  agricultural  purposes  and  for  the  pur- 
pose in  other  ways  to  carry  out  the  national  policy.  We,  as  a  Gov- 
ernment, would  not  go  into  the  loaning  business  to  make  money, 
although  it  would  be  very  profitable  to  all  the  people.  It  is  the 
history  of  all  countries  that  if  we  were  to  do  this  thing  that  I  ask 
to  be  done,  in  the  way  I  propose,  that  joint-stock  companies  would, 
without  our  intervention  and  without  any  law  of  our  making,  follow 
our  rates  of  interest,  and  the  whole  mortgage  problem  would  soon 
be  solved.  If  we  were  to  stop,  the  rates  would  immediately  rise,  but 
we  would  need  only  to  keep  the  Government  plan  alive  to  hold  rates 
steady  all  over  the  country. 

New  Zealand,  for  instance,  does  not  loan  on  one-half  of  its  appli- 
cations, and  there  is  no  reason  why  we  should  be  compelled  to  loan 
except  to  carry  out  the  national  policy,  and  that  tends  to  limit  it  so 
that  the  loans  would  not  be  so  great.  The  idea  of  taking  over  these 
$0,000,000,000  of  mortgages  all  at  once  is  not  a  fair  estimate  of  the 
possibilities  at  all ;  in  fact,  it  is  not  at  all  true. 

They  say  we  can  not  borrow  at  3  or  3^  per  cent.  I  talked  with  a 
gentleman  who  has  been  through  several  administrations  of  the 
United  States  Treasury,  and  he  says  that  while  he  believes  a  Govern- 
ment bond  as  an  investment  proposition  should  be  put  upon  a  3^  per 
cent  basis  to  hold  them  at  par  or  over,  the  facts  are  that  we  have 


872  RURAL   CREDITS. 

frequently  sold  bonds  at  3  per  cent.  We  have  sold  Panama  Canal 
bonds  at  3  per  cent,  and  they  asked  one  hundred  and  a  fraction,  and 
ninety-nine  and  a  fraction  was  offered  on  these  3  per  cent  bonds  the 
other  day.     It  is  not  as  good  a  bond  as  I  propose. 

The  President  of  the  United  States,  if  he  is  truly  the  father  of 
the  Alaska  bill,  assumes  that  we  could  loan  $35,000,000  or  $40,000,000 
at  3  per  cent,  as  set  forth  in  that  bill.  There  is  another  thing  that 
has  a  wonderful  bearing  in  connection  with  this  proposition,  and 
that  is  the  congestion  in  our  cities.  I  will  say  to  you  that  in  the  last 
two  or  three  years  I  have  come  in  contact  with  very  rich  men,  who 
are  thoroughly  and  sincerely  alarmed  about  the  congestion  of  popu- 
lation in  the  cities.  For  year  after  year,  in  the  best  of  times,  there 
are  many,  many  men  in  the  city  who  can  not  get  a  job,  because  there 
are  so  many  that  are  looking  for  jobs. 

They  want  to  put  these  people  on  the  farms.  The  whole  economic 
fabric  of  the  country  is  endangered  by  having  this  conglomerate  ele- 
ment congested  in  our  cities.  I  say  to  you  that  I  believe  if  my  bill, 
H.  R.  11897,  is  put  into  operation— I  believe  I  could  raise  $500,000,000 
at  3  per  cent  to  put  into  it  to  assist  in  bettering  that  one  situation 
alone.  I  do  not  say  that  off-hand,  but  I  was  told  so  by  a  gentleman 
said  to  be  worth  $50,000,000,  who  has  been  identified  with  philan- 
thropic work  for  several  years. 

Mr.  Bulkley.  If  men  would  invest  in  Government  bonds  for 
philanthropic  reasons,  they  would  invest  equally  in  bonds  of  private 
institutions,  would  they  not? 

Mr.  Bathrick.  Oh,  no;  because  the  security  is  immensely  differ- 
ent. They  are  willing  to  loan  their  money  for  philanthopic  pur- 
poses at  a  very  low  rate  of  interest,  believing  that  the  security  of  the 
United  States  Government  would  be  sufficient  to  guarantee  that 
they  would  not  lose  any  of  the  principal,  and  would  be  satisfied  with 
a  small  rate  of  interest.  Lack  of  public  confidence  is  one  thing  you 
are  sure  to  be  up  against  with  private  bank  bonds  or  debentures. 

Liquidity  and  size  of  the  bonds  is  still  another  proposition.  Issue 
these  Government  farm  bonds  in  small  and  large  denominations  to 
catch  every  class  of  people  in  this  country,  including  the  man  that 
wants  to  buy  for  a  short-time  savings,  and  the  bonds  will  be  liquid 
for  the  reason  that  the  Government  bond  can  be  sold  to-morrow  for 
what  it  could  be  sold  last  month  when  the  man  got  it,  in  more  cases 
than  those  of  any  private  banking  proposition.  When  the  interest 
period  came  around  we  would  be  paying  our  money  back  to  our- 
selves to  go  into  other  farm  loans,  to  every  section  of  the  country, 
just  the  same  as  pension  money  gets  down  into  those  sections  now 
and  helps  everybody  and  stimulates  business. 

It  was  said,  as  an  argument  against  Government  loans,  that  Aus- 
tria could  not  sell  her  bonds  at  less  than  6  per  cent.  Who  compares 
Austria  with  the  leading  nations  of  the  world  as  a  matter  of  credit 
of  the  nations?  It  is  nonsense  to  compare  her  with  the  United 
States. 

Now,  here  is  an  objection  that  has  been  raised  just  recently.  To 
tell  you  the  truth  I  never  heard  it  from  any  other  quarter  on  earth, 
and  I  have  delved  and  read  and  dug  into  this  subject.  That  is.  the 
national  crisis  fallacy,  and  the  repudiation  of  their  mortgage  debts 
at  such  a  time  by  the  farmers.  To  accuse  the  farmers  of  this 
country  of  organized  repudiation  during  a  national  crises  is  a  rank, 


EUEAL   CREDITS.  873 

unfair  way  of  putting  it  up  to  the  farmers.  It  is  an  insult  to  our 
most  honorable  class  of  citizens.  The  farmers  of  this  country  have 
furnished  our  men  that  went  to  war.  Go  out  upon  our  farms  to-day 
and  you  will  find  them,  the  old  soldiers,  there.  They  are  not  all  in  the 
city;  they  went  back  to  the  places  they  came  from.  The  farmers 
that  fought  our  wars  have  broken  our  prairies  and  hewn  down  our 
forests,  and  they  have  been  the  pioneers  in  every  direction.  And  to 
say  that  there  would  be  an  organized  repudiation  of  debt  by  the 
farmers  at  a  time  of  national  crisis  is  a  serious  and  truthless  charge. 
T  want  to  ask  you  this,  if  there  would  be  a  repudiation  of  debts  dur- 
ing a  national  crisis  when  the  farmer  is  away  fighting  our  wars, 
what  would  happen  if  the  bankers  had  all  the  mortgages?  Would 
the  bankers  be  at  home  selling  out  the  farms,  foreclosing  mortgages, 
while  our  farmers  are  away  fighting  our  battles? 

Where  does  this  so-called  objection  emanate?  I  refer  to  page  24 
of  Mr.  Moss's  hearings,  and  I  say  to  you  I  never  heard  the  objection 
raised  from  any  other  source.     Mr.  Moss  says: 

The  minister  of  France  said  to  me  privately — he  would  not  put  it  in  the 
record,  but  yet  he  said  this  in  the  presence  of  other  gentlemen. 

Well,  I  don't  blame  him,  in  the  face  of  what  France  has  done  for 
the  farmers,  and  what  Mr.  Moss  says  they  are  doing;  I  don't  blame 
him  for  not  putting  it  into  the  record,  and  if  I  had  been  Mr.  Moss 
I  would  not  have  put  that  in  the  record  either — but  the  minister  of 
France  said  to  him  privately — 

that  while  the  loans  were  legal,  the  obligation  became  purely  a  moral  one; 
that  the  Government  held  the  debts  of  its  own  people,  and  it  could  not  go  and 
distrain  the  property  of  its  own  people  in  time  of  distress. 

I  suppose,  as  I  said,  that  the  bankers  would  be  distraining  the 
people.  There  is  more  danger  that  they  would  if  there  is  anything  in 
this  at  all: 

And  I  am  satisfied  [so  the  minister  of  France  says,  in  this  private  conversa- 
tion] that  you  would  find  in  our  own  country  if  a  war  were  to  break  out  and 
the  Government  should  call  a  million  men  into  the  field,  that  we  could  not  call 
the  men  away  from  their  own  farms  and  thus  destroy  their  only  means  of 
discharging  these  loans. 

To  pass  my  bill,  or  one  similar,  would  be  doing  something  for  the 
most  substantial,  loyal  people  in  this  country,  and  there  is  nothing 
which  is  so  great  and  important  an  asset  to  any  government  as  the 
loyalty  of  its  people;  and  if  you  do  something  for  them  you  will  in- 
crease that  loyalty.  I  say  that  no  other  proposition  has  been  raised 
against  Government  loans  that  is  more  absured  than  that,  and  it  is 
not  supported  by  the  history  of  any  nation  that  has  been  doing  it 
for  many  years.  Conserve  our  farms  and  they  will  be  a  tower  of 
strength  to  us  in  time  of  adversity,  in  men,  food,  and  money. 

It  is  said  there  is  nothing  sure  but  death  and  taxes.  That  is  true, 
isn't  it  ?  Do  not  the  people  pay  taxes  during  the  war  ?  Of  course, 
they  pay  taxes  then  just  as  they  pay  taxes  at  any  other  time,  and 
more.  Our  Nation  is  a  big  family.  When  a  family  happens  to  get 
into  trouble  everybody  helps  the  best  he  can,  if  he  is  a  good  patriot. 
You  know  that  the  people  of  this  country  believe,  when  one  owes  the 
Government  something,  that  he  must  pay.  That  is  the  frame  of  mind 
in  this  country,  and  we  have  got  the  best  machinery  to  make  them 


874  RURAL   CREDITS. 

pay,  and  the  best  reason  in  the  world  for  making  them  pay  anyhow 
is  that  it  is  for  the  good  of  all,  and  every  man,  woman,  and  child 
receives  benefit.  They  consider  that  it  is  for  the  good  of  all,  and  they 
would  pay,  and  every  government  on  earth  has  made  them  pay,  and 
there  is  no  reason  why  they  should  not.  Further,  they  will  be  better 
able  to  pay  under  the  Government  loan  plan. 

Reverting  to  the  question  of  the  Government  having  to  make 
all  the  loans.  In  every  country,  wherever  they  have  instituted 
Government  loans,  private  bankers  come  down  just  as  close  to  the 
rate  as  they  can,  and  where  they  have  stood  by  and  cried  to  beat  the 
band  and  said  it  was  going  to  ruin  them,  when  a  rate  was  established 
by  the  Government  they  have  gone  into  the  business  and  gone  to  loaning 
at  the  rate  made  by  the  Government.  They  found  out  that  it  did  not 
ruin  them ;  that  it  helped  them.  There  is  no  better  example  that  I  know 
of  than  right  here  in  the  Philippine  Islands  where  all  the  bankers  had 
cornered  all  the  money,  and  the  Government  agreed  to  guarantee  them  4 
per  cent  for  the  purpose  of  starting  a  bank  to  make  loans  at  reasonable 
rates  to  farmers,  and  they  laughed  at  it.  They  laughed  at  it  just  as 
much  as  the  men  in  the  State  of  Washington  or  these  other  high-rate 
interest  sections  will  laugh  at  this  Moss-Fletcher  bill  when  they  ask 
them  to  start  it.  They  said  they  could  not  do  anything  at  4  per  cent. 
What  was  the  use?  They  were  getting  15  and  20  per  cent.  So  the 
Government  started  a  bank  and  began  loaning  money  at  reasonable 
rates.  Afterwards  these  same  bankers  came  before  the  Philippine 
Legislature  and  almost  passed,  and  did  pass,  I  might  say,  a  law 
that  had  a  joker  in  it  that  could  put  even  the  Government  out  of 
business,  but  the  Governor  General  refused  to  sanction  it.  They  were 
willing  to  loan  then  at  that  low  rate,  and  it  will  be  the  same  all  over 
this  country. 

Another  subject  that  has  been  brought  up,  and  that  is  the  talk  about 
socialism.  I  do  not  need  to  say  anything  about  this  except  my  bill 
helps  people  to  get  homes.  A  farm  is  not  only  a  home  but  it  is  a 
business.  That  is  an  ideal  home — a  place  to  live  and  a  business  that 
will  support  the  home  in  connection  with  it.  Now,  when  a  man  has 
a  home  and  a  business  he  is  not  going  to  lie  awake  nights  trying  to 
invent  some  other  kind  of  government.  He  is  satisfied  with  his 
government,  and  my  plan  is  the  antithesis,  the  very  reverse,  of 
socialism.  It  is  individualism  to  its  highest  extent;  in  its  extreme. 
You  make  that  man  satisfied  and  you  will  make  his  neighbors  satis- 
fied, although  they  are  not  the  recipients  of  the  benefit,  because  they 
see  the  Government  is  doing  something  substantial  for  them. 

We  have  been  too  long  refraining  from  doing  substantial,  mate- 
rial things  for  the  people.  Too  long,  when  the  people  needed  help, 
have  we  been  figuratively  pointing  to  a  page  of  the  speeches  or  theo- 
ries of  Jefferson  or  some  other  great  exponent  of  popular  govern- 
ment and  saying :  "  Here  is  the  thing  that  you  need.  Read  this. 
Listen  to  the  tenets  of  the  gospel  of  free  government." 

There  is  a  new  order  of  things  sweeping  over  all  the  nations  of 
the  world.  It  means  something  different  than  simply  permitting 
the  helpless  to  help  themselves.  It  is  first-hand  benefit  instead  of 
second  and  third  hand  benefit  from  Government  to  the  people. 
When  we  carry  this  program  out  it  will  increase  loyalty  and  destroy 
socialism.     To  cling  to  the  old  plan  means  to  continue  to  build  up 


RUKAL    CREDITS.  875 

wealth  for  the  few  and  offer  a  premium  for  more  members  of  the 
socialistic  parties. 

Why  do  these  things,  always  by  indirection,  and  reach  the  people 
that  you  are  trying  to  benefit  in  the  second  or  third  degree?  It 
seems  to  be  the  sole  purpose  of  some  legislators  to  do  something  for 
a  few  people  who  have  more  than  they  need  now.  and  trust  them 
to  hand  the  benefits  down  to  somebody  else.  That  seems  to  be  their 
whole  purpose,  when  these  problems  can  be  better  solved  by  direction 
than  by  indirection. 

I  want  to  touch  upon  this  question  of  constitutionality.  I  am  not 
a  lawyer,  but  I  know  plenty  of  lawyers  and  judges  that  differ,  so 
I  do  not  feel  so  lonesome  on  that  proposition.  I  will  call  your 
attention  to  the  fact  that  when  this  Philippine  Island  bank  was 
established  Attorney  General  Bonaparte  referred  to  all  the  prece- 
dents, referring,  also,  to  the  case  of  McCullough  v.  Maryland, 
wherein  Chief  Justice  John  Marshall,  I  believe,  unquestionably 
settled  the  proposition  that  it  was  constitutional  for  this  Govern- 
ment to  start  a  bank. 

Now,  what  is  this  bureau  which.  I  propose,  will  carry  out  this 
plan  of  Government  loans?  It  is  a  bureau  for  the  purpose  of  getting 
money  and  loaning  it  to  farmers.  Banks  lend  money,  and  that  is 
one  function  of  the  banking  business.  As  it  appears  to  me  now,  I 
was  not  very  smart  when  I  drew  that  bill,  or  I  would  have  called 
it  a  bank  instead  of  a  bureau.  That  would  have  sounded  so  much 
better  to  some  gentlemen,  who.  when  they  speak  of  lending  money, 
seem  not  to  be  able  to  think  of  anything  but  a  bank.  This  bureau, 
which  I  propose  to  create  would  lend  money  and  make  collections. 
Would  it  not,  then,  be  doing  what  is  the  principal  business  of  any 
bank?  If  the  question  of  whether  such  a  bureau  or  such  a  bank  is  an 
instrumentality  of  Government  or  not,  I  think  no  one  will  deny  that 
this  bureau  will  be  an  important  instrumentality  of  Government. 
All  the  paternalism,  all  the  class  legislation  and  special  privilege 
proposed  for  this  new  crop  of  Moss-Fletcher  banks  can  not  make 
them  as  good  instrumentalities  of  Government  as  this  bureau 
would  be. 

I  am  not  against  banks  generally.  They  perform  a  very  useful 
public  function,  and  we  can't  very  well  get  along  without  them. 
Besides,  I  owe  them  too  much  money  to  be  against  them.  But  we 
can  go  too  far  in  a  banking  proposition,  just  the  same  as  we  went 
too  far  when  we  gave  too  much  tariff  benefit  to  manufacturers  and 
the  people  revolted. 

I  want  to  call  your  attention  to  a  very  serious  matter.  That  is  the 
tax-exemption  provision  in  the  Moss-Fletcher  bill,  section  18,  which 
is  undoubtedly  special  legislation,  drastic  paternalism,  and  yet  I 
have  never  heard  the  proponents  of  this  bank-farm  credit  scheme 
question  the  constitutionality  of  that.  Banks  are  given  many  powers 
on  the  shadowy  plea  that  they  are  instrumentalities  of  Govern- 
ment, and  I  believe  that  is  the  kernel  of  this  matter.  If  I  am  wrong, 
I  would  be  glad  to  be  corrected.  But  my  proposed  bureau  that 
would  carry  on  the  business  of  getting  money  and  loaning  it  to 
farmers  would  be  an  instrumentality  of  Government  also,  in  the 
highest  sense,  and  as  such  it  should  be  entitled  to  all  of  the  privi- 
leges that  an  ordinary  banking  organization,  privately  owned,  is 
entitled  to. 


870  RURAL   CREDITS. 

I  want  to  touch  upon  the  question  of  operation  of  Government 
loans.  I  went  through  it  more  thoroughly  in  my  other  hearings,  but 
I  said  then,  as  now.  that  numerous  insurance  companies  are  lending 
through  agencies.  Why  can't  Government  do  as  much  as  they? 
They  are  lending  through  the  kind  of  agencies  that  get  all  they  can. 
and  are  getting  very  much  more  than  they  are  entitled  to,  and  more 
than  the  farmers  can  stand.  I  want  to  humanize  the  western  loan 
agent.  I  want  the  Government  to  be  a  guarantor  and  trustee  be- 
tween the  borrower  and  the  lender,  and  without  loss  to  it,  and  not 
only  without  loss  to  the  Government  but  with  profit  to  it  in  cash  and 
with  enormous  benefit  to  all  the  people.  I  do  not  see  why  the  people, 
who  own  the  Government,  theoretically  at  least,  can  not  borrow  and 
lend  money  to  themselves.  In  every  country  in  the  world  the  post- 
masters, the  revenue  collectors,  and  other  officers  are  employed  as 
agencies,  and  we  have  them  by  the  tens  of  thousands,  scattered  all 
over  this  country  to-day,  that  can  perform  every  detail  of  the  opera- 
tion of  Government  lending  to  farmers  better  than  these  insurance 
agencies. 

As  to  appraisers,  we  have  superior  advantages  over  any  private 
institution,  because  we  can  penalize  for  fraud  in  a  way  that  no  corpo- 
ration or  other  institution  can.  Suppose,  if  we  had  this  bill  passed, 
we  write  to  every  postmaster  in  every  county — and  there  are  20  or  27 
postmasters  in  my  county — and  ask  them  to  pick  out  a  dozen  first- 
class  freeholders,  men  of  prominence  in  the  community,  men  whose 
records  and  character  are  beyond  reproach,  and  we  have  that  dozen 
men  to  draw  our  appraisers  from.  In  the  first  place,  there  is  the 
application  for  the  loan.  The  borrower  goes  to  the  post  office  and 
gets  the  blank  questions  to  answer,  and  he  swears  to  that  application 
and  sends  it  to  the  bureau.  Then  we  put  our  appraisers  on  the  work 
and  then  check  them  up  and  decide  whether  .we  should  make  the 
loan  or  not — whether  the  applicants  want  the  loan  for  speculative 
purposes  or  not.  which  they  rarely  do.  because  farmers  do  not  bet 
on  horse  races,  or  whether  they  want  the  money  borrowed  for  rais- 
ing stock  or  raising  produce  and  increasing  the  production  of  the 
farm  and  providing  our  food. 

Respecting  the  uniformity  of  rates  of  interest,  Government  loans 
are  the  only  means  by  which  you  can  get  a  uniform  rate  of  interest  in 
this  country.  Mr.  Moss  admits  his  bill  will  not  do  it.  I  want  some- 
body to  tell  me  why  a  mortgage  down  in  Texas,  where  they  ask  8 
per  cent,  which  has  sufficient  security  for  the  money  at  8  per  cent: 
why  a  mortgage  in  Washington,  where  they  ask  10  and  15  per  cent, 
which  has  sufficient  security  for' the  15  per  cent,  is  not  just  as  much 
entitled  to  a  uniform  low  rate  of  interest  as  a  mortgage  in  Pennsyl- 
vania or  Ohio  or  anywhere  else?  The  security  is  good  and  that  is 
the  primary  thing  to  consider.  Xo  one  would  lend  at  any  per 
cent  on  bad  security.  You  can  not  produce  uniform  rates  and 
carry  the  national  policy  out  all  over  the  country  by  an}T  other  process 
than  Government  loans.  That  has  been  shown  in  this  committee, 
fully  confirming  my  preconception  of  the  proposition,  that  the  rates 
by  anjr  bank  plan  will  be  carried  out  according  to  the  prevailing  rate 
in  the  community,  and  you  will  not  help  anybody  by  that  proposi- 
tion. In  those  localities  where  the  prevailing  rate  is  high  their 
bonds  will  sell  at  6  and  7  per  cent  at  least:  some  think  higher.  Then 
you  want  to  put  1  per  cent  in  the  Fletcher-Moss  bill  onto  that,  and 


RURAL   CREDITS.  877 

I  will  tell  yon  there  is  not  1  farmer  out  of  500  in  this  country  that 
can  carry  an  annual  burden  of  7  per  cent.  Still,  upon  top  of  that 
we  would  add  an  amortization  sum,  which  adds  to  his  annual  burden, 
notwithstanding  it  is  paying  off  his  debt.  He  must  carry  it  until 
the  debt  is  discharged,  and  the  farmers  can  not  carry  that  burden. 

Mr.  Platt.  Are  there  not  more  than  500,000  of  them  doing  it  now  ? 

Mr.  Bathrick.  Yes;  and  their  backs  are  bent  and  broken  doing  it, 
and  that  burden  is  breaking  hearts  and  breaking  up  families  and 
wrecking  agriculture.  That  is  the  one  strong  reason  why  tenant 
farms  are  increasing  and  the  boys  are  going  to  town.  Yes;  they  are 
doing  it.  There  is  no  question  about  that,  but  they  are  overloaded, 
and  hundreds  of  thousands  of  our  overburdened,  thrifty,  honest 
farmers  come  now  to  plead  for  our  help  against  the  avaricious  money 
lenders  and  the  mortgage  that  is  eating  the  very  life  out  of  them. 

It  is  admitted  before  this  committee  that  you  can  not  unify  the 
rates  by  this  Fletcher-Moss  bank  bill,  and  if  you  can  not  unify  the 
interest  rates  you  can-  not  carry  out  the  Government  polic}'  all  over 
this  country. 

The  Government  can  unify  the  interest  rate.  It  can  borrow  money 
in  New  York  or  any  other  place  at  3  per  cent  or  3^  per  cent,  and 
there  is  no  reason  why  it  should  not  loan  it  on  good  security  in 
Washington  or  Texas  or  in  any  other  State  where  the  rates  are  high. 
or  in  States  where  the  rates  are  lower.  There  is  no  question  about 
that.  They  can  do  it.  and  do  it  now,  all  over  the  country,  without 
waiting  for  a  few  banks  to  start,  which  would  do  it  in  only  a  part  of 
the  country,  and  that  very  poorly. 

Who  objects  to  Government  loans?  Surely  it  is  not  the  men  that 
are  going  to  run  this  kind  of  new-crop  banks,  because  they  are  asking 
for  Government  loans  themselves.  It  is  in  the  Moss-Fletcher  bill. 
Their  bankers  want  Government  loans.  They  want  us  to  take  our 
postal-savings  deposits  and  other  Government-controlled  money  and 
hand  them  over  to  them  at  2^  per  cent,  and  let  them  go  out  and  loan 
them  to  the  farmers  at  from  G  to  10  per  cent,  whatever  the  rate  in 
any  particular  locality  may  be. 

There  is  no  limitation  of  1  per  cent  for  management  expense  on 
loans  made  from  these  2£  per  cent  postal-savings  deposits  in  your 
bill,  Mr.  Moss.  Your  banks  can  loan  that  money  and  other  Govern- 
ment deposits  on  short-time  loans  and  short-time  mortgages,  and 
you  have  made  no  pretense  or  effort  to  limit  the  interest  rates  on  this 
class  of  loans.  These  banks  can  loan  their  capital  on  this  class  of 
loans  with  a  rate  of  interest  as  high  as  they  can  make  the  people  pay. 
You  are  asking  for  Government  loans  in  your  bill,  yet  you  are  con- 
demning Government  loans.  What  else?  You  provide  in  your  bill 
that  these  banks  will  receive  Government  deposits  which  in  ordinary 
cases  now  go  at  no  per  cent  or  at  2  per  cent. 

You  want  the  Government  money  for  your  bankers  which  the  tax- 
payers have  paid  into  the  Treasury.  Then,  on  five-year  mortgages 
or  short-time  loans,  you  are  willing  that  these  bankers  shall  loan  the 
people  back  their  own  money  at  any  old  rate  of  interest.  That 
bill  asks  for  Government  loans  for  bankers,  and  at  the  same  time 
you  are  condemning  them  for  farmers.  In  other  words,  by  your 
bill  you  are  asking  for  more  privileges  for  bankers,  on  the  new  plea 
that  they  are  going  to  help  the  farmers.     These  new-stvle  bankers 


878  RURAL   CREDITS. 

ask  for  more  privileges  through  your  bill.  Bankers  have  often 
asked  for  more  privileges. 

Mr.  Platt.  They  got  it.  too.  didn't  they,  in  this  last  bill? 

Mr.  Bathrick.  I  think  the  new  currency  bill  is  a  good  bill;  but 
there  are  few  money  bills  passed  through  Congress  wherein  the 
bankers  did  not  get  more  privileges.  They  have  been  put  in  the 
sacred  class  of  instrumentalities  of  Government;  but  the  farmer  is 
a  more  important  instrumentality  of  Government  than  the  banker. 
Now,  Mr.  Moss  and  Mr.  Fletcher  want  another  string  of  banks,  to 
keep  coming  back  after  more  privileges.  I  do  not  believe  the  people 
of  this  country  will  stand  for  it. 

Last  fall  the  Secretary  of  the  Treasury,  Mr.  McAdoo,  made  a 
very  commendable  effort  to  do  a  big  thing.  He  took  $50,000,000  out 
of  the  Treasury  and  put  it  into  the  banks  of  the  Southwest  to  move 
the  crops — to  get  the  food  to  the  people  of  the  cities  who  were  pay- 
ing high  prices  for  it  and  who  were  confined  to  a  pitiable  selection 
because  of  those  high  prices.  The  bankers  borrowed  this  money  at 
2  per  cent  and  loaned  it  to  the  farmers  at  6  and  8  per  cent;  and  at 
that  to  only  a  few  farmers,  for  it  was  mostly  loaned  to  the  crop 
speculators  who  were  trying  to  ;;  bear "  the  prices  of  the  farmers' 
products. 

And  still  Mr.  Moss  and  Senator  Fletcher  produce  a  bill  for  the 
purpose  of  assisting  banks  to  borrow  money  from  the  Government 
to  loan  to  the  farmers.  And.  worse,  they  ask,  on  behalf  of  the  bank- 
ers, for  exemption  from  taxation — some  more  privileges.  Further- 
more, they  ask  the  Government  to  take  their  bonds — these  land- 
mortgage  bonds  issued  by  these  banks — as  security  for  postal  saving> 
deposits  and  other  Government  deposits.  That  is  paramount  to 
going  into  a  bank  to-day  and  telling  them  to  give  us  their  stock  for 
security  for  these  deposits.  It  does  not  make  any  difference  if  these 
bonds  are  based  upon  mortgages;  they  are  the  bank's  securities. 

Now,  as  to  loans  versus  deposits,  the  Supreme  Court  of  the  United 
States  has  declared  time  and  time  again  that  a  banker,  when  he  takes 
another  man's  money  on  deposit,  assumes  all  the  responsibility  of 
a  debtor,  and  owes  that  money;  yet.  some  people  are  trying  to  make 
us  think  that  a  deposit  in  a  bank  is  not  a  loan;  that  we  can  hand 
Government  money  to  the  banker  at  2i  per  cent,  and  that  is  not  a 
loan,  but  is  ti  "  deposit."  When  you  talk  about  handing  it  to  the 
farmer,  on  better  security,  at  4^  per  cent,  that  is  a  loan. 

As  I  say.  in  addition  to  these  privileges  proposed  for  the  Moss- 
Fletcher  banks,  they  are  exempted  from  all  taxation.  The  farmer- 
are  not  only  to  pay  interest  profits  to  these  banks  when  they  are 
organized,  but  are  also  to  pay  the  bankers'  taxes.  You  may  look  for 
all  the  other  bankers  to  ask  for  "  equal  rights." 

Gentlemen,  I  tell  you  that  the  people  of  this  country  will  not  take 
kindly  to  any  such  plan.  If  you  do  not  go  too  fast  I  am  sure  you  will 
find  this  to*  be  true.  If  you  will  just  wait  a  little  while  I  will 
guarantee  you.  who  are  representing  the  people,  that  yon  will  learn 
whether  the  farmers  are  organized  or  not. 

About  this  interest  rate.  In  the  Fletcher-Moss  bill  they  make  it 
1  per  cent  more  than  the  "  cost  "  of  the  money.  The  very  core  of  the 
whole  proposition  is.  What  is  the  interest  going  to  be?  In  their  bill 
it  is  1  per  cent  more  than  the  cost  of  money.  The  best  testimony 
we  have  got  is  that  under  this  bill  you  can  not  get  money  on  these 


RUKAL   CEEDITS.  879 

bonds  under  5  per  cent.  That  was  from  Mr.  Breitung,  of  New  York, 
the  best  all-around  financier  that  came  before  the  committee,  and  he 
knows  the  rates;  he  has  been  in  this  business  and  knows.  You  can 
not  sell  this  class  of  bond  at  4  per  cent.  Mr.  Morris  says  there  will 
have  to  be  practically  an  underwriting  proposition;  that  if  you 
have  several  hundred  thousand  dollars  that  they  would  want  as  much 
as  5  per  cent  commission  to  sell  them.  He  did  think  that  if  you  have 
several  billion  or  several  million  dollars,  I  do  not  know  which,  that 
he  thought  you  could  get  them  underwritten  for  1  per  cent.  When 
you  add  that  to  the  cost  of  your  money  and  put  on  top  of  that  1  per 
cent  for  management,  and  then  whatever  is  necessary  as  an  amortiza- 
tion payment  on  top  of  that,  see  what  your  burden  to  the  farmer  is. 
The  annual  burden  of  the  farmer  is  one  great  thing  in  this  proposi- 
tion. You  want  it  so  it  is  easy  for  him  to  carry  it.  Leave  him  each 
year  something  that  will  help  to  keep  the  family  up  and  keep  the 
boys  from  running  away  to  the  city. 

These  banks  have  no  incentive  to  sell  bonds  low.  You  talk  about 
their  competing  in  order  to  get  the  cost  of  money  down.  I  know  that 
is  not  what  they  will  do  at  all. 

If  one  bank  is  selling  a  6  per  cent  debenture  out  West  and  it  is 
good,  nobody  will  buy  a  5  per  cent  debenture  until  the  other  is  sold. 
The  bank  with  the  lower  rate  bond  will  raise  the  rate  in  order  to 
get  a  market.  No  matter  what  the  bonds  sell  for  these  banks  are  to 
be  allowed  to  charge  the  borrower  1  per  cent  more.  They  get  that 
1  per  cent  anyway  and  will  care  little  what  the  bond  sells  for. 

These  banks  will  not  compete,  therefore,  in  lowering  the  interest 
rate,  but  will  compete  in  selling  bonds.  That  means  that  they  will 
give  their  customers  who  buy  the  bonds  as  good  a  thing  as  possible. 
They  are  in  the  business  for  profit.  They  do  not  care  about  our 
national  policy  or  what  the  rate  of  interest  is  on  the  bonds,  because 
there  is  no  incentive  to  make  them  care. 

This  American  commission,  or  the  United  States  commission — 
they  are  about  one  and  the  same,  I  think — show  a  very  palpable  fear 
of  this  question  of  centralization  of  the  money  power.  They  say, 
"  We  do  not  centralize  them — the  banks — because  the  people  will  not 
stand  for  it."  They  know  the  people  will  not  stand  for  it.  We 
just  got  through  with  one  such  condition,  which  centralized  money 
in  this  country  for  years,  and  they  propose  to  follow  that  up  with 
another,  and  they  say,  in  substance,  "  We  won't  compel  them  to 
centralize."  You  and  I  know  they  will  centralize  themselves.  What 
is  the  history  of  everything  of  that  kind  in  this  country?  The  old 
system  of  banking  centralized  money  in  New  York  and  other  large 
cities.  It  was  centralization  voluntary.  They  did  not  need  any  law 
to  centralize  them,  and  we  do  not  need  any  law  to  centralize  these 
new  banks.  Talk  about  leaving  that  clause  in  or  out  of  your  bill, 
about  centralization— I  can  not  see  anything  to  it.  They  will  cen- 
tralize and  the  result  will  be  collusion  for  their  benefit  in  every  re- 
spect, and  the  result  of  that  will  be  for  high  interest  rates,  more 
profit. 

I  have  stated  already  that  the  banks  will  be  allowed  to  loan  their 
capital  and  surplus  and  this  2-|  per  cent  Government  money  on 
five-year  mortgages.  In  this  bill  no  limit  of  interest  rate  is  fixed  on 
these  loans.  These  banks  would  use  their  capital  and  surplus  and  the 
money  the  Government  loans  them  for  this  class  of  loans.     They 


880  RUBAL   CRED]  is. 

will  place  as  much  on  them  as  they  can,  because  they  get  a  higher 
interest  rate.  That  will  be  an  incentive  to  them  to  keep  rates  high 
on  their  long-time  loans;  otherwise  they  will  be  working  against 
their  own  interest,  and  they  are  not  liable  to  do  that. 

If  there  is  any  one  thing  in  the  bill  that  is  provocative  of  mirth, 
it  is  that  $10,000-bank  feature.  Who,  in  heaven's  name,  speaking 
of  these  new  bank  bonds,  is  going  to  give  any  credit  or  authority 
lo  any  little,  jerk-water  bank  of  this  size  as  a  serious  responsibility 
behind  such  a  bond?  Who  is  going  to  buy  it?  It  won't  have  any 
responsibility  to  it,  and  they  won't  be  able  to  sell  their  bonds.  The 
result  will  be,  just  as  Mr.  Badow  said,  a  $25,000,000  corporation  in 
Chicago,  and  that  will  mean  a  centralization  of  money,  and  that  is 
the  way  it  will  work  all  the  way  through,  and  they  will  have  numer- 
ous agencies.  They  will  have  western  loan  agents.  Who  will  they 
get  to  take  these  agencies?  The  very  men  that  have  been  harassing 
i.e  farmers,  who  know  the  game  underground  and  overground  in 
all  its  tricks. 

They  will  be  the  loan  agents  for  these  $25,000,000  corporations. 
When  a  farmer  walks  up  to  this  new  and  "  wonderful "  bank  he  will 
find  the  same  old  faces  of  the  money  lenders  smiling  at  him — the 
same  men  especially  authorized  and  trade-marked  with  a  new  brand 
of  Government  virtue. 

Mr.  Weaver.  You  must  be  against  Mr.  Moss's  bill. 

Mr.  Bathrick.  No;  I  am  not  against  it;  of  course  not. 

Another  beautiful  thing  in  this  bill  is  the  fiduciary  agent.  He  is 
going  to  be  the  capsheaf  inspector  for  the  Government.  He  is  go- 
ing to  be  the  man  that  assures  the  public  that  these  bonds  are  all 
right;  that  is,  he  will  give  the  public  confidence  in  these  bonds  so 
they  will  buy  them.  Let  us  glance  at  him.  He  is  paid  his  salary  by 
the  bank,  by  one  of  these  $25,000,000  corporations  or  by  one  of  the 
$10,000  corporations.  If  some  people  wTere  conducting  that  big  bank 
they  could  afford  to  pay  him  a  very  large  salary  to  wink  at  the  decep- 
tions that  may  be  practiced  under  this  bill. 

The  Government  selects  this  fiduciary  agent.  Yes ;  but  the  bill 
very  naively  says  he  must  be  "  satisfactory  to  the  directors  "  of  the 
bank.  I  do  not  know  who  made  that  wonderful  invention,  but  it 
is  there  in  the  bill.  It  is  an  incentive  and  a  temptation  to  crooked- 
ness. We  had  150  of  these  institutions  fail  between  1886  and  1894 
because  of  bad  management  and  fraud,  and  word  comes  that  some 
of  them  have  gone  broken  in  Europe.  These  facts  gradually  filter 
in.  I  tell  you  that  if  one  of  these  banks  goes  broke  in  the  United 
States  the  whole  fabric  of  this  system  will  go  down,  and  every  man 
who  has  a  bond  will  say,  "  What  ?  A  bank  out  in  the  West  broke  ?  I 
wonder  if  my  bond  is  good."  That  is  sure  to  happen,  and  it  will  knock 
the  whole  bond  market  all  over  the  United  States,  and  other  banks 
will  break.  This  kind  of  inspection  can  not  amount  to  much.  This 
agent  is  expected  to  sign  his  name  on  the  ledger  where  the  accounts 
are  kept.  Is  he  going  to  keep  the  books  of  one  of  these  $25,000,000 
corporations?  No.  He  will  w\alk  up  and  sign  his  name  on  the  ledger 
wherever  the  bookkeeper  tells  him  to  sign  and  will  know  very  little 
about  it. 

Take  the  small  corporation.  If  it  is  one  of  these  $10,000  kind, 
if  one  is  ever  organized  the  fiduciary  agent  will  be  the  whole  thing. 
He  will  be  the  only  officer  drawing  a  salary,  and  he  will  run  the 


RURAL   CREDITS.  881 

whole  business  about  as  he  pleases,  and  the  result  will  be,  all  told, 
that  nobody  will  have  any  confidence  in  the  bonds  of  these  small 
banks,  and  fraud  will  creep  into  most  of  them. 

Notice  how  they  try  to  bolster  up  these  bonds  by  passing  laws  to 
make  them  legal  investments  for  court  and  trust  funds,  for  insurance 
reserve  funds  in  the  States.  What  does  that  mean?  You  can  not 
pass  any  law  that  will  make  these  bonds  good;  you  have  inspected 
the  national  banks  and  they  have  failed,  and  then  you  have  had 
dozens  of  laws,  but  they  have  failed,  and  the  public  generally  has 
no  extraordinary  confidence  in  all  the  banks  to-day,  when  you  come 
right  down  to  the  truth  of  it;  but  when  you  pass  a  law  that  says  a 
guardian  can  take  one  of  these  new-fangled  private  banker's  bonds 
and  make  it  represent  the  trust  funds  in  his  hands  for  widows  and 
orphans,  you  are  taking  the  risk  of  committing  a  very  serions  wrong; 
and  when  you  say  that  these  bonds  can  be  put  up  in  a  State  as  legal 
reserve  funds  for  insurance  companies  you  are  running  a  long  chance, 
in  the  light  of  all  reason  and  past  experience,  of  robbing  millions  of 
policyholders.  The  Government  can  buy  these  bonds,  but  that  will 
not  make  them  right.  Nothing  but  actual  value  will  do  that.  It 
just  gives  them  an  artificial  and  fictitious  value,  which  can  be  only 
temporary,  until  some  exigencies  arise  in  the  general  mix-up  and 
breakdown,  which  will  disclose  their  real  value. 

Mr.  Platt.  Do  you  say  that  there  is  something  in  this  bill  about 
the  Government  buying  the  bonds? 

Mr.  Bathrick.  No;  I  say  that  point  was  talked  about.  You  give 
any  guardian  the  right  to  take  these  bonds  and  mortgages  for  his 
ward,  and  you  will  hear  of  cases  of  where  Avards  have  lost  money  all 
over  the  United  States.  That  is  my  guess,  and  I  think  it  is  a  good 
strong  guess.  And  this  exemption  from  taxation  again — the  most 
drastic  possible,  special,  class  legislation.  Some  people  have  the 
nerve  to  say  that  Government  loans  to  farmers  is  class  legislation, 
when  they  themselves,  ask  a  privilege  that  no  other  class  in  the 
country  has.  They  point  in  their  review  of  the  Moss-Fletcher  bill 
to  some  little  thing  that  is  done  in  the  Government  bank,  and  these 
Federal  reserve  banks  are  practically  Government  banks,  yet  they 
want  to  follow  that  by  going  the  whole  length  of  tax  exemption  in 
their  bill.  They  exempt  the  income  from  stock.  That  invalidates 
the  law  of  Ohio,  which  taxes  all  corporation  stock.  They  exempt 
the  bonds  of  whatever  character  from  taxation.  Why  not  exempt 
bonds  of  national  banks?  This  clause  will  bring  every  national 
bank  in  the  country  in  here,  asking  us,  as  I  have  said,  to  give  them 
equal  rights.  They  will  all  be  in  here,  every  one  of  them,  if  they  do 
not  go  into  this  plan,  and  some  of  them  can  not  get  in.  They  will 
say,  "What  are  you  doing  there?  You  are  giving  that  new-fangled 
bank  a  privilege  to  take  deposits,  you  give  them  the  privilege  to  com- 
pete with  us  for  deposits,  and  they  bid  for  them  higher  than  we  can, 
and  why?  Because  they  are  exempt  from  taxation.  Give  us  equal 
rights." 

Mr.  Platt.  Would  it  not  be  a  good  thing  if  we  did  ? 

Mr.  Bathrick.  I  suppose  it  would  be  a  good  thing  to  give  every- 
body equal  rights,  not  excepting  my  friend  from  New  York.  But 
why  not  exempt  farmers  from  taxation  as  well  ? 

37031—14 56 


882  RURAL   CREDITS. 

After  you  have  done  this,  what  have  you  accomplished  ?  I  am  sure 
that  you  have  accomplished  no  general  good.  I  tell  you  you  have 
simply  made  a  bill  or  law  and  figuratively  have  thrown  it  up  in  the 
air  on  the  hope  or  belief  that  something  beneficial  will  happen.  You 
have  made  a  law,  which,  if  it  works  to  any  extent  whatever,  will  be 
manned  and  operated  by  the  same  old  crowd  of  10  per  centers  and 
pound  of  fleshers  who  have  created,  through  their  unbridled  greed, 
the  very  condition  which  you  are  attempting  to  cure  now. 

Besides  this,  the  Moss-Fletcher  bill  is  the  very  essence  of  delay. 
By  it  action  must  wait  for  the  revision  or  repeal  of  different  laws  of 
every  State;  and  we  have  48  States,  with  from  75  to  over  100  legis- 
lators in  each  State,  and  all  of  them  with  different  minds. 

Depending  on  these  laws  in  various  States  being  changed,  you  will 
find  this  change  opposed  by  the  most  powerful  interests  of  those 
States  for  various  reasons,  and  one  of  these  reasons  is  the  fear  by 
those  who  are  now  making  money  by  high-interest  rates  that  the  rate 
will  be  lower. 

Mr.  Platt.  Do  the  farmers  have  something  to  do  with  those  legis- 
lators ? 

Mr.  Bathrick.  Oh,  yes;  they  might;  but  they  might  have  the  same 
lack  of  influence  they  seem  to  have  with  some  of  the  legislators  down 
here. 

There  will  be  a  long  wait  for  action,  and  the  evil  outrunning  the 
remedy,  and,  above  all  things,  absolutely,  the  Government  policy  lan- 
guishing in  all  parts  of  the  country.  Farmers  raise  produce  to  feed 
people  in  Washington;  they  raise  produce  to  feed  people  in  Penn- 
sylvania. While  the  rate  is  low  in  Pennsylvania,  as  well  as  in  Wiscon- 
sin, there  are  plenty  of  people  in  those  sections  that  need  help,  and  they 
are  raising  food  to  distribute  all  over  the  country,  and  that  is  all  our 
policy  is  for,  to  assist  agriculture  and  perpetuate  our  food  supply. 
If  these  banks  do  not  make  good  in  these  sections  and  in  some  other 
sections,  the  policy  will  fail  there.  Some  will  say  we  do  not  need  it, 
most  of  the  farmers  are  prosperous.  But  there  are  plenty  of  farm- 
ers in  all  sections  that  do  need  help,  and  the  plan  will  not  get  into 
all  sections  to  do  anything  for  them.  And  what  have  you  to  wait 
for?  Laws  of  registry,  debtor  exemption  laws,  homestead  laws. 
taxation  of  capital  stock.  You  can  not  go  into  those  States  and  say 
you  shall  do  so  and  so.  They  will  at  once  propound  the  theory  of 
State  rights.  Registration  of  titles,  conveyances,  foreclosures.  State 
laws  accepting  debentures  as  legal  investments.  Those  are  a  few  of 
the  laws  you  must  have  fixed  in  all  of  these  States  before  you  get 
under  wny  at  all.  In  six  months,  with  a  Government-loan  plan,  you 
can  be  doing  things  and  have  the  great  work  progressing  in  everv 
State. 

I  made  an  estimate,  based  upon  28  banks,  for  the  State  of  Ohio, 
which  is  to  the  effect  that  if  this  Moss-Fletcher  bill  becomes  a  law 
and  these  banks  were  to  accept  its  provisions  there  would  be  a  loss  of 
about  $70,000  to  the  State  of  Ohio  which  the  taxpayers  would  have 
to  make  good  on  the  capital  stock  tax  loss. 

To  begin  with,  the  Moss-Fletcher  bill  is  not  agricultural.  It  is  all 
financial.  When  we  passed  the  new  currency  bill  we  were  told  to 
"  Hold  on,  don't  be  in  a  hurry  now ;  we  will  give  you  a  farm-credit 
bill  after  this  is  done."  After  they  got  through  with  that  and  began 
talking  about  the  farm-credit  bill,  the  first  people  they  saw  were  the 


EUKAL   CREDITS.  883 

bankers,  the  money  lenders.  Where  have  you  asked  one  leader  of  a 
farm  organization  in  this  country  to  come  and  help  prepare  that  bill 
before  you  brought  it  into  the  committee  ?  I  would  like  to  have  you 
answer  that  question,  Mr.  Moss.  What  one  leader  of  any  big  farm 
organization  have  you  asked  to  help  make  this  bill  ? 

Mr.  Moss.  I  would  like  to  say,  Mr.  Bathrick,  you  see  I  did  not 
have  quite  the  confidence  in  the  leaders  of  the  farm  organizations.  I 
considered  that  I  am  rather  a  representative  farmer  myself. 

Mr.  Bathrick.  But  have  you  asked  a  leader  of  any  farm  organiza- 
tion to  help  make  that  bill  before  you  brought  it  into  the  committee? 

Mr.  Moss.  Then,  I  should  like  to  say  that  I  have  had  communica* 
lions  from  a  few  organized  farmers,  for  instance,  the  Farmers'  Union 
in  my  own  State  and  the  Farmers'  Congress  in  my  own  State,  and 
have  had  quite  a  wide  correspondence  with  farmers,  any  of  which 
would  be  representative  farmers. 

Mr.  Bathrick.  I  do  not  raise  that  question,  Mr.  Moss;  I  simply 
asked  this  question,  Did  you  ask  any  leader  of  any  large  farm  or- 
ganization to  come  in  and  help  you  prepare  your  bill  before  it  was 
brought  to  the  committee? 

Mr.  Moss.  Mr.  Bathrick,  in  answering  that  I  will  say  that  the  com- 
mission only  suggested  this  thing,  and  we  reported  back  to  Congress, 
as  we  were  ordered  to  do  under  the  resolution  of  Congress;  but  we 
had  spent  at  least  three  months  in  Europe  with  farmers,  as  we 
thought,  and  then  we  left  and  went  home,  each  one  of  us  consulting 
in  our  own  individual  capacities,  and  we  came  back  here  and  made 
our  report  to  Congress,  and  I  think,  myself,  I  took  rather  a  wide 
effort  to  get  in  touch  with  the  agricultural  sentiment. 

Mr.  Bathrick.  I  have  said  that  this  bill  is  not  agricultural,  but  is 
financial.  It  is  put  entirely  in  charge  of  the  Secretary  of  the  Treas- 
ury of  the  United  States.  I  have  the  utmost  respect  and  highest 
regard  for  the  present  Secretary  of  the  Treasury  of  the  United  States, 
but  3^011  know  and  I  know  that  other  Secretaries  of  the  Treasury  have 
found  jobs  in  some  financial  institution  and  some  big  banks,  and  you 
know  that  some  Secretaries  have  been  recommended  to  the  office  by 
the  big  banking  and  financial  interests  of  this  country. 

We  talk  about  being  afraid  of  centralization  of  these  banks,  and 
we  know  they  will  centralize  themselves.  Why,  then,  put  the  Sec- 
retary of  the  Treasury  in  the  position  to  make  and  put  in  force  every 
rule  and  regulation  that  will  operate  and  govern  them?  That  is 
what  you  are  going  to  do  if  you  pass  this  bill.  You  will  have  a  cen- 
tralization of  these  banks,  and  people  are  afraid  of  that  sort  of  thing, 
and  I  tell  you  again  that  I  do  not  believe  they  will  stand  for  it  if 
you  give  them  a  chance  to  find  out  before  you  act.  The  Secretary 
of  the  Treasury  under  the  terms  of  the  Moss-Fletcher  bill  is  in  full 
power;  he  would  make  every  regulation  that  would  govern  these 
banks  and  can  unmake  them  and  make  new  ones.  One  man — the  ad- 
ministration of  the  whole  system  put  in  the  hands  of  one  man.  Even 
the  Secretary  of  Agriculture  has  no  voice  in  the  administration  of 
the  law.  It  is  not  proposed  that  any  farm  organization  should  be 
represented  upon  that  organization  board  in  the  bill.  No  leader  of 
any  farm  organization  was  asked  to  help  make  the  bill. 

The  rules  and  regulations  of  the  Secretary  of  the  Treasury  are 
absolute  law  in  regard  to  eve^thing.     He  is  given  power  to  run 


884  .  rural  credi  rs. 

these  banks  just  as  he  wishes:  and  it  is  a  bankers'  bill  from  start  to 
finish  and  there  is  no  question  about  that. 

Cooperative  land  banks?  Why,  we  organize  a  bunch  of  land  banks 
under  this  bill  and  then,  in  order  to  give  it  some  kind  of  turn  that 
makes  it  look  as  if  it  might  be  for  farmers,  we  talk  about  coopera- 
tion. Let  us  look  into  that  cooperative  feature  a  moment.  These 
$10,000  banks  may.  if  they  want  to,  do  certain  things  if  they  are 
farm-land  banks.  "  cooperative."  First,  they  have  to  be  cooperative. 
Let  us  speak  of  what  these  cooperators  get. 

I  will  read  on  page  9  of  the  bill  which  outlines  the  dividend  fea- 
ture of  this  so-called  cooperative  farm-land  bank: 

To  each  owner  of  stock  of  such  corporation  may  firsl  be  paid  a  dividend  in 
the  form  of  interesl  upon  the  par  value  of  the  shares  of  stock  owned  by  such 
owner  of  stock,  computed  at  the  rate  of  interest  generally  prevailing  in  the 
community  where  such  bank  is  located,  but  not  exceeding  the  legal  rate  of  in- 
terest in  the  State  where  such  banking  corporation  is  situated,  if  said  earnings 
are  sufficient  for  that  purpose;  otherwise,  to  be  paid  to  each  owner  of  such 
stock  pro  rata  computed  upon  the  par  value  of  such  stock.  The  balance  of  such 
net  earnings.  "  if  any."  shall  be  distributed  among  the  patrons  of  such  banking 
corporation  in  proportion  to  the  amount  of  business  transacted  with  such  bank: 
Provided,  however,  That  in  such  distribution  the  share-owning  patrons  may.  if 
approved  by  two-thirds  vote,  take  dividends  at  a  rate  of  twice  as  great  as  that 
paid  to  the  nonshare-owning  patrons. 

The  authors  of  the  bill  seem  not  to  be  able  to  get  away  from  the 
idea  of  the  "  prevailing  interest  rate,"  which  is  the  bane  of  the 
farmers'  existence.     It  is  the  very  sore  we  want  to  cure. 

Many  of  our  States  have  a  legal  minimum  and  maximum  interest 
rate,  and  some  of  the  States  have  no  maximum  rate  at  all,  leaving  it 
open  to  any  rate  that  is  contracted  for.  The  lid  is  taken  off  and  the 
dividend  referred  to  in  this  part  of  the  Moss-Fletcher  bill  to  be  paid 
by  the  stockholders  of  this  cooperative  bank  to  themselves  may  be 
as  high  as  the  house  or  all  they  can  make.     That  is  not  cooperation. 

Here  are  men  who  have  gone  into  this  bank  business  to  make 
money  for  themselves,  and  they  care  nothing  for  the  borrower.  The 
borrower  borrows,  but  he  has  made  no  investment,  and  those  who 
have  made  investments  will  find  plenty  of  ways  to  keep  the  borrower 
from  getting  any  of  the  stockholders'  profits. 

Note  the  words  "  if  any."  Those  were  well  put  in.  They  are 
superfluous  in  the  bill  and  must  have  been  put  there  as  a  revelation 
of  the  authors'  expectation  of  what  the  borrowers  would  get.  Read 
again  the  proviso.  It  says  that  if  the  stockholders  wish  to  take 
twice  as  much  as  the  borrowers  they  can  do  so.  if  two-thirds  of  the 
stockholders  vote  to  keep  this  money.  Is  it  not  absurd  to  think  that 
there  would  not  be  a  unanimous  vote  of  these  stockholders  to  give 
themselves  twice  as  much  as  the  nonshare-owning  patrons  get? 

They  call  that  cooperation !  It  reminds  me  of  the  boy  that  asked 
his  brother.  "  Give  me  a  piece  of  that  apple."  The  brother  said.  "  No, 
I  won't."  The  other  said.  "Give  me  the  core."  The  answer  was. 
"There  ain't  going  to  be  any  core."  And  there  won't  be  any  core 
to  the  borrower  in  this  proposition.  Talk  about  getting  several  share- 
holders together  and  have  them  vote  to  give  somebody  money  and 
think  you  are  protecting  the  other  fellows !  Another  simple  proposi- 
tion in  finance ! 

Mr.  Platt.  I  think  you  will  have  qualified  as  a  financier  rather 
than  as  a  farmer  before  you  get  through. 


RURAL   CREDITS.  885 

Mr.  Bathrick.  It  seems  in  all  the  construction  of  this  bill  it  is 
strange  that  nobody  happened  to  think  of  the  word  "  mutual "  where 
the  borrower  as  well  as  lender  cooperate.  All  over  the  world  there 
is  no  animal  ever  discovered,  by  Theodore  Roosevelt  or  anybody  else, 
that  looks  like  it  and  bears  the  name  of  "  Cooperation." 

This  co-called  cooperative  bank  is  nothing  but  an  ordinary  stock 
company  composed  of  investors  who  put  in  their  money  for  the  same 
reason  which  actuate  investors  in  any  other  kind  of  a  stock  company. 
They  are  not  in  any  sense  cooperative,  but  are  essentially  corporative. 
They  are  as  much  corporation  as  the  Steel  Trust  or  the  Standard 
Oil  Co.  It  is  possible  that  it  may  come  to  pass,  if  some  of  these 
$25,000,000  land-mortgage  banks  were  in  control  of  an  enormous 
amount  of  such  credit  and  a  very  large  number  of  mortgages  that 
the  influence  over  their  debtors  would  result  in  the  use  of  this  power 
for  political  purposes.  Those  of  us,  of  whatever  party,  who  remem- 
ber the  campaign  of  1896,  will  not  forget  the  effect  of  a  subtle  coer- 
cion practiced  by  creditors  at  that  time.  I  believe  that  phase  of  this 
question  is  worthy  of  serious  consideration  in  connection  with  the 
proposal  to  build  up  a  new  system  of  banks. 

If  a  hoard  of  these  smaller  banks  should  go  into  operation,  I  be- 
lieve they  would  have  to  clear  through  the  larger  banks  and  their 
credit,  and  the  credit  of  their  patrons  would  practically  be  con- 
trolled by  the  big  banks.  If  this  conception  of  a  condition  should 
materialize,  it  will  lead  the  tentacles  of  financial  influence  into  every 
corner  of  the  land  and  elaborate  the  power  of  finance  beyond  the 
wildest  dream  that  ever  touched  the  fancies  of  any  J.  Pierpont 
Morgan. 

I  made  a  memorandum  just  before  I  went  to  lunch.  I  do  not  know 
whether  I  can  find  it  or  not.    It  was  on  this  subject. 

Mr.  Platt.  Under  your  bill,  would  it  take  the  Government  as  long 
to  make  a  loan  to  a  farmer  as  it  does  to  decide  on  a  post-office  site? 

Mr.  Bathrick.  I  do  not  know  how  long  it  takes  to  select  a  site, 
and,  therefore,  I  can  not  answer  that  question.  I  got  one  for  my 
district  with  reasonable  expedition.  It  would  not  take  long  for  the 
bureau  to  decide  on  a  loan. 

Gentlemen,  I  think  Mr.  Moss  has  gone  far  afield  and  he  is  fear- 
fully wrong,  but  I  believe  he  is  trying  the  best  he  can  to  settle  this 
question  right.  But  when  3^011  are  doing  this  thing,  think  of  that 
word  "■  mutual,"'  and  try  to  consider  it.  Consider  "  mutuality  "  in 
any  of  these  plans.  If  you  are  going  to  do  this  work  right,  and  if 
you  are  to  give  any  assistance,  give  it  to  mutual,  real,  not  fake  co- 
operative institutions,  where  self-help  and  Government  aid  of  the 
best  cooperation  on  earth  shall  go  hand  in  hand.  Our  Government  is 
that  kind  of  cooperation.  Do  not  lend  Government  aid  in  any  shape 
to,  or  permit  the  use  of  the  Government's  credit  by  any  private  bank- 
ers who  are  merely  out  for  the  purpose  of  personal  gain.  They  care' 
nothing  for  our  national  policy.  To  do  that  for  them  would  be  add- 
ing insult  to  injury. 

One  gentleman  of  the  committee  said  something  about  guarantee- 
ing bonds,  I  believe.  Of  course,  I  did  not  understand  what  he  meant, 
and  I  had  not  any  idea  that  any  one  would  propose  to  guarantee  the 
bonds  of  the  private  banks.  Such  a  proposition  would  be  the  limit, 
and  I  would  know  of  nothing  more  absurd  or  foolish  that  could  be' 


886  RURAL   CREDITS. 

done  to  incur  the  displeasure  of  the  people  of  this  country.  Any  one 
who  would  make  such  a  proposition  and  still  object  to  Government 
loans  would  be  frightfully  in  error.  If  we  are  ever  called  upon  to 
guarantee  bonds  for  these  private  profit-seeking  bankers,  and  thus 
have  the  Government  take  the  risk,  then  no  sane  man  could  say  that 
the  Government  should  not  do  the  lending  itself  and  take  the  profit. 

There  are  two  or  three  ways  to  help  farm  credit  better  than  the 
Moss-Fletcher  bill.    The  best  way  is  Government  loans. 

I  want  to  make  .some  short  comparisons  here,  just  as  a  summing  up. 

Government  loans  will  carry  the  national  policy  everywhere;  the 
bank  plan  will  carry  it  out  in  very  few  places. 

The  Government  loans  could  make  the  interest  uniform  every- 
where ;  bank-plan  loans  would  have  a  different  rate  of  interest  almost 
everywhere.  Government  loans  need  not  wait  for  State  action,  but 
will  work  where  help  is  most  needed;  the  bank  plan  must  wait  for 
State  laws  and  will  help  least  where  most  needed. 

Government  loans  would  make  a  profit  in  two  ways  for  all  the 
people.  One  way  would  be  a  cash  profit  from  the  margin  on  loans. 
I  have  shown  in  previous  hearings  that  the  cash  profit  would  be  suf- 
ficent  annually  without  taxing  the  people  a  penny  to  pay  the  entire 
cost  of  maintaining  and  constructing  good  roads  under  the  Shackle- 
ford  good-roads  bill.  The  other  profit  wTould  be  also  for  all  the 
people  and  expressed  in  a  widespread  beneficence  affecting  not  only 
agriculture  but  everybody  in  the  city  as  well.  It  would  be  giving 
these  profits  first  hand  and  direct  by  the  quickest  and  best  way  it  can 
be  done  and  not  by  the  slow  indirection  of  relegating  our  great 
national  policy  to  the  mercies  of  profit-seeking  banks. 

The  bank  plan  will  make  a  profit  for  a  few  people,  mostly  for 
those  who  have  been  lending  money  to  farmers  at  high  rates  and  who 
have  created  these  very  conditions  we  are  trying  now  to  cure. 

Mr.  Plait.  Could  we  not  get  the  automobile  manufacturers  in- 
terested in  that  bill? 

Mr.  Bathrick.  No.  I  will  tell  you  what  we  can  do,  though:  Put 
through  your  bank  plan;  let  the  farmers  pay  interest  to  the  banks 
instead  of  the  Government,  and  let  the  bankers  buy  the  automobiles, 
and  then  tax  the  farmer  to  build  roads  for  him  to  run  his  automobile 
over.    That  is  what  we  can  do. 

Government  loans  give  a  much  lower  annual  burden  and  cost  to 
the  farmer.  On  bank  loans  no  one  can  tell  what  the  cost  will  be. 
It  will  be  as  high  as  profit  seekers  can  make  it,  because  they  are 
there  for  the  purpose  of  making  a  profit. 

Government  loans  will  secure  money  for  all  sections,  and  enough  of 
it.  The  bank  plan  bids  fair  not  to  secure  enough  in  most  sections 
at  any  interest  rate. 

Government  bonds  based  on  mortgages  and  the  Government  credit 
will  sell  at  the  lowest  possible  rate.  Bank-plan  debentures  may  not 
sell  at  all  at  a  low  rate. 

Government  loans  will  encourage  agriculture,  encourage  loyalty 
of  the  people  of  this  country,  and  make  them  believe  that  the  Gov- 
ernment is  doing  something  for  them  instead  of  for  the  banks. 
Bank-plan  loans  will  scarcely  afford  proof  that  we  are  doing  some- 
thing for  the  whole  people. 


RURAL   CREDITS.  887 

Government  loans  will  not  build  up  another  centralized  money 
power.  Bank-plan  loans  will  increase  centralization  of  money  and 
will  create  a  new  dragon  to  harass  us.  These  banks  will  centralize 
and  they  will  come  back  into  this  House  time  and  again  and  say: 
"  We  want  some  more  legislation  and  help  in  this  and  that."  They 
will  say :  "  See  what  we  are  doing  for  the  farmers."  They  will  bring 
the  full  power  of  that  "  farmer  talk  "  before  Congress.  If  you  organ- 
ize this  system  of  banks  and  you  do  not  do  anything  for  them  now- 
in  the  way  of  Government  aid,  it  will  not  be  five  years  before  they 
will  come  here  and  ask  for  more  Government  aid  to  help  them  help 
the  farmer.  That  is  what  will  happen.  They  will  want  just  what 
they  now  profess  to  condemn. 

Government  loans  will  make  profit  for  all  the  people.  Bank-plan 
loans  will  make  profit  for  a  few  people. 

Government  loans  without  further  law  settles  the  question  of  tax 
on  mortgages  without  giving  special  privilege  to  a  few  bankers. 
The  mortgages  would  belong  to  the  United  States,  and  would  not 
be  taxable.  The  bonds  are  not  taxed,  and  that  settles  that  vexatious 
question  at  one  stroke. 

Bank  loans  require  this  drastic  special  privilege  of  exemption 
from  tax,  with  much  more  profit  from  it  to  the  bankers  than  to  the 
people. 

Government  loans  will  do  the  great  thing  we  need  to  do  in  a  whole- 
some and  beneficent  way,  and  the  policy  of  conservation  of  agricul- 
ture will  be  in  the  hands  of  those  who  care  for  the  policy  and  want 
it  carried  out.  Bank  loans  will  leave  the  policy  in  the  hands  of 
those  who  have  their  eye  on  the  dollar  and  do  not  care  anything 
about  the  conservation  of  agriculture. 

Government  loans  is  cooperation  of  the  people  for  mutual  benefit 
in  the  greatest  sense.  Talk  about  cooperation;  we  believe  in  coop- 
eration in  the  highest  sense  and  in  every  sense  and  in  every  function 
of  it.  We  apply  that  in  this  Government  itself — the  people  own  it 
and  run  it ;  and,  as  I  said  before,  there  is  no  reason  why  the  people 
can  not  borrow  money  from  themselves  and  loan  it  back  to  them- 
selves. 

The  Moss-Fletcher  bill  bank  plan  of  loans  has  no  element  of  coop- 
eration— is,  instead,  pure  "  corporation,"  with  all  the  elements  of 
corporate  greed  and  all  the  functions  required  to  prey  upon  the 
people  that  any  other  corporation  possesses. 

Now,  gentlemen,  I  am  going  to  speak  of  one  more  rumor.  I  have 
heard  it  said  you  are  going  to  jam  this  Moss-Fletcher  bill  through. 
I  do  not  believe  it.  I  would  not  infer  that  that  was  going  to  be 
done  in  any  way,  shape,  or  manner;  but  wait  for  your  time.  This 
thing  does  not  have  to  be  done  all  in  a  week.  Take  time  and  develop 
sentiment.  Sentiment  is  crystalizing.  We  should  represent  the 
sentiment  of  the  people.  Let  us  find  out  what  the  sentiment  of  the 
people  is.  I  believe  my  proposition  is  the  best,  but  let  us  find  out 
what  the  people  want.  I  believe  it  will  work.  It  is  right,  and  the 
best  thing  for  the  people  of  this  country,  and  it  has  no  possible  greed 
or  avarice  in  it.  We  should  not  talk  altruism  and  national  policy 
and  then  turn  it  over  to  private  profit  seekers  to  work  out  of  it  as 
much  money  as  they  can.     This  legislation  is  altruism;  it  is  phi- 


888  EURAL   CREDITS. 

lanthropy;  it  is  for  all  the  people  of  the  country  instead  of  a  few 
bankers.  I  believe  if  you  will  study  this  question  a  little  further 
and  not  be  in  too  great  a  hurry,  this  committee  will  have  the  credit 
of  doing  the  biggest  thing  ever  done  in  any  American  Congress. 
I  will  say  to  you  that  our  new  banking  and  currency  bill,  and  our 
tariff  bill,  and  all  the  bills  that  have  been  considered,  so  far  as  they 
affect  every  man,  woman,  and  child  in  this  country,  are  nothing 
in  their  beneficent  effect  on  the  people  as  will  be  a  good  bill  coming 
from  this  committee,  such  as  I  know  you  are  earnestly  striving  to 
bring  out.    If  you  do  it  right  you  will  get  the  credit. 

Mr.  Weaver.  How  much  time  do  j^ou  think  we  ought  to  take 
to  do  it? 

Mr.  Bathrick.  I  think  you  need  some  time  yet. 

Mr.  Weaver.  Do  you  think  we  ought  to  do  it  this  Congress? 

Mr.  Bathrick.  Well,  I  do  not  know.  I  am  inclined  to  think 
that  a  little  later  on,  perhaps  the  next  session,  we  will  be  in  a  good 
deal  better  shape  to  do  it  than  now. 

STATEMENT  OF  HON.  RALPH  W.  MOSS,  A  REPRESENTATIVE  IN 
CONGRESS  FROM  THE  STATE  OF  INDIANA. 

Mr.  Moss.  Gentlemen  of  the  committee,  before  I  commence  what  I 
want  to  say,  I  shall  take  up  Senator  Norris's  question  to  Dr.  Coulter, 
if  he  will  permit  me  to  answer  it,  namely,  Will  Government  guaranty 
give  a  lower  rate  of  interest?  My  judgment  is,  gentlemen,  it  will  at 
the  start,  but  I  do  not  believe  it  will  after  the  system  is  in  successful 
operation. 

Government  bonds  in  Europe  do  not  sell  at  a  higher  price  nor  do 
they  bear  a  lower  rate  of  interest  than  do  land  bonds;  and  I  think 
Ave  will  agree  that  the  final  rate  at  which  money  can  be  borrowed 
will  be  determined  upon  that  basis;  and  unless  it  can  be  shown  that 
Government  bonds  will  bear  a  lower  rate  of  interest  or  command  a 
higher  price  in  the  market  than  will  land  bonds  where  they  are 
selling  in  competition,  as  they  have  sold  for  from  50  to  100  years, 
it  will  be  admitted  that  Government  guaraty  can  not  affect 
favorably  the  rate. 

Senator  Xorris.  In  your  judgment,  how  long  would  it  be  before 
the  rate  of  interest  on  these  bonds  would  be  as  low  \ 

Mr.  Moss.  I  believe.  Senator,  in  such  States  as  Illinois,  Indiana. 
Ohio,  and  Iowa  that  just  as  soon  as  mortgage  debt  is  relieved  of 
taxation  and  bonds,  based  upon  the  best  of  security — real  estate — are 
permitted  to  go  upon  the  market  free,  that  in  those  sections  of  the 
country  the  interest  rate  would  drop  practically  as  low  as  the  Gov- 
ernment rate. 

In  concluding  my  discussion  of  this  subject.  I  want  to  answer,  in  a 
short  way.  some  of  the  objections  which  have  been  brought  in  against 
this  bill  by  those  who  have  discussed  it.  I  do  not  wish  to  argue  any 
question  upon  which,  having  equal  information,  men  might  honestly 
differ.  Such  questions  arc  for  the  committee  to  decide.  I  shall  re- 
fer only  for  a  minute  to  Mr.  Bathrick's  bill,  and  I  would  not  discuss 
Mr.  Bathrick's  bill  at  all  of  it  were  not  for  the  fact  that  both  in  the 
record  before  the  committee  and  in  a  speech  in  the  House  he  has 
referred  directly  to  the  Fletcher-Moss  bill  as  a  scheme  by  which 


RURAL   CREDITS.  889 

banks  can  made  a  profit.  In  his  speech,  which  he  delivered  on  the 
floor  of  the  House,  he  states  under  his  bill  the  annual  profit  to  the 
Government  would  be  $25,000,000.  The  profit  to  the  Government 
is  limited  under  the  terms  of  his  bill  to  1  per  cent;  half  of  that 
can  be  paid  to  farm  organizations  which  guarantee  the  loans.  There- 
fore, the  farm  organizations  in  this  country  would  also  make  an 
annual  profit  of  $25,000,000  under  his  bill,  which  is  precisely  the 
criticism  he  makes  of  the  Moss-Fletcher  bill. 

Mr.  Bathrick.  Will  the  gentleman  yield? 

Mr.  Moss.  I  shall  be  glad  to  if  it  is  not  taken  out  of  my  time. 

Mr.  Bathkick.  I  wish  to  state  that  my  table  of  profits  is  predi- 
cated on  a  3  per  cent  basis. 

Mr.  Moss.  Then  he  shows  how  this  works  out  by  saying : 

In  my  county  there  are  about  $800,000  of  farm  first  mortgages  upon  farm 
homes.  In  this  indirect  lending  on  these  mortgages  the  Government  would  pro- 
vide that  the  farmers  of  this  country  should  organize  a  farm-credit  association 
with  a  capital  of,  say,  $10,000.  This  association,  conforming  to  certain  rules 
and  regulations,  would  act  as  the  agent .  of  the  Government  in  appraising,  in- 
specting, and,  perhaps,  making  collections  on  these  mortgages.  The  associa- 
tion would  indorse  the  mortgage  notes.  For  this  service  the  Government  would 
pay  it  annually  not  to  exceed  one-half  of  1  per  cent  on  the  sum  of  the  loans. 
This  would  assui'e  the  success  of  the  local  farm-credit  association  at  once,  and 
would  leave  it  to  employ  its  own  capital  in  making  short-time  loans. 

Here  is  a  proposition  from  Mr.  Bathrick  that  $1  of  capital  put  up 
by  the  farmers  should  guarantee  $80  of  loans  taken  by  the  Govern- 
ment ;  under  our  bill,  $1  in  capital  can  only  guarantee  $15  in  loans. 
Ten  thousand  dollars  should  guarantee  $800,000.  For  this  guaranty 
these  farm  organizations  shall  be  paid  by  the  Government  $4,000, 
which  is  one-half  of  1  per  cent  upon  $800,000.  This  payment 
amounts  to  4  per  cent  per  year  upon  the  capital  of  the  organization, 
and  yet  they  would  have  their  own  money  free  to  loan  out  on  short- 
time  loans.  That  is  what  he  says  constitutes  self-help  with  Govern- 
ment aid. 

Mr.  Bathrick.  I  do  not  want  to  interrupt  the  gentleman,  and  I 
will  say  here  that  he  did  not  interrupt  me  at  all,  did  not  ask  me  a 
question. 

Mr.  Moss.  I  am  perfectly  will  that  you  should  do  so,  only  I  do 
not  want  it  taken  out  of  my  time. 

Mr.  Bulkley.  As  far  as  taking  it  out  of  your  time  is  concerned, 
we  are  not  going  to  limit  you;  but  the  point  is  that  as  the  afternoon 
goes  by  you  will  find  some  of  the  gentlemen  slipping  away. 

Mr.  Moss.  I  am  not  presenting  this  as  a  criticism  on  Mr.  Bathrick's 
idea  or  his  plan.  I  do  not  want  it  so  understood.  I  think  Mr.  Bath- 
rick has  certainly  the  right  to  present  any  view  that  he  chooses  before 
this  committee,  but  what  I  do  insist  upon  is  that  Mr.  Bathrick 
does  not  stand  very  consistent  in  criticising  the  commission's  bill  be- 
cause it  is  possible  for  a  bank  to  make  some  profit  under  its  terms. 
and  yet  present  his  own  bill  containing  a  proposition  that  at  least 
guarantees  private  corporations  these  very  handsome  profits;  and 
using  his  own  illustration  to  the  people  of  his  own  county,  it  would 
be  possible  for  farm  organizations  of  $10,000  capital  to  come  to 
the  Government  and  receive  4  per  cent  annual  dividends  without  any 
guaranty,  and  yet  would  have  their  capital  free  to  loan  out  at  inter- 
est to  members  of  their  organization. 


890  RURAL   CREDITS. 

Mr.  Bathrick  repeatedly  criticizes  a  capital  of  $10,000  in  the  Moss- 
Fletcher  bill,  but  desires  to  encourage  the  organization  of  banks 
of  the  same  capital  under  the  terms  of  this  bill.  He  criticizes  a 
bank  of  $10,000  capital  in  the  Moss-Fletcher  bill  being  permitted  to 
appraise  real  estate  for  the  purpose  of  loaning  money  for  which  its 
capital  is  pledged  at  the  ratio  of  $1  to  $15,  but  desires  to  permit 
organizations  of  $10,000  capital  to  appraise  real  estate  for  Govern- 
ment loans  with  a  pledge  of  only  $1  to  $80.  He  criticizes  profit  to 
private  organizations  under  the  Moss-Fletcher  bill  where  such 
organizations  give  complete  service,  but  desires  to  obligate  the  Gov- 
ernment to  pay  4  per  cent  profit  on  capital  of  private  corporation 
for  incidental  service  only. 

Gentlemen,  with  that  I  am  going  to  dismiss  the  Bathrick  bill,  ex- 
cepting one  other  general  observation. 

It  is  rather  remarkable  to  me  that  bonds  which  would  be  issued 
and  mortgages  based  upon  real  estate  under  the  banking  plan  would 
have  such  doubtful  value  as  Mr.  Bathrick  would  seem  to  indicate, 
and  yet  if  these  mortgages  were  held  direct  by  the  United  States, 
they  would  be  so  good  that  the  Government  could  not  lose  a  penny, 
the  system  of  appraisement  being  practically  the  same,  the  local 
banks  doing  the  appraisement. 

Before  I  pass  it,  and  while  it  is  fresh  in  my  mind,  I  desire  to  call 
attention  to  the  principles  of  the  cooperative  bank.  Mr.  Bathrick 
criticized  the  provision  that  one  part  of  the  profits  could  be  distributed 
to  those  who  were  not  patrons.  The  reason  for  that  is  quite  ap- 
parent, and  I  had  expected  Dr.  Coulter  to  present  it  or  I  should  have 
presented  it  before.  The  par  value  of  the  cooperative  banks  was 
placed  at  $25,  to  make  it  possible  for  any  farmer  to  purchase  a 
share  and  as  an  incentive  for  all  people  to  take  out  founders'  shares 
the  bank  was  permitted  to  distribute  the  profits  largely  among  stock- 
holders. That  is  the  only  reason  we  provided  that  stockholders 
should  have  a  higher  rate  of  dividend  than  outside  persons  who 
may  patronize  the  bank. 

The  next  question  I  want  to  take  up,  with  your  permission,  is  the 
minority  report. 

That  there  may  be  no  misunderstanding  about  the  minority  re- 
port, I  will  say  that  it  is  not  a  minority  report  of  the  United  States 
commission.  The  American  commission  did  submit  a  minority  re- 
port. There  was  a  difference  of  opinion  between  their  membership 
and  not  that  of  the  United  States  commission.  The  United  States 
commission  gave  them  a  confidential  copy  of  its  report,  which  is  a 
unanimous  report,  and  in  which  the  American  commission  was  not 
asked  either  to  join  or  to  dissent,  recognizing  that  they  had  the  same 
privilege  to  present  criticisms  as  any  other  interested  citizens.  But 
to  speak  of  it  as  a  minority  report  in  the  sense  that  it  emanates  from 
or  expresses  the  views  of  every  member  of  the  United  States  commis- 
sion, of  course,  is  not  correct,  and  is  not  so  intended  by  the  authors 
of  it. 

I  want  to  call  your  attention  to  the  fact  that  when  this  report  was 
written,  which  was  in  December  last,  it  presented  a  proposition  for 
State  banks  and  compulsory  federation  of  State  banks:  that  is,  one 
central  bank  in  a  State,  with  all  other  banks  in  that  State  holding 
a  membership  in  such  central  bank.     Later  on  additional  legislation 


RURAL  CREDITS.  891 

to  unite  these  State  banks  would  be  desirable  on  part  of  the  Federal 
Government  under  some  similar  plan  as  originally  proposed  by 
Senator  Fletcher. 

Senator  Hollis.  Which  report  are  you  reading  from? 

Mr.  Moss.  I  am  reading  now  from  the  minority  report : 

The  subscribers  hereto  are  inclined  toward  State  organization  and  regula- 
tion until  a  sufficient  number  of  States  have  built  up  such  a  system  to  a  point 
of  successful  conclusion,  and  then  to  advocate  Federal  legislation  looking 
toward  federating  the  State  centrals,  somewhat  after  the  plan  proposed  by 
Senator  Duncan  U.  Fletcher,  the  chairman  of  the  American  and  the  United 
States  commissions  under  the  certain  terms  and  conditions  to  be  then  deter- 
mined. This  migbt  be  highly  necessary  at  that  time,  in  order  to  find  a  cheaper 
and  world-wide  market. 

Now,  when  Mr.  von  Engelken.  for  whom  I  have  a  very  high  re- 
gard, came  before  the  committee,  he  arguel  for  precisely  that  system ; 
but  when  Mr.  Jones  came  before  the  committee,  having  at  that  time 
changed  his  mind — and  I  shall  quote  from  his  record — he  advo- 
cated that  the  question  of  a  federation  should  not  be  compulsory 
but  should  be  voluntary.  I  want  to  call  your  attention  to  the  fact 
that  Mr.  Jones's  testimony  before  the  committee  does  not  bear  out 
in  any  degree  the  minority  report  as  originally  written.  I  will 
read  Mr.  Jones's  testimony  to  you  upon  that  point.  You  will  find  it 
on  page  52,  part  13.  of  hearings: 

Mr.  Platt.  Would  you  fix  the  number  of  central  banks  that  would  be  allowed 
to  federate? 

Mr.  Jones.  No,   sir. 

Mr.  Moss.  Then  your  idea  is  to  provide  for  voluntary  federation? 

Mr.  Jones.  So  far  as  I  am  personally  concerned,  yes. 

So  that  Mr.  von  Engelken  and  Mr.  Jones,  who  are  both  signers 
of  this  minority  report,  differed  radically  before  your  committee  in 
their  testimony.  We  ought  to  have  some  little  fun  out  of  these 
hearings,  and  I  shall  call  attention  to  Mr.  Jones's  testimonv  in  regard 
to  these  little  $10,000  banks. 

Probably  I  had  better  read  from  the  original  record.  On  page  19, 
part  13,  is  the  following: 

Now,  the  Fletcher-Moss  bill  has  built  up  a  vast  number  of  little  units.  Every 
community  which  can  raise  $10,000  can  have  its  own  little  mortgage  bank. 

After  talking  on  awhile  (p.  25),  he  says: 

Under  this  Fletcher-Moss  bill,  gentlemen,  I  do  not  believe  we  will  have  any 
small  banks,  or  if  so,  that  they  could  long  survive.  There  is  no  maximum  limita- 
tion, mind  you,  as  to  capital.  It  would  result,  fberefore,  in  the  establishment 
of  a  number  of  large  banks. 

On  page  35  is  the  following : 

Therefore,  I  am  confident  in  my  mind  that  the  law  would  be  a  dead  letter, 
so  far  as  rendering  any  relief  to  our  agricultural  interests,  if  these  little  banks 
should  be  permitted  to  organize  without  federating. 

In  the  same  paragraph,  on  the  same  page,  he  says: 

I  am  assuming  there  would  bo  no  small  banks  under  the  Fletcher-Moss  bill, 
and  I  feel  confident  in  that  assumption. 

And  then,  on  page  4f>,  he  says : 

I  have  no  doubt  whatever,  gentlemen  of  the  committee,  from  my  knowledge 
of  promoters,  but  what  there  would  be  a  great  many  small  banks  organized 
under  the  Fletcher-Moss  bill  for  the  express  purpose  of  floating  a  lot  of  bonds 
and  then  getting  out  from  under. 


892  RURAL   CREDITS. 

Now.  I  have  always  understood  thai  in  arguing  a  proposition  a 
lawyer  may  change  his  position  as  often  as  the  interests  of  his 
client  demands  it.  but  a  banker,  of  necessit}^  was  confined  to  the 
facts  in  the  case,  so  I  am  calling  your  attention  to  the  very  rapid 
change  of  opinion  in  regard  to  Mr.  Jones's  testimony  relative  to 
the  success  of  the  $10,000  banks. 

In  this  connection,  there  is  one  question  which  I  consider  im- 
portant, because  it  constitutes  a  very  serious  charge  against  the  bill, 
and  if  it  is  true,  the  bill  ought  to  go  into  the  wastebasket.  Mr.  Jones 
said : 

I  have  no  doubt  whatever,  gentlemen  of  the  committee,  from  my  knowledge 
of  promoters,  but  what  there  would  be  a  great  many  small  unit  banks  organized 
under  the  Fletcher-Moss  bill  for  the  express  purpose  of  floating  a  lot  of  bonds 
and  then  getting  out  from  under. 

He  used  the  word  "  wildcatting "  a  little  bit  later  in  connection 
with  the  same  criticism  on  the  bill. 

I  received  through  a  banking  concern  in  New  York  a  copy  of  the 
letter  repeating  this  charge.  I  have  it  here,  and  probably  I  had 
better  read  from  it  for  the  record  to  show  the  similarity  of  the 
charge  and  how  widely  spread  that  idea  is.  This  is  dated  March  5, 
1914.  It  is  a  copy  sent  me  from  New  York,  stating  it  was  received 
from  a  western  capitalist.    In  it  are  these  words: 

In  other  words,  the  possibility  of  loss  under  this  cooperating  farm-land  bank 
provision  are  such  as  to  compare  favorably  with  the  possible  loss  under  the 
get-rich-quick  schemes  which  have  been  put  out  in  the  past. 

Naturally  15  men  owning  land  in  a  certain  district  could  get  together,  or- 
ganize a  cooperating  bank,  appraise  one  another's  land  at  several  times  it  actual 
value,  execute  loans  to  the  bank  for  50  per  cent  of  their  appraisal,  issue  bonds 
against  those  mortgages,  sell  the  bonds,  and  leave  the  bondholder  to  hold  the 
sack.  Yet  the  bonds  would  be  offered  under  such  advertising  as  would  convince 
the  unsophisticated  that  they  were  practically  guaranteed  by  the  United  States 
Government.  It  seems  to  us  that  there  is  great  possibility  of  fraud  in  this 
provision  of  the  bill. 

The  bill  they  are  criticizing  limits  the  loan  to  any  one  individual 
to  20  per  cent  of  the  capital  stock.  I  am  going  to  take  this  illustra- 
tion of  15  men  in  organizing  a  bank  of  $10,000  capital.  Fifteen  men 
in  organizing  a  bank  could  borrow  out  of  it  $30,000  under  the  terms 
of  the  bill.  This  sum  is  the  maximum  sum  they  could  secure,  and 
in  order  to  do  this,  first,  there  must  be  $10,000  in  cash  paid  into  the 
bank,  and  then  there  must  be  $10,000  of  liability  assumed  under  the 
terms  of  the  bill,  making  a  combined  asset  of  $20,000.  A  bank 
loaning  $10,000  of  its  capital  would  receive  as  security  $10,000  worth 
of  mortgages,  which  is  supposed  under  the  system  of  appraisement 
to  represent  S20.000  in  value  of  real  estate.  The  bank  would  then 
have  to  sell  $10,000  in  bonds  before  thev  could  loan  the  second  $10,000. 
They  would  have  then  $20,000  in  cash  "loaned  and  would  hold  $20,000 
in  mortgages :  the  bank  would  also  be  liable  for  $10,000  in  bonds. 
Now.  if  they  loaned  out  the  other  $10,000,  making  $30,000.  they  would 
receive  $10,000  more  in  mortgages  and  would  sell  $10,000  more  of 
bonds.  Thev  would  then  have  $30,000  in  mortgages,  which  would 
represent  $60,000  worth  of  real  estate,  and  they  would  have  $20,000 
worth  of  bonds  outstanding.  Now.  the  question  is,  Is  the  $60,000 
of  real  estate  plus  the  $10,000  in  liability  of  the  shareholders  worth 
the  $20,000  of  bonds?  That  would  be  the  question.  To  maintain  the 
criticism  it  must  be  shown  that  the  liability  of  the  shareholders  plus 


RURAL    CREDITS.  893 

the  full  value  of  the  mortgaged  security  would  not  redeem  the  bonds 
outstanding.  There  would  have  to  be  at  least  two  issues  of  bonds, 
and  the  entire  issues  would  have  to  be  sold ;  these  bonds  would  have 
to  be  passed  upon  by  the  United  States  bank  examiner  and  by  the 
purchasers  of  the  securities.  Does  any  member  of  the  committee 
believe  that  wildcatting  would  be  possible  under  such  restrictions? 

Mr.  von  Engelken  presented  a  different  proposition.  He  said  that 
10  men  could  organize  a  bank,  mutually  over  appraise  their  own 
lands  and  successfully  defraud  the  bondholders.  Under  this  system 
each  man  would  have  to  pay  in  $1,000  in  cash  and  assume  $1,000 
in  liability  before  he  could  borrow  $2,000  out  of  the  bank.  In  order 
to  loan  $20,000  the  bank  would  have  to  issue  and  to  sell  $10,000  in 
bonds  and  would  hold  $20,000  in  first  mortgages,  representing 
$40,000  in  value  of  appraised  real  estate.  The  bank,  then,  to  re- 
deem $10,000  in  bonds  outstanding,  which  would  be  the  entire 
amount  of  bond  issue,  would  have  the  liability  of  shareholders 
amounting  to  $10,000.  and  $20,000  of  first  mortgages,  representing 
$40,000  of  real  estate.  The  case  presented  is  preposterous.  I  submit 
that  no  sane  man  would  pay  in  $1,000  cash,  assume  $1,000  in  liability, 
mortgage  $2,000  of  real  estate,  in  order  to  get  a  loan  of  $2,000  with 
a  view  of  swindling  a  bank.  The  character  of  the  shareholders,  their 
responsibility,  and  the  granting  of  a  charter  are  all  to  be  passed 
upon  by  the  Treasury  Department.  Charters  may  be  granted  or 
refused.  The  comptroller  is  given  the  right  to  force  a  liquidation 
at  any  time,  and  repayments  must  begin  within  six  months  from  the 
granting  of  the  first  loan. 

Now,  Mr.  Jones's  idea,  when  he  spoke  about  "  getting  out  from 
under,"  brings  up  this  fact,  that  no  officer  or  shareholder  can  take 
any  moneys,  excepting  the  administration  charge  of  the  bank,  with- 
out committing  embezzlement  and  larceny.  As  soon  as  any  money 
is  paid  into  the  bank  it  must  be  paid  directly  to  the  bondholder, 
either  on  the  principle  or  the  interest  of  his  bond.  Therefore,  there 
is  not  any  possibility  of  looting  the  bank  in  the  manner  suggested  by 
his  language. 

The  only  possiblity  would  be  to  cheat  in  the  appraisement.  I 
shall  come  to  that  again;  but  I  call  particular  attention  to  the  fact 
that  it  would  be  impossible  under  the  terms  of  the  bill  to  use  the 
money  of  the  bank  in  wildcatting  or  promoting  schemes  of  any  char- 
acter whatsoever. 

I  have  some  reason  to  complain  that  the  gentlemen  who  have 
presumed  to  discuss  this  bill  have  not  studied  it  long  enough  to 
become  acquainted  with  its  provisions:  and  I  am  sure  that  if  Mr. 
Bathrick  had  read  this  bill  as  carefully  as  he  has  read  some  other 
literature  many  of  the  criticisms  which  he  has  made  upon  the  bill 
would  not  have  been  made. 

Mr.  von  Engelken  said  that  he  took  this  bill  with  him  to  prayer; 
that  was  his  expression  to  show  how  earnestly  he  had  studied  it: 
and  yet,  after  having  studied  it  in  that  prayerful  manner,  he  said 
that  he  could  not  find  any  provision  under  which  a  bank  could  be 
liquidated;  and  yet  in  section  10  of  the  bill  ample  power  is  given 
to  the  commissioner  of  land  banks  to  liquidate  it.  And  Mr.  von 
Engelken  seemed  to  think  that  he  had  carefully  studied  its  pro- 
visions. 


894  RURAL   CREDITS. 

Now,  Mr.  Bathrick  studied  it  carefully,  he  said,  and  he  could  not 
find  any  way  in  which  a  bank  could  be  organized  and  go  into  opera- 
tion in  a  State  until  all  the  laws  of  that  State  was  changed.  What 
he  was  reading  about  .  as  that  the  bonds  could  not  be  used  as  invest- 
ment for  certain  trust  funds  until  certain  changes  in  some  State 
laws  were  made,  and  yet  the  bank  could  be  organized  and  operated 
in  an}r  State  in  the  Union  the  moment  this  bill  became  a  law.  under 
the  terms  of  it  as  it  is  now  written. 

Mr.  Bathrick.  Will  the  gentleman  yield  for  a  moment? 

Mr.  Moss.  Yes;  certainly. 

Mr.  Bathrick.  You  do  not  expect  to  sell  your  bonds  under  the  bill 
until  these  provisions  for  legalizing  them  are  put  in  force,  do  you? 

Mr.  Moss.  If  anybody  wants  to  buy  them,  yes. 

Mr.  Bathrick.  You  do  not  expect  that  they  will  sell  well  until  you 
do  that,  do  you  ? 

Mr.  Moss.  It  may  be  said  as  to  that  provision  that  there  will  be 
greater  opportunity  for  the  disposal  of  the  bonds  if  the  State  laws 
were  made  more  favorable  and  more  nearly  uniform,  but  that  does 
not  prevent  the  bill  itself  from  going  into  operation  and  may  not 
materially  affect  the  market  value,  as  it  does  not  in  any  manner  affect 
the  security  on  which  the  bond  is  issued. 

Now,  Mr.  Jones  is  a  banker,  and  there  is  absolutely  no  difference 
between  his  testimony  and  the  Moss-Fletcher  bill,  excepting  that  he 
is  in  favor  of  a  central  bank,  which  can  have  as  many  branches  as  it 
chooses.  Under  the  Moss-Fletcher  bill,  as  written,  the  bank  could 
have  as  many  agencies  as  it  chooses. 

In  the  Jones  bill  the  small  banks  would  be  units,  voluntarily 
federated ;  in  the  Moss- Fletcher  bill  the  small  banks  would  be 
called  agencies.  In  both  bills  the  minimum  capital  would  be  the 
same,  viz,  $10,000  capital,  and  their  bond  liability  would  be  the  same, 
viz,  15  to  1. 

Now,  there  is  one  other  point  that  I  might  mention.  Mr.  Jones 
undoubtedly  knows  that  there  are  no  small  banks  in  this  country 
under  national  law.  And  there  is  no  provision  by  which  Congress 
can  compel  these  land-mortgage  banks  or  any  other  Federal  banks 
to  federate  with  an  existing  bank  under  State  law.  They  can  vol- 
untarily federate;  but  they  can  do  so  just  as  freely  under  one  bill  as 
under  the  other.  Yet  in  this  report  here  [indicating]  the  minority 
says  that  one  of  the  advantages  of  its  system  is  that  they  will  have 
the  moral  support  of  existing  State  banks. 

Now,  Mr.  Jones  knows  as  a  legal  proposition,  and  this  committee 
knows  as  a  legal  proposition,  that  you  can  not  organize  a  joint-stock 
bank  under  United  States  law  and  compel  any  State  banks  to 
enter  into  any  relation  with  it.  except  such  as  may  voluntarily  be 
assumed.  It  would  be  just  the  same  under  one  system  as  under  the 
other.  I  admire  his  ingenious  reasoning  on  that  proposition,  but 
whatever  may  be  the  value  of  this  relation  between  State  and  Fed- 
eral banks,  it  is  just  as  great  under  one  bill  as  under  the  other,  and 
Mr.  Jones  himself  admitted  it.  as  you  will  find  on  page  28  of  his 
testimony. 

Mr.  Piatt  asked  him  the  question : 

Mr.  Platt.  That  idea  is  not  entirely  foreign  to  the  report  of  the  authority 
of  the  Unitpd  States  commission,  is  it  V    I  understand  that  they  have  the  idea 


EUKAL   CEEDITS.  895 

that   banks    would    organize;    savings   banks,    perhaps    small    country    banks, 
would  organize  these  farm-land  banks  in  connection  with  their  own  business. 

Mr.  Jones.  I  have  not  heard  them  express  themselves  on  that.  I  think  it 
would  be  the  natural  result. 

Naturally  they  would  have  the  same  power  under  one  bill  as  under 
the  other.  Mr.  von  Engelken  attempted  to  argue  that  under  a  feder- 
ation it  would  be  possible  in  some  mysterious  way  for  a  small  feder- 
ated bank  to  incur  losses  that  would  not  fall  on  its  own  stockholders. 
Then,  in  answer  to  a  question  from  Senator  Hollis,  he  admitted  the 
fact  that  the  small  federated  bank  would  have  to  come  back  on  its 
own  stockholders  to  retrieve  any  losses;  and  I  can  not  conceive  of 
any  federation  where  independent  units  are  gained,  but  what  the 
capital  of  each  bank  must  stand  good  for  the  losses  which  that  bank 
incurs;  and  whether  you  have  a  federation  of  banks  or  an  inde- 
pendent bank,  if  there  are  losses  incurred,  and  any  bank  impairs  its 
capital  by  so  doing,  then  the  guaranty  of  the  individual  stockholders 
must  be  resorted  to  to  repay  that  loss,  and  no  degree  of  federation 
would  make  it  possible  for  them  to  get  out  from  under  that. 

I  can  not  conceive  that  any  greater  damage  to  the  system  will  ob- 
tain if  an  independent  bank  is  liquidated  and  its  stockholders  suffer 
the  loss  incurred  in  the  business  than  would  happen  if  a  small  bank 
in  a  federated  system  were  to  be  liquidated  at  the  expense  of  its  share- 
holders; and  under  his  voluntary  system  of  federation,  that  would 
be  the  result  if  losses  were  sustained. 

Now,  referring  to  Mr.  Hill's  argument,  Mr.  Hill  stated  correctly. 
I  think,  before  the  committee,  that  credit  is  a  matter  of  organiza- 
tion— his  statement  being  as  follows: 

Mr.  Stone.  Then  it  is  simply  a  matter  of  organization? 
Mr.  Hill.  Yes;  a  matter  of  organization. 

Then,  in  answer  to  a  further  question  by  Mr.  Stone  in  regard  to 
$10,000  banks,  he  said : 

It  is  quite  possible  that  some  large  banks  would  be  organized.  That  is  only 
an  opinion.  In  my  judgment  they  should  not  be  encouraged  to  organize.  We 
have  enough  banks  in  this  country  exploiting  farmers;  we  have  enough  money 
lenders  in  this  country  now. 

According  to  that  statement,  then,  we  have  the  position  of  Mr.  Hill 
that  credit  is  a  matter  of  organization,  but  there  ought  to  be  no  new 
banks  organized  in  the  country  to  perfect  further  organization.  I 
submit  that  that  would  be  the  logical  result  of  the  position  he  has 
taken. 

However,  he  stated  that  he  had  no  objection  to  the  present  joint- 
stock  banks  organized  for  profit  becoming  mortgage  banks.  On  page 
42  of  his  testimony  he  says: 

There  can  be  no  objection  to  the  legal  provision  whereby  the  joint  stock  com- 
panies of  ordinary  type,  organized  for  profit,  may  be  permitted  to  go  into  the 
land-mortgage  business. 

Now,  I  submit  to  the  committee,  as  Mr.  Hill  has  criticised  this  plan 
probably  more  severely  than  any  other  person  who  came  before  the 
committee,  that  I  can  not  quite  conceive  the  position  of  the  man  who 
says  that  credit  is  a  matter  of  organization,  who  believes  that  these 
new  functions  can  be  safely  given  to  the  ordinary  joint-stock  bank 
organized  for  profit,  and  yet  that  they  ought  not  to  be  given  to  a 
joint-stock  bank  organized  expressly  for  land-mortgage  business. 


896  RURAL   CREDITS. 

Mr.  IlilTs  criticisms  regarding  restriction  of  State  laws  and  the 
duties  of  the  fiduciary  agent  fall  into  the  same  error  thai  Mr.  Bath- 
rick  did,  and  show  at  once  conclusively  that  he  had  not  studied  the 
bill  sufficiently  to  understand  the  terms  of  it. 

His  main  criticism  of  the  bill  was  that  it  would  not  have  any 
effect  for  many  years,  and  therefore  ought  not  to  be  passed,  because 
we  wanted  immediate  relief.     He  said : 

All  of  these  restriction  are,  in  my  judgment,  reasonable  and  good;  but 
they  are  submitted  and  dwelt  upon  by  me  to  show  that  there  can  he  no  im- 
mediate relief  for  a  great  number  of  years  under  this  hill;  hence  the  real 
facts,  in  my  judgment,  will  show  that  any  present  or  immediate  relief  is  not 
based  on  the  facts. 

Then  he  submitted  his  own  provisions,  and  I  want  to  call  par- 
ticular attention  to  them.  You  will  find  them  on  pages  47  and  48 
of  the  report.     I  quote  : 

The  first  is.  in  brief,  the  simple  plan  of  a  proposed  bill  for  the  Congress  of 
the  United  States  to  appropriate  out  of  the  Treasury,  to  be  deposited,  an  amount 
not  to  exceed  .$20,000,000  upon  some  general  conditions.  The  conditions  have 
been  largely  outlined  in  detail,  but  may  be  briefly  summed  up  as  follows: 

First,  that  the  deposit  or  loan  from  the  United  States  hear  3  per  cent  interest; 
second,  that  the  amount  be  granted  on  condition  that  each  State  contribute  a 
like  amount  for  a  like  purpose,  except  that  the  State  fund  shall  draw  4  per 
cent. 

Then  here  is  a  proposition  submitted  by  Mr.  Hill  that  could  not 
go  into  effect  in  a  single  State  in  the  Union  until  affirmative  legisla- 
tion, including  an  appropriation  of  a  large  sum  of  money,  in  con- 
junction with  the  United  States.  The  two  conditions  precedent 
would  be  an  appropriation  out  of  the  United  States  Treasury  and 
an '  appropriation  out  of  the  State  treasury,  in  order  to  put  into 
effect  Mr.  Hill's  system.  And  then  he  goes  on  a  little  further  and 
says : 

Upon  further  condition  that  the  founders'  shares  of  said  institution  shall  be 
nontaxable  for  all  purposes,  both  State  and  National;  and  that  the  collateral 
trust  bonds  shall  be  made  nontaxable  by  State  and  National  Governments. 

Thus  he  takes  in  one  of  the  very  provisions  that  he  criticized  in 
our  bill.  In  his  criticism  of  this  provision  in  the  Moss-Fletcher 
bill,  he  said  it  would  require  10  years  of  education  to  secure  such 
changes  in  the  constitutions  of  our  States.  Now,  I  am  not  mention- 
ing this  to  criticize  Mr.  Hill's  idea  at  all;  I  am  simply  showing  that 
the  criticism  which  he  brought  against  our  bill  is  very  much  more 
vital  if  urged  against  the  plan  which  he  presented  to  the  committee. 
That  is  the  point  I  want  to  make. 

T  will  again  say  that,  while  anyone  has  a  right  to  criticize  the  bill 
which  the  committee  submitted,  it  is  not  very  consistent  to  criticize 
a  certain  plan  or  system  and  then  bring  forth  another  proposition 
which  has  the  same  features  in  it  to  an  even  greater  degree. 

Mr.  Hill  further  says  that  we  have  taken  as  a  model  one  of  the 
giant  banks  of  Europe.    Here  is  his  language: 

Yet  the  gentlemen  take  this  bank  as  a  model  and  hand  to  the  American 
farmers  a  bill  proposing  relief  on  a  joint-stock  profit-making  plan. 

He  also  says : 

Why,  therefore,  should  the  members  of  any  commission  pick  as  its  model 
this  giant  stuck  bank,  with  its  millions  of  capital,  with  its  special  privileges, 
with  its  special  officers  all  over  Germany. 


RURAL  CREDITS.  897 

Now,  I  might  have  felt  somewhat  offended  about  that,  if  he  had 
not  previously  said  in  reply  to  Mr.  Bulkley : 

Mr.  Bulkley.  Is  not  that  very  thing  done  in  Europe  by  banks  without  any 
capital  stock  at  all? 

Mr.  Hill.  No,  sir.  I  shall  show  you  by  the  evidence  I  will  come  to  that  the 
bond-issuing  institutions  in  Europe  are  tremendous  institutions.  There  is  no 
authority  whatever  for  this  trifling  $10,000  bank.  It  is  one  of  the  worst  pro- 
visions I  have  ever  seen.  I  can  not  conceive  how  any  man  could  think  of  a 
$10,000  bank  who  has  studied  conditions  in  Europe. 

Yet,  having  said  in  one  moment  that  our  plan  is  not  conceivably 
like  anything  he  has  found  in  Europe,  he  was  willing  to  say  a 
moment  later  that  we  had  taken  our  model  from  one  of  the  great 
banks  in  Europe. 

Again,  I  am  only  calling  attention  to  this  language  to  demonstrate 
that  his  criticisms  are  not  consistent. 

Mr.  Hill  also  spoke  about  the  question  of  deposits,  and  made  quite 
an  elaborate  argument  in  favor  of  unlimited  time  deposits.  I  do 
not  wish  to  argue  the  question  of  deposits  at  all.  I  stated  that  the 
commission  decided  the  question  of  deposits  by  an  arbitrary  limit; 
they  must  be  either  limited  or  unlimited.  I  have  found  but  a  single 
mortgage  institution  in  the  world  that  has  a  right  to  take  unlimited 
deposits,  and  that  is  the  old  type  of  Landschaften  institution,  where 
the  entire  private  fortune  of  every  member  of  the  Landschaften  is 
absolutely  bound  for  any  or  all  of  its  obligations.  I  might  say  that 
the  very  institution  that  Mr.  Hill  presented  to  the  committee  as  his 
model — that  of  the  Hungarian  mortgage  institution — can  only  ac- 
cept deposits  to  five  times  the  amount  of  its  surplus,  therefore  show- 
ing that  it  has  limited  deposits. 

There  are  only  two  or  three  objections  to  the  receiving  of  deposits 
from  my  standpoint,  and  I  will  present  them,  now  as  I  am  on  that 
subject. 

The  first  is  that  savings  banks  throughout  Europe,  and  I  think 
throughout  America,  only  make  recallable  loans.  This  bill  proposes 
unrecallable  loans. 

Now,  if  you  are  going  to  permit  them  to  take  an  unlimited  line 
of  savings  deposits,  the  committee  will  have  to  provide,  just  as  Mr. 
Van  Cordlandt  stated,  an  investment  for  them.  That  is  the  first 
proposition,  and  it  is  quite  clear  that  they  could  not  make  it  in  long- 
time unrecallable  loans. 

The  second  proposition  is  that  deposits  in  a  land-mortgage  bank 
necessarily  can  only  have  a  secondary  security.  The  capital  of  the 
bank  is  for  the  security  of  the  bond ;  that  is  its  first  purpose.  And 
everywhere  in  Europe  the  provision  is  met  with  that  the  bondholder 
has  the  first  claim  upon  the  assets  of  the  bank,  and  its  depositor  only 
has  a  secondary  claim. 

I  do  not  believe  that  in  this  country  there  could  be  any  long  line 
of  deposits  secured  without  special  security.  The  capital  of  the 
bank  is  necessarily  small,  and  it  is  made  that  way  because  it  deals 
only  in  the  safest  kind  of  investment  loans. 

The  third  objection  to  a  long  line  of  deposits  is  that  savings  de- 
posits of  any  country  ought  to  be  available  alike  for  loans  on  both 
urban  and  rural  real  estate.  This  bill  is  strictly  a  bill  under  the 
plan  of  the  commission  to  provide  loans  upon  rural  real  estate;  and 
we  prohibit  them  from  loaning  upon  urban  real  estate,  because  every 

37031—14 57 


898  RURAL   CREDITS. 

institution  that  has  the  right  to  loan  upon  both  places  the  great  part 
of  its  loans  upon  urban  real  estate;  and  if  you  gave  it  the  right  to 
unlimited  savings  deposits  that  came  from  all  classes  of  people,  to 
be  invested  under  the  terms  of  this  bill,  you  would  limit  savings 
deposits  to  investment  upon  rural  real  estate  alone,  which  I  believe 
is  not  according  to  good  public  policy. 

Now,  I  want  to  come  to  the  question  of  organized  opposition  from 
the  farmer.  Mr.  Hill  stated,  and  it  has  also  been  stated  by  Mr. 
Bathrick,  that  the  Moss-Fletcher  bill  has  the  opposition  of  organized 
farmers  over  the  country.  If  I  believed  that  to  be  true  I  would  be 
among  the  very  first  to  want  to  get  out  from  under  its  provision. 

In  order  that  I  may  be  set  right  in  the  record  I  want  to  call  atten- 
tion to  the  meaning  in  which  I  used  the  expression  that  "  farmers 
are  not  organized."  I  said  it  would  be  difficult  to  get  farmers' 
opinions,  because  they  are  not  organized,  meaning  by  that  that  there 
is  no  way  in  which  you  could  get  a  referendum  vote  by  farmers  upon 
any  proposition.  President  Gompers  can  order  a  representative 
vote  in  the  American  Federation  of  Labor  that  will  reach  down  to 
every  member,  and  95  per  cent  of  the  men  in  the  trades  are  organ- 
ized; thus  a  referendum  vote  can  be  secured  from  them.  You  can 
not  do  that  from  the  millions  of  farmers  in  this  country.  Now,  as 
to  the  testimony  about  the  opposition  of  organized  farmers. 

Mr.  Atkeson  came  before  the  committee,  and  I  hold  a  copy  of  his 
testimony  in  my  hand.  In  speaking  about  the  resolutions  of  the 
grange,  he  was  asked  when  it  was  that  the  National  Grange  held  its 
meetings. 

When  were  those  resolutions  published? 

About  the  middle  of  November ;  I  do  not  remember  the  date.  It  was  during 
the  session  of  the  grange  at  Manchester,  N.  H. ;  about  the  middle  of  the  month. 

He  was  asked  then : 

Who  was  the  committee  that  wrote  those  resolutions? 

Now,  Mr.  Atkeson  is  the  only  person  that  I  have  heard  before  this 
committee  who,  in  speaking  about  the  commission's  bill,  used  lan- 
guage that  he  asked  not  to  be  placed  in  the  record,  in  character- 
izing his  feelings  toward  the  bill. 

And  yet  when  he  was  asked  to  name  who  was  the  committee  on 
resolutions  at  the  National  Grange,  he  absolutely  could  not  call  the 
names  of  those  who  were  on  the  committee  on  resolutions  as  his  asso- 
ciates.    I  have  his  language  here,  and  I  will  read: 

I  will  say  this,  that  the  committee  who  have  that  matter  under  consideration 
was  a  committee  known  as  the  legislative  committee.  At  that  particular  ses- 
sion I  happened  to  be  chairman  of  that  committee.  Mr.  Stetson,  Mr.  Sherwood, 
master  of  the  Rhode  Island  State  Grange,  and  myself,  as  master  of  the  West 
Virginia  State  Grange,  were  three  members.  Tbere  were  also  three  ladies; 
I  do  not  remember  who  the  ladies  were.  One  of  them  was  the  wife  of  the 
master  of  the  New  Jersey  State  Grange. 

Here  is  a  question  to  which  this  committee  will  have  to  give  the 
most  careful  consideration,  the  question  of  loans — a  vital  question  of 
great  national  policy.  Resolutions  were  said  to  be  considered  care- 
fully, both  pro  and  con,  and  adopted  unanimously;  and  yet  when  the 
mover  of  those  resolutions  came  here  before  this  committee  he  could 
not  remember  the  persons  who  sat  around  the  table  with  him  and 
took  part  in  that  deliberation. 


RUEAL   CREDITS.  899 

Mr.  Bathrick.  Would  the  gentleman  like  to  know  the  names  ? 

Mr.  Moss.  I  do  not  care  about  the  names.  The  importance  lies  in 
the  degree  of  consideration  accorded  this  question  by  the  National 
Grange.  I  was  just  calling  the  attention  of  the  committee  to  Mr. 
Atkeson's  reply,  showing  that  he  could  not  name  the  members  of  his 
committee  on  resolutions.  Now,  then,  on  page  59,  you  will  find  that 
Mr.  Atkeson  admits  a  division  among  the  members  on  the  proposi- 
tion. In  a  colloquy  between  Mr.  Butler  and  Mr.  Atkeson,  Mr.  Butler 
asked  Mr.  Atkeson  this  question: 

Would  you  advocate  going  any  further  than  that?  Would  you  advocate  the 
Government  depositing  funds  with  agricultural  banks? 

That  is  a  suggested  compromise  among  some  of  us  who  do  not  agree  that  the 
Government  should  deposit  money  in  these  banks,  holding  the  banks  responsi- 
ble, and  that  the  Government  fix  the  rate  of  interest — 

thus  admitting  that  he  knew  their  membership  is  not  united  on 
this  question. 

I  have  some  letters  that  I  shall  read  here  on  the  proposition  of  the 
grange.  I  happen  to  have  in  my  district  the  oldest  active  grange 
that  is  now  in  the  United  States;  I  do  not  mean  by  that  that  it 
wras  the  first  one  that  was  organized,  but  I  do  mean  to  say  that  it  is 
the  oldest  one  organized  that  has  never  lost  its  charter.  I  received 
a  letter  from  this  grange  unanimously  indorsing  the  Bathrick  bill. 
I  will  put  it  in  the  record. 

Mr.  Hayes.  The  Bathrick  bill  ? 

Mr.  Moss.  Yes.  It  is  dated  March  2,  1914,  and  is  as  follows 
(reading)  : 

R.  R.  3. 
Terrc  Haute,  Ind.,  March  2,  1914. 
Hon.  Ralph  H.  Moss, 

Washington,  D.  C. 
Dear  Sir  :  At  a  regular  meeting  of  Honey  Creek  Grange,  February  27,  1914, 
the  following  resolution  was  unanimously  adopted : 

Whereas  the  legislative  committee  of  the  National  Grange  has  recommended 
the  passage  of  the  Bathrick  bill  (11897)  as  being  the  one  which  most  nearly 
conforms  to  the  grange  idea  of  rural  credits:  Be  it 

Resolved,  That  this  grange  asks  its  Senators  and  Representatives  to  vote  for 
the  Bathrick  bill. 

A.  A.  Reynolds, 
Master  Honey  Creek  Grange  No.  1. 
Laura  E.  Rigney, 
Secretary  Honey  Creek  Grange  No.  1. 

As  I  was  very  well  acquainted  with  the  members  of  the  grange  and 
having  had  the  honor  of  appearing  before  them  and  discussing  public 
questions  with  them  several  times,  I  wrote  to  one  of  the  members 
of  the  grange  asking  him  upon  what  information  they  had  acted, 
and  I  will  read  you,  in  part,  his  reply  (reading)  : 

My  Dear  Friend  Moss  :  Your  letter  to  hand. 

Our  master,  A.  A.  Reynolds,  of  Terre  Haute  R.  R.  1,  had  received  a  circular 
from  the  legislative  committee  of  the  National  Grange  boosting  the  Bathrick 
bill,  saying  that  it  more  nearly  conformed  to  the  idea  of  the  grange  along  the 
lines  of  rural  credits,  and  we  having  seen  no  copy  of  any  bill  and  thinking 
the  committee  understood  the  matter,  passed  the  resolution. 

Now,  that  is  the  information  they  had  before  them  at  the  time 
that  resolution  was  passed.  They  had  seen  no  bill  and  acted  solely 
at  the  request  of  the  circular. 

I  have  another  letter  which  I  will  read  into  the  record,  except  that, 
as  this  came  to  me  in  my  private  correspondence,  I  shall  not  give 


900  RUEAL  CREDITS. 

the  name  of  the  writer;  but  any  member  of  the  committee  can  read 
the  letter  in  full  if  he  cares  to  do  so.  It  is  in  part  as  follows  (read- 
ing) : 

Westerville,  Ohio,  March  10,  V.)l!t. 
Representative  Moss, 

Washington,  D.  C. 

Deak  Sir:  Will  you  please  send  to  my  legislative  committee  copies  of  the 
Moss  and  the  Fletcher  hills  relating  to  farm  credits  and  all  literature  discuss- 
ing these  measures  that  you  are  sending  out? 

We  arc  in  receipt  of  a  circular  from  the  National  Grange  urging  support  of 
the  Bathrick  measure,  and  we  have  sent  for  copies  of  same.  I  am  inclined 
to  think  that  our  subordinate  lodge  will  oppose  any  scheme  that  will  deprive 
private  enterprise  of  the  largest  possible  participation  in  any  legitimate  busi- 
ness. We  have  taken  this  stand  on  matters  of  public  ownership  and  business: 
"  That  we  oppose  Government  ownership  or  business  that  will  interfere  in  any 
way  with  the  private  conduct  of  such  business  as  can  be  carried  on  at  a  rea- 
sonable r-.ist  lo  the  public  and  at  a  reasonable  profit  to  the  citizen." 

Thanking  you  in  advance  for  any  information  and  courtesy  you  may  extend 
to  us, 

I    am,    very    truly,    yours. 

I  have  other  letters,  that  I  do  not  care  to  encumber  the  record  with, 
showing  that,  as  a  matter  of  fact,  the  members  of  the  grange  are 
studying  this  question  and  are  not  unanimous  upon  the  proposition 
by  any  manner  or  means.  They  may  become  so  after  they  have 
studied  it  further,  but  I  mean  to  say  that  the  resolutions  of  the  gen- 
eral officers  do  not  bind  the  membership,  and  it  is  a  fiction  to  say 
that  organized  farmers  are  opposed  to  or  are  in  favor  of  any  particu- 
lar bill  on  this  subject. 

I  happen  to  have  in  my  congressional  district  the  largest  number 
of  miners  belonging  to  the  United  Mine  Workers  of  America  of  any 
one  district  in  Indiana,  and  I  presume  I  have  as  many  members  of 
the  American  Federation  of  Labor  as  any  Member  of  Congress  has 
in  his  district;  and  I  would  not  think  about  supporting,  or  even 
introducing,  a  bill  if  I  believed  that  the  rank  and  file  of  those  men 
were  opposed  to  the  proposition.  And  I  will  venture  to  say  that  99 
per  cent  of  the  members  of  the  United  Mine  Workers  of  America  or 
of  the  American  Federation  of  Labor  in  my  own  district  have  never 
rend  either  one  of  these  bills. 

That  is  enough  on  that  proposition. 

T  would  like  now  to  take  up  some  suggestions  that  I  want  to  make, 
which  may  improve  my  own  bill. 

Before  I  do  that,  however.  I  want  to  ask  permission  to  put  in  the 
record  some  editorials  that  have  appeared  in  various  publications 
since  the  time  I  first  called  attention  to  the  editorials  of  farm  jour- 
nals. The  one  editorial  that  I  have  seen,  clearly  condemning  this 
proposition,  is  from  the  Farm  Magazine,  published  in  Omaha,  Nebr. 
On  the  first  page  you  will  see  the  letters  "  Cdq,  Come  Quick ! 
Danger."    Then  below,  on  the  first  page,  it  also  says: 

Under  the  guise  of  beneficent  legislation  for  your  relief,  the  powerful  banking 
combination  of  Wall  Street  is  making  a  desperate  effort  to  fasten  financial 
slavery  on  you  and  your  children. 

I  received  a  letter  from  my  own  district,  in  which  the  writer  told 
me  that  I  had  better  feather  my  nest  well  during  this  term  in  Con- 
gress, as  I  would  never  come  back  acrain,  after  having  voted  for  this 
bill.  I  wrote  to  the  writer  of  that  letter — and  I  can  supply  the  com- 
mittee with  the  correspondence,  if  the  committee  wants  it.    I  wrote 


RURAL  CREDITS.  901 

him  a  courteous  letter  and  said  that  I  was  a  farmer  myself  and  that 
I  have  made  a  study  of  this  subject,  and  that  I  would  particularly 
like  to  know  his  objection  to  the  bill,  and  also  asked  him  to  kindly 
send  me  a  copy  of  the  newspaper  in  which  he  had  seen  the  bill 
published.  I  knew  he  had  not  seen  the  bill,  but  had  received  his  in- 
spiration from  some  publication.  And  in  reply  he  tore  the  outside 
sheet  of  this  magazine  off  and  sent  it  to  me. 

Now,  I  shall  call  your  attention  to  an  article  which  Mr.  Murchy 
wrote,  and  I  want  to  say,  as  Mr.  McMurchy  is  present,  that,  in  the 
main,  this  is  a  fair  interpretation  of  the  bill.  I  want  to  read  this 
particularly,  because  I  understand  that  some  of  the  Members  of 
Congress  from  Nebraska,  and  also  the  Senators  from  Nebraska,  have 
spoken  about  getting  letters  in  opposition  to  this  bill,  and  I  am  quite 
confident  that  that  opposition  eminated  frcm  this  source. 

Mr.  Bathrick.  Will  the  gentleman  yield  for  a  question? 

Mr.  Moss.  Surely. 

Mr.  Bathrick.  I  have  a  letter  here  from  the  master  of  the  State 
Grange  in  Nebraska,  stating  that  the  State  Grange  has  passed  a 
resolution  opposing  that  bill. 

Mr.  Moss.  Here  is  the  extract  that  I  have  called  special  atten- 
tion to. 

Take,  for  example,  the  State  of  Nebraska,  with  a  form-mortage  indebtedness 
of  $82,373,472.  This  debt,  by  virtue  of  the  tax-exemption  privilege,  will  almost 
immediately  be  transferred  by  existing  creditors  to  one  of  the  new  land  banks. 
The  4  per  cent  bond  may  not  pay  the  creditor  quite  as  high  a  rate  of  interest 
as  now,  but  when  he  takes  into  account  his  tax  exemption  and  long-time  se- 
curity it  will  be  easy  enough  to  reorganize  the  farm  debt  on  the  new  basis. 
On  the  15-to-l  basis,  proposed  by  the  commission',  this  will  require  a  capital 
and  surplus  of  less  than  $4,200. 

Of  course,  the  latter  statement  is  a  misprint. 

With  that,  the  Nebraska  land  banks  can  collect  an  expense  charge  of  1  per 
cent  on  the  whole  $02,000,000,  or  $623,472,  about  15  per  cent  of  their  capitaliza- 
tion annually. 

The  figures  are  correct,  excepting  that  they  have  taken  the  gross 
income  as  being  net  profit.  There  is  that  one  difference  in  it;  but 
few  men  would  care  to  sign  an  article  stating  that  the  gross  income 
of  any  business  was  the  net  profits  of  that  business. 

But  here  are  the  facts  that  I  want  to  put  into  the  record: 

Present  mortgage  debt,  $62,373,472. 

Present  average  interest  rate,  6|  per  cent;  that  is,  taken  from  Prof. 
Thompson's  figures  in  Hearings  No.  1,  before  your  committee. 

The  present  annual  interest  charge  on  Nebraska  farm  mortgages 
under  present  conditions  is  $4,064,275. 

Taking  the  computation  that  Mr.  McMurchy  made,  with  an  inter- 
est charge  at  4  per  cent,  the  sum  would  be  $2,494,938. 

The  administration  charge  of  1  per  cent  would  be  $623,734. 

The  total  charge  under  the  bill,  as  interpreted  by  Mr.  McMurchy, 
would  be  $2,494,938+$623,734=$3,llS,672.  This  would  show  an 
annual  saving  in  interest  to  the  farmers  of  Nebraska  of  $945,603. 

And  yet  that  is  the  proposition  as  to  which  this  call  goes  out  from 
that  magazine  to  save  the  farmers  from  the  slavery  of  Wall  Street — 
a  system  which  would  reduce  their  interest  charge  nearly  $1,000,000 
per  year. 

Mr.  Hill  presented  the  idea  of  Government  aid  in  founder's  shares. 
That  provision  does  not  produce  any  additional  safety  to  the  bond 


902  RURAL   CREDITS. 

unless  it  is  that  the  ratio  between  capital  and  bond  issue  is  reduced 
below  15  to  1. 

As  to  the  Hungarian  Institute,  where  the  Government  does  furnish 
part  of  the  capital,  the  officers  of  the  institutes  admit  that  the  rate  is 
not  lower  than  that  of  joint-stock  banks,  which  are  in  open  competi- 
tion with  them. 

I  had  the  pleasure  of  having  interviews  with  the  presidents  of 
both  of  those  institutes,  and  I  will  read  you  an  extract  from  the 
interviews  with  the  small-mortgage  institute. 

Q.  I  understand  there  are  some  joint-stock  companies  in  Hungary  that  will 
make  the  same  loan.  What  are  the  relative  rates  of  your  institution  and 
theirs?  Is  the  rate  of  joint-stock  companies  or  hanks  higher  or  lower? — A. 
They  may  be  a  little  lower  or  a  little  higher,  but  there  is  not,  as  a  rule,  much 
difference. 

Senator  Norris.  Will  you  let  me  ask  you  a  question  there  ? 

Mr.  Moss.  Yes,  Senator. 

Senator  Norris.  Did  you  make  any  inquiry  as  to  whether  these 
rates  of  the  joint-stock  companies  were  as  low  as  the  rates  were 
prior  to  the  time  that  the  Government  went  into  the  business? 

Mr.  Moss.  I  will  be  glad  to  take  up  that  question  in  a  moment 
with  you.  Taking  the  other  institute — that  is,  I  mean  the  older 
Government  institution,  I  wTill  read  you  an  extract  from  the  inter- 
view: 

Q.  Does  the  Hungarian  Land  Credit  Institution  receive  favors  from  the 
State?— A.  Yes. 

Q.  Do  these  favors  enable  you  to  make  a  lower  rate  to  the  borrower  than 
you  could  if  they  were  withdrawn? — A.  No.  This  State  favor  chiefly  consists 
in  the  fact  that  if  the  borrower  does  not  pay  his  yearly  annuity  our  institution 
has  the  right  to  sell  the  property  by  auction  by  a  summary  protest. 

Now,  Senator  Norris,  the  condition  in  Hungary  at  the  time  that 
this  institution  wTas  organized  by  the  State  was  very  peculiar.  They 
had  the  revolution  of  1848,  which  gave  them  their  independence,  and 
this  war  had  very  much  impoverished  them.  At  the  same  time,  the 
serfs  were  set  free;  that  further  impoverished  the  landowners. 
Then,  at  that  time,  and  under  those  conditions,  competition  in  agri- 
cultural products  had  begun  to  come  in  from  our  own  country,  and 
agricultural  prices  fell  over  there. 

Money  wras  said  to  loan  from  18  to  20  per  cent  interest,  and  this 
institution  was  then  organized.  And  from  that  time  on  the  rates 
have  fallen;  and  I  can  give  you  the  successive  rates,  if  you  would 
like  to  have  them. 

Senator  Norris.  I  would  like  very  much  to  have  them,  Mr.  Moss. 

Mr.  Moss.  Yes;  I  will  read  them  to  you.  I  inquired  into  that 
quite  particularly. 

When  the  bank  began  work,  the  rate  was  5$  per  cent  [this  is  the  small  holder's 
bank]  and  the  period  33*  years. 

Later  the  rate  was  5  per  cent  and  the  period  15  years,  or  33*  years.  Still 
later  the  rate  was  1 j  per  cent,  the  period  17,  25,  40,  or  50  years,  and  afterwards 
4  per  cent,  with  periods  20,  30,  40,  50,  65  years.  The  administration  expenses 
at  the  beginning  were  1  per  cent,  but  soon  fell  to  one-half  per  cent,  and  later 
sucessively  to  0.35,  0.30,  0.25,  0.21,  0.19,  and  0.16.  The  amortization  varies 
according  to  the  rate  of  interest  and  the  period.  At  present,  price  of  money 
being  high,  the  rate  of  interest  is  5  per  cent. 

But,  now,  remember  that  there  are  1,846  joint-stock  banks  compet- 
ing, making  loans  at  the  same  time,  along  with  this  institution,  and 


RURAL   CREDITS.  903 

under  the  competition  of  State  and  national  the  rates  have  fallen. 
Competition  in  mortgage  banking  in  Hungary  is  of  the  severest 
character. 

It  has  also  been  mentioned  before  the  committee  that  founders' 
shares  are  an  ideal  method  of  raising  money.  There  are  some  defects 
in  this  organization,  and  I  would  like  to  call  attention  to  what  they 
stated. 

Mr.  Weaver.  What  organization  is  that  you  are  speaking  of? 

Mr.  Moss.  I  was  referring  to  the  National  Institute,  organized  by 
the  Hungarian  Government,  by  State  favor  and  founders'  shares. 
Here  is  what  the  report  of  the  American  commission  says  about 
them,  and  I  want  to  call  your  attention  to  the  fact  that  this  part  of 
the  report  is  made  by  the  Hungarian  Government  itself,  which,  of 
course,  is  friendly  to  those  institutions.  At  the  time  that  we  were 
in  Hungary  no  mortgage  institution  had  any  invitation  to  appear 
before  the  American  commission  except  these  two.  I  personally, 
representing  the  United  States  commission,  solicited  interviews  with 
the  joint-stock  companies,  or  else  we  should  not  have  got  in  touch 
with  those  institutions. 

From  the  point  of  view  of  conservative  management  (which  is  certainly  very 
desirable),  this  system  is  an  extremely  practical  one;  but  there  is  no  denying 
the  fact  that  it  has  defects,  too.  The  enthusiasm  excited  by  the  foundation  of 
such  institutes  in  course  of  time  dies  away,  and  then  the  further  increase  of  the 
foundation  capital  becomes  a  matter  of  great  difficulty.  In  this  respect  the 
Hungarian  Land  Mortgage  Institute  (that  is,  the  older  one)  is  remarkably  for- 
tunate; for  five  decades  it  has  been  in  a  position  to  amass  considerable  reserves, 
and  its  sphere  of  activity  has  not  widened,  as  a  result  of  economic  progress,  to 
the  same  extent  as  that  of  the  National  Small  Holdings  Land  Mortgage  Insti- 
tute. The  latter,  however,  undoubtedly  experiences  grave  difficulty  in  acquiring 
new  foundation  capital  to  meet  the  requirements  of  such  development.  Nor 
is  there  any  denying  the  fact  that,  even  if  the  two  land-mortgage  institutes  do 
possess  the  character  of  cooperative  societies,  that  character  has  in  essence 
become  a  mere  form.  The  owners  of  founders'  shares  for  the  most  part  regard 
their  foundations  as  merely  so  many  patriotic  gifts  which  are  in  good  hands 
and,  from  tbeir  point  of  view,  are  not  worth  thinking  any  more  about.  And 
it  is  scarcely  to  be  expected  that  even  those  landowners  who  are  in  undisturbed 
possession  of  amortization  loans  not  recallable,  foreclosable)  for  50  years  should 
display  any  greater  interest. 

That  is  an  effort  to  bring  about  the  cooperation  of  the  Govern- 
ment, patriotic  citizens,  and  the  borrowers  in  control  of  the  organiza- 
tion resulted  in  a  bureaucratic  form  of  organization. 

Senator  Norris.  Of  these  European  countries,  which  ones  make 
direct  loans  to  the  farmers? 

Mr.  Moss.  I  know  of  no  European  Government  that  makes  direct 
loans  to  the  farmers  of  that  nation,  except  for  special  national  pur- 

Eoses.  France  makes  loans  for  homstead  purposes;  but  the  great 
usiness  of  the  Credit  Foncier  is  a  purely  private  loan  business,  with 
only  foundation  capital  in  part  from 

Senator  Norris  (interposing).  Well,  let  us  take  France,  for  in- 
stance. 

Mr.  Moss.  Yes. 

Senator  Norris.  Can  you  give  us  the  rate  of  interest  there? 

Mr.  Moss.  Yes;  2  per  cent  on  national  loans;  but  only  to  the  ex- 
tent  

Senator  Norrts  (interposing).  To  what  amount? 


904  RURAL   CREDITS. 

Mr.  Moss.  Only  to  the  extent  of  $2,000  and  for  homestead  pur- 
poses. That  law  has  been  on  the  statute  books  only  two  or  three 
years. 

Senator  Norms.  What  has  been  the  result  of  that  law?  Can  you 
give  the  amount  of  loans  that  have  been  made? 

Mr.  Moss.  No;  I  can  not.  I  can  get  that  information,  but  I  have 
not  it  with  me.  The  minister  of  agriculture  stated  that  that  was 
not  a  financial  law;  it  was  a  sociological  law,  and  one  of  three  such 
laws  that  must  be  interpreted  together.  He  stated  that  France  had 
lost  40  per  cent  of  its  rural  population,  and  that  these  laws  were  in- 
tended to  rebuild  the  farming  population.  He  said  he  noticed  that 
when  there  was  an  estate  being  broken  up  by  auction  sales  there  was 
generally  a  young  man  standing  by  that  had  just  married  a  girl. 
The  .young  man  would  have  liked  to  become  a  farmer,  but  he  could 
not  get  enough  capital  to  purchase  land,  and  the  Government  de- 
cided to  loan  money  to  such  farmers  at  2  per  cent  interest,  not  to  ex- 
ceed $2,000  in  any  one  case,  so  that  the  young  man  might  secure  a 
small  holding  and  become  an  independent  farmer.  Then,  in  order 
to  induce  him  to  stay  on  the  farm,  they  promised  him  a  pension  if 
he  should  live  on  the  farm  until  he  was  65  years  of  age. 

The  third  was  a  law  by  which,  when  the  crops  were  destroyed  by 
hail,  the  loss  should  be  repaid  to  the  farmer  by  the  Government  with- 
out a  premium  fee.  He  said  that  those  three  laws  were  sociological, 
must  be  separated  from  their  general  system  of  land  mortgage  and 
must  be  interpreted  together. 

Senator  Norris.  Has  that  law  been  taken  advantage  of  to  any 
great  extent? 

Mr.  Moss.  These  laws  are  too  recent  to  predicate  positive  state- 
ments as  to  their  ultimate  results.  Their  author,  the  minister  of 
agriculture,  was  quite  enthusiastic. 

One  of  the  States  in  the  archipelago — I  think  it  is  Sweden — pro- 
vides that  anyone  who  lives  on  a  farm  for  five  years  as  a  farm 
laborer  can  borrow  money  from  the  Government.  In  Germany,  if 
a  German  is  about  to  lose  his  land  to  an  alien,  for  instance,  to  a  Pole, 
the  German  can  go  to  his  Government  and  get  assistance,  in  order 
to  keep  the  land  in  the  hands  of  the  German  citizen.  That,  however, 
is  only  a  question  of  nationality. 

Mr.  Hayes.  Does  not  Russia  make  direct  loans  ? 

Mr.  Moss.  Yes;  Russia  makes  direct  loans;  principally,  however, 
to  assist  the  serfs  who  were  formerly  attached  to  the  estates  to  become 
landowners ;  that  is  all  in  the  record. 

Senator  Norris.  At  what  rate  are  these  loans  made? 

Mr.  Moss.  I  will  state  that  I  have  not  studied  the  Russian  system 
particularly,  and  Dr.  Coulter  is  better  informed  as  to  that. 

Mr.  Bathrick.  It  is  3£  per  cent  in  Russia. 

Mr.  Moss.  Dr.  Coulter  studied  Russia;  I  took  in  Germany;  and 
he  discussed  that  question  before  the  committee,  and  I  prefer  that 
you  should  get  his  testimony  about  the  Russian  system. 

Senator  Norris.  All  right. 

Mr.  Moss.  In  regard  to  capital  there  has  been  much  discussion  of 
$10,000  capital  for  these  banks.  The  European  banks  are  all  old 
banks,  most  of  them  many  years  old,  and  they  have  obtained  the 
growth  which  results  from  years  of  operation.  These  large  banks 
are  located  in  very  large  centers  of  population. 


RURAL   CREDITS.  905 

Our  American  national  banks  in  the  large  cities  are  large  institu- 
tions, but  successful  banks  of  smaller  capital  are  found  in  the  smaller 
cities.  I  found  in  nearly  all  European  cities  very  large  institutions, 
and  the  banks  did  more  than  loan  upon  rural  real  estate ;  they  loaned 
also  upon  urban  property,  and  they  also  handled  municipal  bonds. 
They  have  a  very  much  wider  business  and  a  larger  capital ;  but  you 
must  consider  that  50  or  more  years  of  successful  operation  makes  a 
great  difference  in  the  business.  But  if  you  go  into  the  country, 
especially  in  Hungary,  you  will  find  a  vast  number  of  small  banks 
that  are  loaning  money  on  land  which  are  said  also  to  have  benefited 
the  farmer. 

The  commission's  bill  described  the  minimum  capital,  not  as  an 
advantage  to  the  joint-stock  banks  particularly,  but  as  an  advantage 
to  the  organization  of  cooperative  banks.  We  believe  that  this  pro- 
vision should  stand,  and  that  if  the  capital  should  be  required  in  a  large 
amount  to  begin  with  that  cooperative  banks  can  not  be  organized. 
If  you  will  consider  the  history  of  our  national  banks  you  will  find 
that  there  has  been  a  gradual  reduction  in  the  capital  to  correspond 
with  the  size  of  the  cities.  In  fact,  as  it  is  now,  the  large  cities  have 
banks  with  large  capital  and  smaller  cities  have  banks  with  small 
capital ;  and  yet  the  national  bank  has  the  right  to  take  an  unlimited 
line  of  deposits.  We  can  find  national  banks  large  enough  to  have 
$150,000,000  of  deposits  and  you  can  find  national  banks  without 
only  $25,000  of  deposits. 

Yet  even  with  that  organization  there  are  as  many  banks  in  the 
United  States  below  $25,000  of  capital  under  State  charter  as  there 
are  of  national  banks  in  the  United  States  all  put  together.  There 
are  more  than  8,000  banks  in  the  United  States  with  a  capitalization 
below  $25,000,  showing  that  even  the  national  bank,  with  its  varia- 
tion in  capital,  could  not  take  care  of  our  commercial  banking  busi- 
ness in  this  country.  We  have  both  the  large  banks  and  the  small 
banks;  and  the  tendency  is  to  demand  that  national  banks  be 
authorized  with  smaller  capital  than  now  permitted  by  law. 

Now,  just  a  few  words  in  regard  to  the  shares.  I  want  to  say 
that  the  $25  share  was  written  in  the  bill  to  enable  the  cooperative 
bank  to  build  up  a  larger  clientele.  But  you  must  remember  that  if 
you  make  a  $5  share,  or  a  very  small  share,  you  nullify  the  protec- 
tion to  the  bondholder  so  far  as  the  liability  of  the  shareholder  is 
concerned.  It  would  cost  as  much  to  collect  a  $5  share  as  the  value 
of  the  $5  share  comes  to  after  it  is  collected.  And  if  you  write  into 
this  bill  a  very  small  share  capital  you  will  have  nullified  the 
protection  which  the  liability  of  the  shareholder  would  afford.  That 
is  the  first  objection. 

Secondly,  the  idea  of  holding  shares  in  cooperative  banks  as  a 
saving  feature;  and  I  do  not  believe  there  is  a  farmer  in  the  United 
States,  if  he  wants  to  own  stock  in  a  bank,  who  can  not  pay  $25. 
Personally  I  would  rather  see  the  cooperative  shares  at  $100  instead 
of  $25,  for  the  reason  that  any  man  who  wants  to  join  a  bank  ought 
to  be  willing  to  put  up  his  capital,  and  assume  some  substantial 
liability. 

There  is  only  one  other  feature  that  I  am  going  to  dwell  upon  at 
any  length,  and  that  is  the  question  of  a  market  for  the  bonds. 


906  RURAL   CREDITS. 

I  have  not  referred  to  European  history,  and  I  will  only  call 
attention  for  a  moment  to  it.  You  will  find  that  on  page  40  of  Mr. 
Cahill's  report,  "Agricultural  credit  and  cooperation  in  Germany," 
Senate  Document  No.  17,  Sixty-third  Congress,  first  session.  The 
Landschaften  Association  did  form  two  central  associations  for  the 
precise  purpose  of  getting  a  better  market  for  their  bonds.     I  quote : 

The  object  in  view  in  establishing  the  central  association  was  to  open  a 
wider  market  for  the  bonds  of  the  provincial  associations.  It  was  expected 
that  bonds  issued  by  a  central  institution  would  find  a  better  market,  not 
only  in  Germany  but  also  in  foreign  countries,  than  bonds  associated  with 
merely  provincial  institutions.  The  bonds  were  to  be  printed  in  several 
languages.  By  obtaining  a  wider  market  they  would  be  less  exposed  to 
fluctuations,  as  had  harvests  and  other  possible  evils  are  usually  only  local, 
and  their  occurrence,  while  it  might  affect  seriously  bonds  of  provincial 
associations,  would  not  affect  those  resting  upon  a  broader  basis. 

I  think  the  committee  will  recognize  that  that  has  been  put  in 
argument  before  the  committee  heretofore.     But  here  is  the  result: 

About  the  period  1S70-1S75,  when  the  central  association  was  founded,  the 
market  prices  of  the  bonds  of  several  associations  were  low  and  unstable. 

That  is  those  panic  times ;  you  will  recognize  that. 

For  some  time  after  the  establishment  of  that  association  prices  improved; 
but  the  association  has  not  met  with  the  success  anticipated.  Tbe  prices  for 
its  bonds  did  not  finally  maintain  superiority  over  those  of  the  provincial 
associations,  and  the  value  of  central  bonds  in  circulation  (1911)  does  not 
exceed  that  of  those  of  either  the  Silesian  or  east  Prussian  organizations. 

I  will  say  that,  so  far  as  my  study  has  shown,  this  is  the  only 
instance  I  have  been  able  to  find  where  central  associations  have  been 
formed  for  exactly  the  purpose  that  has  been  argued  before  this  com- 
mittee, and  the  result  of  that  action,  I  submit,  is  shown  by  the  ex- 
tract I  have  just  read. 

The  reason  is  perfectly  plain  that  in  a  mortgage  bond,  if  you 
permit  an  issue  of  15  to  1,  a  capital  of  $1,000,000  does  not  put 
a  dollar  greater  guaranty  behind  the  bond  than  if  it  was  a  small 
$10,000  institute.  If  the  bond  is  once  sold,  if  the  appraisement  is 
the  same,  it  is  just  as  good  in  one  case  as  it  is  in  the  other. 

For  the  benefit  of  Senator  Hollis,  if  he  will  pardon  me  for  a 
moment,  I  have  heard  him  make  the  suggestion  several  times  in 
regard  to  having  the  regionals  just  as  big  as  the  present  regional 
territory  in  the  Federal  reserve  system.  I  am  going  to  make  this 
one  suggestion  upon  that:  Even  if  that  be  done,  the  bonds  will  not 
then  sell  at  the  same  rate  of  interest.  I  nican  that  the  rate  of 
interest  will  not  be  uniform  throughout  the  United  States.  The 
regional  banks  could  not  be  established  under  the  new  law  until  there 
was  Government  guaranty  behind  the  securities.  And  just  as  surely 
as  you  establish  districts  under  this  law  to  coincide  with  those  of  the 
currency  law,  and  the  rate  of  interest  on  land  bonds  is  not  uniform 
in  the  several  districts,  then  will  come  the  demand  for  Government 
guaranty  of  the  bonds,  in  order,  if  possible,  to  make  it  uniform.  I 
do  not  think  there  will  be  any  escape  from  that  conclusion.  Now,  I 
see  quite  a  distinction  between  the  case,  where  under  the  Constitution 
of  the  United  States  the  Government  has  the  monopoly  of  issuing 
currency,  and  where  it  is  expressly  charged  with  the  duty  to  issue 
currency  to  the  people  and  a  system  of  banks  by  which  bonds  may 
be  issued  by  banks  and  sold  to  voluntary  investors. 


RURAL  CREDITS.  907 

Mr.  Bulkley.  Mr.  Moss,  I  do  not  quite  understand  your  sugges- 
tion about  a  uniform  rate  of  interest.  You  do  not  think  there  would 
be  a  uniform  rate  under  your  bill,  do  you? 

Mr.  Moss.  No,  sir;  I  do  not. 

Mr.  Bulkley.  Then  what  is  the  force  of  your  suggestion? 

Mr.  Moss.  Here  is  the  theory;  here  is  a  currency  issued  in  this 
particular  district,  and  it  circulates  in  that  district  just  precisely 
at  the  same  level  that  similar  bills  do  in  the  district  of  New  York, 
for  instance,  because  the  Government  secures  the  note  issues  upon 
exactly  the  same  terms.  But  now,  under  this  system,  if  you  organize 
a  Government  bank  in  coterminous  territory,  just  as  you  have  the 
regional  bank,  and  it  issues  bonds,  and  yet  the  bonds  will  not  sell 
at  the  same  price  at  the  same  interest  rate  issued  in  one  region  as  if 
they  were  issued  in  some  other  region.     That  is  what  I  mean. 

Mr.  Bulkley.  Well,  suppose  they  do  not? 

Mr.  Moss.  Well,  if  it  does,  your  plan  has  worked  out  all  right. 

Mr.  Bulkley.  I  say,  suppose  they  do  not  ? 

Mr.  Moss.  Well,  my  judgment  is  that  then  the  people  in  that 
district  where  the  bonds  do  not  bring  as  high  a  price  will  say,  "  If 
the  Government  will  guarantee  this  bond,  as  it  does  the  currency 
issued  by  the  regional  bank  in  the  Federal  reserve  system,  we  will 
have  the  same  rate";  and  I  say  that  in  my  judgment  that  would 
bring  the  question  up,  and  you  would  have  a  demand  from  different 
sections  of  the  country  for  a  Government  guaranty. 

Sentor  Hollis.  You  mean  that,  as  a  result  of  that  difference,  there 
would  be  pressure  brought  upon  the  Government  for  it  to  guarantee 
the  bonds,  in  order  that  there  might  be  a  uniform  rate  of  interest 
throughout  the  country  ? 

Mr.  Moss.  That  is  my  contention. 

Senator  Hollis.  Would  you  have  a  similar  objection  to  a  federa- 
tion limited  to  a  single  State? 

Mr.  Moss.  Do  you  mean  a  compulsory  federation  or  a  voluntary 
federation  ? 

Senator  Hollis.  Either  one. 

Mr.  Moss.  The  suggestion  for  Government  guarantee  would  not  be 
so  ready  in  the  case  of  a  State  as  of  precisely  similar  districts  in  the 
Federal  reserve  system.  I  have  no  objection  to  a  voluntary  federa- 
tion, but  I  will  give  you  a  reason  for  my  objection  to  a  compulsory 
federation.  That  is,  that  I  do  not  believe  banks  will  readily  organize 
under  it.  T  went  among  the  bankers  of  my  district,  and  they  ob- 
jected to  this  regional  system,  because  you  were  assessing  them  to 
contribute  to  the  capital  of  the  regional  banks,  and  the  proposed 
assessment  was  dropped  from  10  per  cent  to  6  per  cent,  and  the  rate 
of  dividend  was  increased  in  order  to  make  the  system  more  at- 
tractive. 

The  national  banking  act  was  50  years  old,  and  it  had  become  very 
profitable,  and  it  was  well  established  before  we  undertook  to  unite 
them  into  a  federation.  It  was  admitted  by  everybody  that  commer- 
cial institutions  ought  to  be  joined  together,  and  that  a  federated 
system  was  a  better  system  for  commercial  banks  than  an  independent 
system.  And  at  the  end  of  50  years  we  are  able  to  federate  national 
banks  successfully  under  direction  of  law;  but  I  do  not  believe  you 
could  have  organized  the  national-bank  system  at  the  beginning  in  this 


908  RURAL   CREDITS. 

ma  imer  under  a  compulsory  provision.  I  might  be  mistaken  about 
that.  But  I  believe  that  banks  under  this  system  will  be  organized 
more  quickly  as  independent  units  than  if  you  assess  their  capital 
and  try  to  compel  them  to  federate.  If  they  want  to  unite  volun- 
tarily, I  have  no  objection;  because  if  that  is  the  better  system  it 
will  prevail,  and  if  it  is  not  the  better  it  will  not  prevail. 

It  is  just  like  it  was  in  Germany;  you  have  the  same  proposition; 
certain  associations  combined  and  some  of  them  afterwards  withdrew 
because  they  got  no  benefit  out  of  it. 

Now,  I  will  state  to  Mr.  Bathrick  what  I  said  privately  to  him, 
that  he  ought  not  to  object  to  this  system  going  into  operation.  If  it 
is  successful  there  is  no  necessity  for  adopting  his  system.  On  the 
other  hand,  if  it  fails,  his  system  can  be  given  a  trial. 

Mr.  Bathrick.  Will  you  permit  an  interruption  ? 

Mr.  Moss.  Certainly. 

Mr.  Bathrick.  By  the  time  your  system  has  proved  unsuccessful, 
that  will  be  after  these  bankers  have  come  in  here  and  asked  for  the 
same  thing  that  I  want  to  put  in  operation  now,  namely,  Government 
guarantee,  or  Government  ownership. 

Mr.  Moss.  Mr.  Bathrick's  system  provides  that  all  the  people  shall 
come  together  under  the  Government  and  borrow  the  money,  and 
ours  is  that  a  part  of  them  shall  come  together  under  private  initiative 
and  borrow  the  money.  That  is  the  difference.  And  if  our  system 
is  successful,  not  even'Mr.  Bathrick  would  want  his  system  to  go  into 
operation.     But  he  does  not  believe  it  would  be  successful. 

If  I  were  the  author  of  his  bill  and  were  as  confident  as  he  is  that 
this  system  will  fail,  I  would  feel  that  I  could  safely  afford  to  sit 
back  and  let  it  have  a  trial,  because  when  its  failure  was  proven,  my 
bill  would  surely  be  adopted.     But  I  believe  it  will  be  successful. 

Mr.  Hayes.  Is  it  not  true  that  the  voluntary  associations  in  Europe, 
especially  in  Germany,  float  their  bonds  at  a  less  rate  of  interest, 
or  at  a  higher  percentage  above  par  than  Government  loans  float  at 
the  same  rate? 

Mr.  Moss.  I  was  just  calling  attention  to  the  fact  that  they  float 
possibly  at  par  at  this  time ;  but  there  are  times  when  they  are  floated 
at  higher  prices. 

Senator  Norris.  Under  your  bill,  suppose  it  were  enacted,  what,  in 
your  judgment,  would  be  the  prevailing  rate  of  interest  that  the 
farmers  would  have  to  pay? 

Mr.  Moss.  I  am  just  coming  to  that. 

Senator  Norris.  All  right. 

Mr.  Moss.  I  want  to  put  in  the  record  an  article  taken  from  the 
Brazil  Daily  News,  of  Wednesday,  February  25,  1914. 

Mr.  Weaver.  What  State? 

Mr.  Moss.  Brazil,  Ind.  I  will  read  you  the  whole  article,  heading 
and  all. 

BRAZIL   TRUST    CO.    BUYS    ISSUE   OF    ROAD   BONDS. 

W.  E.  Carpenter  highest  bidder  for  issue  of  $7,000  for  construction  of  Louder- 
milk  Road  in  Sugar  Ridge  Township. 

Now,  Sugar  Ridge  Township  is  the  township  in  which  I  live.  It 
is  a  very  small  township,  and  has  an  assessed  value  of  only  about 
$600,000.    It  is  not  in  any  sense  of  the  w^ord,  I  am  sorry  to  say,  located 


RURAL   CREDITS.  909 

in  the  best  farming  section  of  Indiana.  I  will  read  the  rest  of  the 
article : 

Secretary  W.  E.  Carpenter,  of  the  Brazil  Trust  Co.,  was  the  successful  bid- 
der— 

You  will  notice  the  word  "  successful " — 

for  the  issue  of  $7,000  of  improvement  bonds,  issued  for  the  construction  of  the 
Loudermilk  Road  in  Sugar  Ridge  Township.  Mr.  Carpenter's  bid  was  par, 
accrued  interest,  and  premium  of  $76.96.  Other  bids  were  as  follows:  Wild  & 
Co.,  Indianapolis,  par,  accrued  interest,  and  $50  premium ;  E.  F.  Parr  &  Co., 
Chicago,  par,  accrued  interest,  and  $41.80  premium;  Reed,  Elliott  &  Harrison, 
Indianapolis,  par,  accrued  interest,  and  $25  premium;  Fletcher  National  Bank, 
of  Indianapolis,  par,  accrued  interest,  and  $10  premium. 

Mr.  Bathrick.  What  was  the  interest? 

Mr.  Moss.  It  was  a  4^  per  cent  tax-free  bond. 

Mr.  Bathrick.  That  was  a  State-guaranteed  bond,  was  it  not? 

Mr.  Moss.  No ;  a  township  bond. 

Mr.  Bathrick.  Well,  that  was  a  State  government  guaranteed 
bond,  was  it  not? 

Mr.  Moss.  No;  it  was  not.  It  was  one  issued  by  Sugar  Ridge 
Township,  and  repaid  by  the  taxation  of  the  people.  Those  bonds 
run  10  years,  and  are  payable  in  installments  every  six  months. 
There  are  just  20  installments. 

That  was  under  a  law  enacted  by  our  State  legislature,  the  con- 
stitutionality of  which  was  attacked  in  the  courts.  When  those 
bonds  were  first  circulated,  the  big  banks  would  not  buy  them  readily, 
and  the  only  way  they  could  be  floated  was  for  the  communities  that 
wanted  the  improvements  for  the  roads,  to  buy  them.  They  first 
sold  for  6  per  cent  interest,  and  then  gradually  dropped  to  44  per 
cent.  And  those  bonds  over  nearly  the  entire  State  have  been  bought 
by  local  capital. 

At  one  time,  as  I  say,  the  law  was  declared  unconstitutional  by  the 
supreme  court,  when  there  was  a  vast  amount  of  these  bonds,  some 
millions  of  dollars  of  them,  in  circulation.  The  people  created  such 
a  furor  about  it  that  the  Supreme  Court  of  Indiana  had  the  case  re- 
argued, and  in  less  than  30  days  they  declared  the  law  constitutional. 
There  was  a  change  of  mind  on  the  part  of  the  supreme  court  in  less 
than  30  days.  And  there  has  never  been  a  single  one  of  those  bonds 
offered  that  has  not  been  bought ;  and  there  has  not  been  a  single  one 
that  has  been  defaulted;  and  I  will  say  that  95  per  cent  of  all  the 
road  bonds  in  Indiana  are  bought  by  local  capital. 

Mr.  Bulkley.  How  long  ago  was  it  that  they  started  to  issue  those 
bonds  and  the  law  under  which  they  were  issued  was  declared  un- 
constitutional ? 

Mr.  Moss.  It  was  less  than  two  years  ago  that  the  Supreme  Court 
of  Indiana  declared  that  law  to  be  unconstitutional,  and  in  less 
than  30  days  they  declared  it  be  constitutional.  The  bank  that 
bought  these  bonds  referred  to  has  a  capitalization  of  $80,000  derived 
from  local  sources.  In  all  essential  features  of  the  Indiana  law  it  is 
precisely  similar  to  the  plan  of  the  Moss-Fletcher  bill. 

Mr.  Bathrick.  I  understood  you  to  say  that  bond  was  based 
upon  the  taxing  power  of  the  township? 

Mr.  Moss.  Surely. 

Mr.  Bathrick.  Well,  how  does  that  compare  with  the  Moss- 
Fletcher  bill? 


910  RURAL   CREDITS. 

* 

Mr.  Moss.  Precisely  so.  First,  the  people  come  together  and 
decide  upon  the  question  of  improving  their  roads  or  draining  their 
farms. 

Then  an  estimate  is  made  as  to  how  much  the  proposed  improve- 
ment will  cost.  Bonds  are  issued  to  be  sold  to  the  highest  bidder. 
The  farmer  every  six  months  pays  one-twentieth  of  his  bond  to  the 
county  treasurer,  and  if  he  default  the  county  treasurer  simply  sells 
his  land  to  any  man  who  will  buy  it  for  the  default  upon  the  taxes, 
just  as  you  would  get  a  judgment  in  a  court  against  the  man  who  had 
a  mortgage  and  sell  him  out  under  the  ordinary  law.  That  is  all 
there  is  about  it.  The  only  difference  is  that  you  would  have  no  right 
of  exemption  in  the  case  of  the  tax  payable  to  the  State ;  it  is  a  sum- 
mary proceeding.  They  have  the  summary  right  of  going  in  and 
either  buying  or  seizing  your  property. 

Senator  Norris.  Do  you  think  that  under  your  bill  the  farmer 
would  be  able  to  borrow  money  at  4  per  cent  interest? 

Mr.  Moss.  I  will  make  this  prediction,  that  in  my  section  of  the 
country,  if  this  bill  goes  into  effect,  real  estate  bonds  will  sell  lower 
than  these  bonds,  simply  because  they  will  be  a  preferable  bond. 

Mr.  Bulkley.  Why  would  they  be  preferable? 

Mr.  Moss.  They  would  be  preferable  because  they  run  longer. 
That  would  be  the  only  reason.  These  only  run  for  10  years  and  they 
are  paid  off  so  rapidly.     That  is  the  main  reason. 

Mr.  Hayes.  And  there  is  less  danger  of  default  ? 

Mr.  Moss.  Yes;  at  the  present  time  in  Clay  County,  where  this 
purchase  was  made,  on  the  very  best  real  estate  in  the  county  it  will 
cost  you  6  per  cent  to  get  money.  I  know  a  person  who  has  as  good 
real  estate  as  there  is  in  Clay  County,  and  his  reputation  as  a  bor- 
rower is  as  good  as  that  of  any  other  man  in  the  country.  He 
wanted  $10,000,  and  it  was  offered  to  him  without  commission  at  6 
per  cent  interest.  That  rate  is  as  low  as  you  can  borrow  it  at  under 
present  conditions ;  but  at  the  same  time  these  road  bonds  were  sell- 
ing at  4|  per  cent  in  exactly  the  same  community  because  they  were 
tax  free. 

Mr.  Bathrick.  But  they  were  issued  under  a  law  of  the  State  and 
the  State  guaranteed  them. 

Mr.  Hayes.  No. 

Mr.  Moss.  No.  Issued  under  the  law  of  the  State,  but  the  only 
guarantee  is  that  the  State  will  sell  the  man's  property  in  order  to 
pay  them,  if  necessary,  just  as  under  the  law  of  the  State  the  sheriff 
will  sell  property  to  pay  a  judgment  given  by  a  court  of  record. 
Now,  I  am  taxed  on  those  bonds;  if  I  do  not  go  and  pay  my  tax  and 
no  other  man  pays  it  nor  is  assessed  for  it  my  property  is  sold,  and 
the  bond  is  paid  out  of  the  sum  realized  at  the  sale. 

Senator  Norris.  The  same  as  any  other  tax? 

Mr.  Moss.  Yes;  and  the  same  as  any  other  obligation;  it  is  my 
debt. 

Mr.  Bathrick.  But  that  ih  not  the  only  security.  Is  not  the  State 
behind  those  bonds? 

Mr.  Moss.  In  no  sense  of  the  word.  There  is  a  limitation  that  we 
can  not  go  into  debt  beyond  a  certain  amount;  but  we  have  that  in 
this  proposed  law;  but  there  is  no  other  source  to  realize  money  to 
pay  the  bond  except  from  those  who  are  obligated  to  pay  it. 


RURAL   CREDITS.  911 

Mr.  Woods.  Mr.  Moss,  if  you  had  a  bank  under  the  provisions  of 
this  bill  in  operation  in  Indiana  and  loaned  money  to  a  farmer  and 
took  a  mortgage  upon  his  land,  which  would  be  the  first  lien,  the 
mortgage  taken  by  this  bank  or  the  bonds  to  which  you  are  referring, 
the  road  bonds  or  drainage  bonds? 

Mr.  Moss.  The  road  bonds  will  be  the  first  lien. 

I  want  to  call  your  attention  now  to  a  thing  I  have  spoken  about 
before.  I  made  reference  to  the  fact  that  in  Austria  the  local  banks 
by  a  combination  had  a  uniform  rate  of  interest  that  had  no  rela- 
tion whatever  to  the  Government  rate  of  interest;  but  it  was  stated 
that  the  uniform  rate  there  maintained  for  a  community — that  the 
incident  I  spoke  about  was  due  to  the  Balkan  War. 

I  have  here  a  chart  for  Hungary  showing  the  commercial  rate 
and  the  Government  bank  rate  and  the  rate  at  which  the  cooperative 
societies  furnish  credit ;  and  you  will  see  that  from  1897  to  1912  there 
was  absolutely  no  change  whatever  in  the  rate  of  interest  main- 
taind  by  the  farmers'  banks  in  Hungary.  I  do  not  care  to  have 
the  chart  in  the  record,  but  it  will  be  an  interesting  thing  for  the 
members  of  the  committee  to  look  over;  I  mention  it  to  call  atten- 
tion to  how  stable  conditions  will  hold  the  interest  rates.  [Showing 
chart  to  members  of  the  committee.] 

Mr.  Hayes.  The  red  line  represents  real  estate  loans,  does  it  ? 

Mr.  Moss.  No ;  this  chart  represents  personal  loans.  This  is  where 
the  banks  come  together  for  personal  credit.  This  is  in  Hungary 
[indicating].  This  [indicating]  shows  the  rate  in  the  cooperative 
association  loan,  to  persons  other  than  members. 

Mr.  Hayes.  But  this  is  short-time  credit,  is  it  not? 

Mr.  Moss.  Yes;  short-time  credit.  This  [indicating]  represents 
the  Imperial  Bank  rate,  and  so  on. 

Senator  Hollis.  What  does  the  green  line  represent? 

Mr.  Moss.  The  green  line  is  the  Austro-Hungarian  bank;  and 
this  line  [indicating]  is  central  association  of  the  agricultural  cor- 
poration; and  this  [indicating]  shows  the  raiffeisen  banks.  Those 
are  the  three  systems. 

Now,  I  want  to  devote  a  few  moments  to  the  consideration  of  the 
bill.    The  main  principles  of  the  bill  are  as  follows : 

It  rests  on  the  liberty  and  private  initiative  of  the  citizen. 

The  Government  by  regulation  assists  and  encourages  the  free 
development  of  organization  resulting  from  private  initiative. 

The  system  is  specialized  and  can  serve  only  legitimate  needs  of 
actual  farmers. 

It  is  extreme  only  in  its  simplicity. 

It  is  decentralized,  democratic,  and  independent. 

It  permits  mutual  aid  and  active  solidarity  among  the  farmers  of 
any  community,  thereby  lending  its  influence  toward  social  better- 
ment and  educational  growth. 

In  this  latter  regard,  it  is  essentially  a  progressive  system  whose 
full  benefits  can  not  be  measured  except  by  computing  the  indirect 
as  well  as  the  direct  benefits.  It  is  easily  possible  that  in  many  in- 
stances the  former  may  prove  to  be  the  greater. 

Here  are  some  suggested  improvements  to  the  bill : 

The  bonds  should  be  issued  in  series.  That  has  been  suggested  by 
other  gentlemen  who  have  appeared  before  the  committee ;  and  it  was 
one  of  the  matters  that  we  had  in  mind,  but  omitted  to  place  in  the  bill. 


912  RURAL   CREDITS. 

I  would  suggest  that  any  series  should  not  be  less  than  50  per  cent 
of  the  capital  of  the  bank  issuing  the  bonds. 

The  administration  charge  might  be  changed  so  as  to  be  computed 
on  the  par  value  of  the  loan,  rather  than  the  par  value  remaining 
unpaid  at  any  time.  1  have  come  to  that  opinion  on  the  ground  that 
I  believe  that  the  profits  of  the  bank  ought  to  be  increased  to  that 
extent.    In  a  great  many  other  mortgage-bank  systems  that  is  the  case. 

Mr.  Hayes.  I  did  not  quite  understand  that. 

Mr.  Moss.  The  administration  charge,  or  whatever  the  difference 
in  interest  on  mortgage  and  bond  is,  may  be  computed  wholly  upon 
the  par  value  of  the  loan,  whereas  in  the  way  the  bill  is  now  drawn 
it  is  computed  on  the  amount  remaining  unpaid. 

Mr.  Hayes.  Yes;  that  would  make  quite  a  difference. 

Mr.  Moss.  Second,  the  commissioner  of  farm-land  banks  should 
have  the  power,  in  his  discretion,  to  make  an  independent  appraise- 
ment of  the  mortgaged  lands,  at  the  cost  of  the  Government,  before 
giving  consent  to  a  bond  issue  based  on  such  mortgages. 

We  are  making  now  a  physical  appraisement  of  the  railroads  of 
the  country  at  the  cost  of  the  Government,  in  order  to  determine  the 
question. as  to  what  rates  should  be  charged.  Our  meat  inspection  is 
also  at  the  cost  of  the  Government.  Now,  I  believe  that  as  a  general 
principle  any  industry  ought  to  pay  the  cost  of  its  own  inspection, 
but  we  have  departed  from  that  principle  in  those  two  instances. 

I  want  to  say  to  the  committee  that,  in  my  judgment,  after  the 
Government  of  the  United  States  gives  its  own  sanction  to  the  issue 
of  bonds  by  the  public  service  corporations,  you  will  find  that  they 
will  compete  more  seriously  in  the  money-borrowing  market  than 
they  do  now.    Their  securities  will  have  a  better  borrowing  rate. 

No  banks  should  have  the  right  to  raise  a  valuation  made  by  the 
Government  within  a  term  of  years  without  the  consent  of  the  com- 
missioner of  farm-land  banks.  I  think  that  is  pretty  well  covered  in 
this  bill  by  the  five-year  provision ;  but  it  could  be  strengthened. 

A  limit  per  acre  of  not  less  than  $200  in  valuation  could  be  fixed. 

Mr.  Hayes.  Not  less  than  $200? 

Mr.  Moss.  I  mean  not  more  than  $200.  A  provision  might  be  in- 
serted compelling  loans  on  orchards  and  other  similar  property  to  be 
largely  based  on  land  values,  irrespective  of  the  values  of  the  trees 
and  vineyards.  That  is  a  very  common  restriction  in  Europe,  and  it 
ought  to  be  put  in  this  bill. 

I  am  going  to  suggest  a  condition  that  is  in  the  Austrian  law. 
They  permit  two  rates  of  interest,  a  difference  of  one-half  per  cent. 
If  the  interest  is  paid  promptly,  the  bank  makes  the  rate  one-half 
per  cent  lower  than  if  it  runs  over  so  many  days.  It  appears  to  work 
very  well  in  Austria,  and  it  might  work  well  here.  We  have  nearly 
a  similar  provision  in  the  payment  of  taxes. 

I  think  that  sections  29  and  30  of  the  Federal  reserve  act  might 
very  well  be  incorporated  in  this  bill.  I  do  not  think  they  are  neces- 
sary. That  simply  means  the  right  of  amendment  and  some  other 
things  that  come  in  here. 

Mr.  Hayes.  Do  you  mean  the  right  to  amend  the  act  ? 

Mr.  Moss.  Yes.  And  the  banks  should  be  given  the  right  in  certain 
cases  to  foreclose,  in  order  to  prevent  dissipation  of  resources.  I 
have  studied  over  that  matter  carefully.  There  might  be  floods 
or  fires  or  a  great  manv  other  disasters  that  might  lessen  the  bank's 


RURAL   CREDITS.  913 

security,  and  it  seems  to  me  in  such  instances  that  the  bank,  if 
they  thought  there  was  danger  of  ultimate  loss,  might  have  the  right 
in  certain  instances  to  foreclose  in  order  to  prevent  the  disposition 
of  other  property  which  could  be  legally  held  by  the  bank  to  repay 
the  loan. 

Mr.  Hayes.  To  provide  that  the  whole  sum  shall  become  due? 

Mr-  Moss.  I  think  so,  in  certain  contingencies  only.  Section  10 
should  be  amended  so  as  so  clearly  give  the  commissioner,  with 
the  approval  of  the  Secretary  of  the  Treasury,  the  right  to  refuse 
to  approve  the  charter  of  a  bank.  I  think  that  is  in  the  bill  now; 
but  I  want  to  make  it  plain  that  one  of  the  protections  is  that 
the  incorporators  ought  to  come  before  the  commissioner  and  make 
out  a  good  case  before  they  could  secure  a  charter;  and  if  that  is 
not  in  section  10,  it  ought  to  be  put  in. 

Now,  that  is  as  far  as  I  have  any  suggestions  to  offer.  From  my 
correspondence  I  think  that  you  will  find  that  many  banks  will 
suggest  that  they  be  given  the  right  to  retain  the  money  when  re- 
paid by  the  borrower  instead  of  calling  in  their  bonds,  and  to  make 
new  loans  with  this  money.  I  feel  that  that  would  be  a  mistake, 
because  it  makes  it  impossible,  practically,  to  organize  these  banks 
in  some  communities  where  it  would  be  easy  enough  to  do  so  as  the 
bill  now  reads.  Besides  it  will  build  up  immense  amounts  of  money 
in  the  control  of  the  banks.  I  look  for  a  federation  between  the 
banks,  if  this  bill  is  enacted  into  law,  and  building  and  loan  asso- 
ciations in  a  great  many  instances.  I  do  not  mean  actual  federa- 
tion, but  between  the  same  group  and  the  same  working  force. 
It  is  practically  the  same  working  system;  and  if  it  were  so  that 
the  banks  could  not  retain  a  large  sum  of  money  in  the  sinking- 
fund  proposition,  I  think  you  will  find  that  the  small  banks  would 
work  a  good  deal  better;  and  while  I  have  received  a  good  deal  of 
correspondence  from  bankers  saying  that  it  ought  to  be  amended  in 
that  way,  I  trust  that  the  committee  will  consider  that  point. 

I  want  to  thank  the  committee  very  much  for  its  courtesy. 

Mr.  Hayes.  Do  you  want  to  leave  this  chart  with  us?  I  think  it 
is  quite  valuable. 

Mr.  Moss.  Yes.  All  that  I  shall  ask,  gentlemen,  is  that  you  do 
not  overlook  the  great  wealth  that  resides  in  the  individual  person 
and  in  the  communities.  I  have  found  that  in  my  section,  where  we 
wanted  public  improvements,  the  money  was  forthcoming  to  pur- 
chase sound  securities,  and  thus  finance  the  undertaking.  Any 
bill  that  overlooks  the  fact  that  in  most  sections  of  the  United 
States  there  is  such  a  large  reserve  of  capital  that  where  the  people 
want  these  improvements  the  public  spirit  of  the  people  themselves 
will  cause  them  to  purchase  sound  securities  will  be  a  mistake.  Of 
course  there  are  sections  of  the  country  where  capital  must  be  im- 
ported. In  those  sections  it  can  be  done  if  the  land  has  not  sufficient 
value  by  underwriting,  or  if  it  becomes  necessary  by  some  form  of 
State  guaranty  that  would  enable  those  undeveloped  sections  to  be 
benefited  if  their  land  was  not  good  security  for  loans.  That  is  the 
only  suggestion  I  have  to  make. 

I  have  here  the  editorials  of  some  30  newspapers-  There  is  in  the 
Department  of  Agriculture,  as  you  know,  a  very  large  exchange 
of  agricultural  periodicals,  and  I  asked  permission  to  make  an  ex- 
37031—14 58 


914  EUEAL  CREDITS. 

tract  of  everything  from  the  file  of  agricultural  papers  at  the  De- 
partment of  Agriculture,  favorable  and  unfavorable,  and  present 
them.    These  extracts  are  the  results. 

I  have  also  a  large  number  of  extracts  from  articles  in  the  agri- 
cultural papers  from  individual  correspondents  giving  their  views; 
but  I  do  not  think  they  ought  to  be  published.  But  these  are  the 
editorials  from  farm  papers,  without  any  attempt  to  edit  them  to 
favor  any  bill  before  the  committee.  I  have  not  compiled  these,  but 
I  would  like  permission  to  incorporate  the  editorials  in  the  record; 
they  are  simply  editorials  of  the  farm  papers  in  the  United  States, 
giving  their  opinions  on  this  subject. 

Mr.  Bulkely.  I  think  that  would  be  very  instructive  to  have  that 
in  the  record. 

Mr.  Moss.  And  if  the  committee  desires,  I  can  leave  these  extracts 
with  it.  I  do  not  care  to  have  them  printed;  but  I  would  like  to 
have  the  editorials  printed. 

Mr.  Woods.  Mr.  Chairman,  are  you  not  opening  the  gate  pretty 
widely  when  you  start  in  to  publish  editorial  comments  on  a  propo- 
sition of  this  kind? 

Mr.  Moss.  That  is  just  as  the  committee  pleases;  they  can  omit 
them  if  they  desire. 

Mr.  Bathrick.  Mr.  Chairman,  I  think  if  Mr.  Moss  desires  to  do 
that  I  should  like  to  insert  in  the  record  a  great  many  letters  also. 

Mr.  Bulkley.  To  insert  what? 

Mr.  Bathrick.  I  would  like  to  insert  as  a  part  of  my  testimony  a 
good  many  statements  from  newspapers,  and  from  farm  papers, 
and  a  good  many  personal  letters.     I  have  about  500  personal  letters. 

Mr.  Bulkley.  We  do  not  want  to  print  500  personal  letters  in  the 
record.  If  you  will  submit  what  you  want  to  have  printed  we  will 
go  over  it.  These  [examining  papers]  are  editorials,  and  they  are 
all  reasonably  brief;  and  there  are  not  too  many  of  them;  and  I 
think  an  editorial  of  an  agricultural  paper  is  on  a  little  different 
basis  from  a  personal  letter  from  an  individual.  If  you  have  any- 
thing, Mr.  Bathrick,  in  the  shape  of  editorials  to  submit  we  will  be 
glad  to  give  them  the  same  treatment ;  but  I  do  not  regard  personal 
letters  as  being  matter  of  the  same  class. 

Mr.  Bathrick.  I  think  I  have  at  least  100  out  of  many  hundreds 
of  letters  from  men  who  are  prominent  in  farm  organization  work, 
who  have  expressed  an  opinion  respecting  this  legislation,  that  will 
be  instructive  to  those  who  may  read  these  hearings ;  and  those  letters 
are  the  opinions  of  men  who  represent  and  are  active  in  farm  organi- 
zation. They  are  none  the  less,  however,  the  opinions  mostly  of 
one  man,  although  I  have  many  indorsements  from  local  granges  that 
could  well  go  in  as  representing  a  great  many  people.  But  these 
one-man  letters  express  the  opinion  of  the  writer,  and  these  editorials 
express  only  the  opinion  of  the  writer,  and  they  are  not  indicative 
of  the  opinion  of  the  readers  of  those  papers.  An  editorial  written 
by  one  man  at  a  desk  expresses  only  his  own  opinion. 

Mr.  Bulkley.  I  think  the  public  may  be  presumed  to  understand 
just  how  far  an  editorial  expresses  the  opinion  of  an  individual. 
As  to  your  letters  from  individuals,  if  you  will  bring  them  to  the 
committee  we  will  look  them  over  and  see  whether  they  are  within 
the  limits  that  could  be  appropriately  printed  in  the  record. 

(Thereupon,  at  4.55  o'clock  p.  m.,  the  subcommittee  adjourned 
until  Wednesday,  March  18,  1914,  at  10.30  o'clock  a.  m.) 


WEDNESDAY,    MARCH    18,     1914. 

United  States  Senate, 

Washington,  D.  0. 
The  subcommittees  assembled  at  10.30  o'clock  a.  m.,  Hon.  Henry 
F.  Hollis  presiding. 

Present:  Representatives  Bulkley,  Stone,  Seldomridge,  Weaver, 
Hayes,  Woods,  and  Piatt. 

Senator  Hollis.  Senator  Norris,  you  may  proceed  with  your  state- 
ment. 

STATEMENT  OF  HON.  GEORGE  W.  NORRIS,  A  SENATOR  FROM  THE 
STATE  OF  NEBRASKA. 

Senator  Norris.  Mr.  Chairman  and  gentlemen,  on  the  question  of 
rural  credits  I  feel  as  though  I  am  one  of  the  pioneers  of  Congress. 
I  believe  that  I  introduced  one  of  the  first,  if  not  the  first,  resolution 
that  was  ever  introduced  in  Congress  providing  for  a  commission  to 
be  appointed  by  the  President  to  go  abroad  and  study  the  question 
of  farm  loans  and  rural  credits  in  Europe. 

To  the  extent  of  my  ability  and  the  time  that  I  could  devote  to  it, 
I  have  studied  the  question  for  quite  a  number  of  years. 

I  do  not  believe  I  care  to  go  into  the  question  this  morning  of  how 
the  resolution  was  sidetracked  which  I  favored,  and  one  which  Sena- 
tor Gronna  introduced  that  I  also  favored ;  but  it  is  sufficient  to  know 
that  out  of  the  agitation  came  the  legislation  by  which  this  so-called 
commission  studied  the  question  in  Europe. 

In  my  judgment,  it  was  not  the  best  course  to  pursue — that  is,  the 
course  that  was  taken — and  yet  I  want  to  testify  now  that  I  have 
the  greatest  faith  and  confidence  in  those  members  of  that  commission 
whom  I  know,  at  least.  I  am  perfectly  confident  that  Mr.  Moss  gave 
to  it  the  very  earnest  and  patriotic  service  of  which  he  is  capable,  and 
that  the  report  which  has  been  made  is  an  honest  one,  and  that  they 
were  honestly  trying  to  do  the  best  they  could  under  all  the  circum- 
stances. 

I  do  not  agree  entirely  with  their  recommendations,  and  yet  I  am 
ready  to  concede  that  they  are  just  as  earnest  in  trying  to  bring  about 
good  legislation  as  I  am. 

So  that  I  appear  before  you  in  no  critical  sense.  I  intend  to  sup- 
port and  vote  for  any  legislation  that,  in  my  judgment,  will  improve 
present  conditions. 

I  began  to  study  the  question  because  I  was  impressed  with  the  fact, 
which  I  think  will  be  admitted  by  all  men,  that  the  farmer  pays  the 
highest  rate  of  interest  paid  by  anybody  and  he  has  the  best  security 
to  offer  that  is  or  can  be  offered  by  anybody.  It  seemed  to  me  then, 
and  it  seems  to  me  now,  that  on  the  face  of  it  that  shows  us  there  is 

915 


916  RURAL  CREDITS. 

something  wrong.  The  farmer  ought  to  be  able  to  get  money  at  a 
less  rate  than  ;i  man  in  any  other  line  of  business.  And  perhaps  I 
ought  to  pause  right  here  to  go  into  one  objection,  the  first  one,  that 
is  always  offered  to  the  plan  that  I  am  going  to  propose,  and  that  is 
that  the  Legislation  I  propose  is  class  legislation.  I  have  heard  that 
said  in  the  hearings  here,  and  I  have  met  that  objection  in  corre- 
spondence from  men  who  are  honestly  trying  to  do  what  they  believe 
to  be  the  best  thing  that  can  be  done.'  They  say:  "We  must  not  leg- 
islate for  the  farmer  by  providing  for  Government  loans,  because  it 
is  class  legislation." 

If  the  benefit  would  be  derived  only  by  the  farmer  I  would  be 
ready  to  admit  the  charge,  and  if  that  were  true  I  would  not  be  here 
to  advocate  it. 

But,  gentlemen,  this  is  a  greater  question  than  the  farmer.  In 
my  judgment  you  are  considering  the  greatest  subject  of  legislation 
that  can  be  considered  by  any  legislative  body  on  earth.  All  over 
the  world  the  tendency  has  been,  and  that  is  particularly  true  of 
this  country,  to  leave  the  farm  and  go  to  the  city.  Until  now  we 
have  reached  a  time  when  the  men  in  the  city — unless  they  are  very 
wealthy — when  the  ordinary  citizen,  the  laborer,  or  the  man  who  is 
a  clerk  getting  a  salary  that  a  few  years  ago  would  have  been  con- 
sidered enormous — all  these  classes  of  people  are  up  against  the 
proposition  that  the  expense  of  living  is  so  great  that  they  can  not 
make  both  ends  meet. 

I  am  not  here  advocating  a  measure  now  that  is  only  for  the  bene- 
fit of  the  farmer,  but  one  that  will,  in  my  judgment,  benefit  all  the 
people,  the  farmer  no  more  than  the  man  who  lives  in  the  city,  unless, 
as  I  said,  he  is  a  very  wealthy  man,  a  millionaire,  to  whom  the  cost 
of  living  is  nothing  at  all. 

We  have  seen  people  going  from  the  farm  into  the  city,  and  not 
only  ceasing  to  be  producers  but  becoming  consumers,  taking  them 
off  from  one  side  of  the  equation.and  putting  them  on  the  other.  The 
last  census  report  of  the  United  States  shows  that  in  some  of  the 
best  farming  communities  the  population  has  decreased  in  the  coun- 
try and  increased  in  the  already  overcrowded  cities.  It  is  a  lamen- 
table condition.  If  it  goes  on  indefinitely  it  means  ruin:  it  means 
destruction.  Something  must  be  done  to  bring  relief.  So  if  we  can 
do  something  that  will  put  more  people  on  the  farms  and  take  them 
*ut  of  the  cities  we  are  benefiting  all  of  the  people  and  no  class. 
lou  can  not  help  the  farmer  by  increasing  the  number  of  farmers 
and  improving  the  method  of  farming  and  the  raising  of  crops  with- 
out helping  everybody,  because  the  farmer  is  at  the  foundation  of 
all  prosperity. 

Senator  Hollis.  On  the  other  hand,  if  you  make  it  easier  for  more 
farmers  to  go  into  the  business,  do  you  not  increase  competition 
among  farmers  and  thereby  tend  to  injure  those  who  are  already  in 
the  business? 

Senator  Norris.  No.  In  a  limited  field  that  would  be  true,  but  the 
agricultural  possibilities  are  unlimited.  The  farmer  now  is  not  get- 
ting, in  my  judgment,  all  that  he  should  get  for  his  produce.  I  will 
go  into  that  a  little  further  on.  I  am  going  to  advocate  a  plan  that, 
in  my  judgment,  puts  tin1  farmer,  who  is  the  producer,  and  the  con- 
sumer nearer  together. 


RURAL   CREDITS.  917 

Mr.  Seldomridge.  Senator  Norris,  would  you  mind  answering  a 
question  here? 

Senator  Norris.  Certainly  not,  if  I  can. 

Mr.  Seedomridge.  Well,  the  question  in  my  mind  is  this:  Consid- 
ering this  matter  of  the  depopulation  of  the  farms  and  the  movement 
into  the  cities,  whether  that  is  not  largely  a  social  rather  than  an 
economic  condition? 

Senator  Norris.  To  a  great  extent  I  think  it  is. 

Mr.  Seedomridge.  Yes. 

Senator  Norris.  Yes;  I  think  the  remedy  for  it  is  this:  We  must 
make  life  on  the  farm  more  comfortable,  more  enjoyable,  and  more 
profitable. 

Mr.  Seldomridge.  That  is  my  conclusion  in  reference  to  the  solu- 
tion of  that  question. 

Senator  Norris.  Yes,  I  agree  with  you;  and  I  am  not  claiming 
for  what  I  am  going  to  propose  here  that  it  will  be  a  cure  for  all  ills. 
It  will  be  one  step ;  it  is  not  the  only  one  that  must  be  taken  and  that 
will  be  taken. 

You  will  remember  that  Mr.  Moss,  one  of  the  members  of  the  com- 
mission that  went  abroad,  the  other  day  told  us,  in  answer  to  a 
question  which  I  asked  him,  that  over  in  France  they  have  pro- 
vided for  a  Government  loan  to-  the  farmers  at  2  per  cent,  and  a 
provision  was  also  made  in  the  law  that  if  the  farmer  stayed  on  the 
farm  until  he  was  65  years  of  age  they  would  give  him  a  pension 
for  the  balance  of  his  life ;  and  there  was  also  a  provision  in  the  law 
to  tide  him  over  a  bad  year,  when  he  had  lost  his  crop  by  hail  or 
drought,  or  any  other  natural  cause — all  tending  to  show  that  men 
are  beginning  to  realize  that  it  is  necessary  for  the  protection  of 
society  and  the  salvation  of  humanity  that  we  must  get  more  men  on 
farms  and  make  their  business  more  profitable.  So  that  when  some 
one  says,  "  You  are  legislating  here  for  the  farmer,"  I  say,  "  There 
is  nothing  in  it."  Why  we  legislated  in  the  banking  and  currency 
bill — and  I  am  not  speaking  of  it  in  a  critical  sense ;  I  voted  for  it ; 
I  wanted  a  good  many  changes  in  it  that  I  did  not  get,  but  I  thought- 
it  was  an  improvement,  and  I  cast  my  vote  for  it — that  primarily 
helps  the  banker.  Now  I  would  not  say  that  because  it  helps  the 
banker  it  does  not  help  anybody  else.  The  banker  was  the  instru- 
mentality. Perhaps  he  will  get  more  benefit  out  of  it  than  he  ought 
to,  but  it  is  through  the  banker  that  we  reach  down  and  help  the 
business  man,  and  through  the  business  man  the  farmer.  Assuming 
that  we  are  all  honest,  all  classes  of  people  are  honest  and  patriotic, 
then  it  follows  that  we  are  all  in  the  same  boat,  and  we  can  not  help 
one  without  helping  all.  This  is  particularly  true  when  we  get 
down  to  the  foundation  of  all  prosperity — the  farm. 

I  have  listened  with  a  great  deal  of  interest  to  some  of  the  hear- 
ings that  have  taken  place  here,  and  while  I  do  not  expect — I  will 
say  frankly — that  the  bill  which  I  advocate  and  which  I  have  intro- 
duced will  become  a  law  at  this  time,  and  therefore  I  appear  before 
you  gentlemen  somewhat  discouraged  along  that  line,  I  am  con- 
fident that  some  time,  and  I  believe  it  will  be  within  the  lifetime  of 
some  of  those  who  are  now  listening  to  me,  we  will  have  something 
of  this  kind.  I  know  that  agitation,  discussion,  consideration  is 
necessary  in  order  to  take  a  step  in  advance  at  any  time ;  and  in  ad- 


918  RURAL   CREDITS. 

vocating  the  step  that  I  want  Congress  to  take,  I  think  I  feel  that 
Congress  will  not  cake  it  now.  But  I  want  to  sow  the  seed,  at  the 
risk  of  my  own  reputation,  that  I  believe  will  eventually  bring 
forth  valuable  fruit. 

I  started  out  in  the  study  of  this  subject  opposed  to  the  proposi- 
tion that  I  am  going  to  advocate.  I  have  not  reached  it  because  I 
was  trying  to  reach  it,  but  I  reached  it  because,  in  the  study  that  I 
was  able  to  make  of  it,  it  seemed  to  me  to  be  the  best  practical  solu- 
tion of  the  proposition. 

I  understand  that  the  President  of  the  United  States  is  opposed  to 
anything  like  what  is  contained  in  the  bill  I  am  advocating.  The 
Secretary  of  Agriculture  is  opposed  to  it.  Most  of  the  leaders  and 
Members  of  Congress,  perhaps  now,  are  opposed  to  it.  But  a  few 
years  ago  there  were  none  that  favored  it ;  and  I  know  that  by  the 
so-called  experts,  the  men  like  me  who  favor  it  are  held  up  to  ridicule 
and  denounced  as  unsafe  legislators,  and  ail  such  things  as  that. 
Realizing  as  I  do  that  I  do  not  expect  to  be  successful  now  in  this 
legislation,  and  that  I  am  going  to  be  criticized  from  a  great  many 
sources,  it  is  with  a  feeling  of  some  discouragement  that  I  take  up 
the  subject. 

Perhaps  I  can  best  explain  my  views  by  reviewing  the  bill  that  I 
have  introduced  and  which  I  advocate. 

Mr.  Chairman,  this  bill  (S.  4061)  provides  for  the  loaning  of 
money  on  farms  directly  by  the  Government.  It  provides,  to  begin 
with,  for  the  establishment  in  the  Department  of  Agriculture  of 
a  bureau  of  farm  loans.  The  first  section  dwells  entirely  upon 
that,  and  provides  for  the  establishment  of  such  a  bureau,  with  a 
director  and  an  assistant  director  and  other  assistants.  In  that  sec- 
tion, and  in  subsequent  sections,  I  have  endeavored  to  take  this 
bureau  entirely  out  of  politics. 

That,  by  the  way,  is  another  objection  to  the  plan  I  propose  and 
one  that  went  a  long  way  toward  controlling  me  in  my  opposition 
in  the  years  that  are  past.  It  is  said  that  it  will  get  into  politics. 
1  believe  in  this  bill  I  have  removed  the  system  entirely  from  politics. 
I  have  provided,  for  instance,  that  the  director  and  the  assistant 
director  provided  for  shall  be  appointed  by  the  President  and  con- 
firmed by  the  Senate  for  a  term  of  10  years,  and  that  they  shall  be 
removed  from  office  during  the  term  only  for  cause,  and  that  in 
case  of  neglect  of  duty  or  violation  of  law  by  either  one  or  both  of 
these  officers,  in  order  to  bring  about  their  removal  charges  must 
be  made  and  a  trial  must  be  had,  and  the  trial  must  be  public;  and 
after  such  hearing  the  Secretary  of  Agriculture  shall  have  the  right 
to  remove  either  one  of  them,  but  only  then  with  the  consent  in 
writing  of  the  President  of  the  United  States. 

I  think  those  provisions,  together  with  some  others  that  I  will 
mention  later,  will  remove  this  bureau  entirely  from  politics  as  com- 
pletely, and,  in  fact,  more  completely,  than  the  Interstate  Commerce 
Commission  is  now  removed  from  politics.  I  am  ready  to  admit 
that  if  this  became  a  political  machine  it  would  not  be  worthy  of 
consideration,  and  I  would  be  the  last  man  in  the  world  to  support 
a  proposition  of  this  land  if  I  thought  it  ever  could  be  used  as  a 
political  or  partisan  agency. 


RURAL   CREDITS.  919 

In  section  2  of  the  bill  I  provide  for  making  farm  loans  on  farm 
lands  located  anywhere  in  the  United  States,  secured  by  mortgage. 
I  provide  that  the  debt  shall  bear  interest  at  the  rate  of  4  per  cent 
per  annum,  the  interest  payable  semiannually,  and  that  no  loans 
shall  be  made  on  a  less  amount  of  land  than  10  acres  nor  for  a  larger 
amount  than  $2,000. 

These  figures  are  tentative,  of  course.  T  have  placed  them  as  they 
are  because  T  wanted  to  provide  for  the  small  farmer.  I  do  not  be- 
lieve that  we  are  called  upon  to  provide  a  method  by  which  men 
who  own  several  thousand  acres  of  land  and  are  very  wealthy  should 
be  able  to  borrow  money  from  the  Government,  although  that  might 
be  one  of  the  changes  advisable,  making  the  loan  larger;  personally 
I  would  make  the  maximum  amount  smaller  rather  than  larger.  I 
want  to  induce  men  who  are  not  already  farmers  to  go  on  farms;  to 
induce  men  who  are  tenants  to  become  landowners.  I  think  the 
model  condition  of  any  country  would  be  one  where  the  men  who 
tilled  the  soil  were  the  owners  of  the  soil  they  tilled. 

I  provide  that  one-fifth  of  this  mortgage  shall  become  due  in  five 
years,  and  that  thereafter  one-fifth  shall  become  due  in  each  year, 
so  that  the  entire  mortgage  will  mature  in  10  years,  and  also  provide 
that  at  the  time  of  the  maturity  of  any  interest  pa3'ment  the  farmer 
can  pay  $100  or  any  multiple  of  $100  and  clear  up  his  entire  loan  if 
he  desires  to,  and  that  in  making  such  payments  the  interest  thereon 
shall  afterwards  cease. 

In  section  3  I  make  provision  for  the  borrower  and  define  who  the 
borrower  can  be.  He  can  make  application  before  a  postmaster 
anywhere  in  the  United  States,  which  application  must  be  made 
under  oath.  He  must  establish  that  he  is  a  man  of  good  moral 
character,  and  has  a  good  reputation  in  the  neighborhood  where  he 
resides;  and  it  provides  that  no  loan  shall  be  made  to  any  person 
who  is  not  an  actual  resident,  and  engaged  in  the  cultivation  of  the 
land  offered  as  security,  with  the  exception  that  where  he  is  purchas- 
ing the  land,  or  borrowing  money  for  the  purpose  of  building  on  it, 
under  proper  rules  and  regulations  made  by  the  bureau,  the  money 
can  be  advanced.  And  this  section  provides  that  the  loan  shall 
not  exceed  one-half  of  the  value  of  the  land. 

This  section  also  provides  for  what  purposes  the  loan  can  be  had. 
There  are  just  three  purposes  allowed  in  the  bill:  First,  to  make 
payment  of  part  of  the  purchase  money  of  the  land  mortgaged; 
second,  to  pay  off  an  indebtedness  existing  against  the  land;  third,  to 
build  improvements  on  the  land,  and  then  there  is  a  proviso  that 
under  proper  rules  and  regulations  the  bureau  can  permit  50  per 
cent  of  the  loan  to  be  used  for  the  purchase  of  stock  and  farming 
implements. 

These  are  details;  something  of  the  kind  I  think  ought  to  be  in 
the  bill.     It  may  be  that  changes  could  be  made  to  advantage. 

Section  4  of  the  bill  provides  for  confidential  reports  to  be  made 
by  postmasters  whenever  they  are  asked  to  make  them.  Now,  gentle- 
men, there  is  not  a  place  in  the  United  States,  with  the  machinery 
we  now  have,  where  the  Government  at  Washington  could  not  get 
confidential  information  with  regard  to  any  man  who  is  making 
application  for  a  loan.  There  is  not  a  place  that  is  not  within  a 
reasonable  distance  of  a  postmaster,  who  is  occupying  a  position  of 


920  RURAL  CREDITS. 

trust  under  the  United  States.  There  would  not  be  one  time  in  a 
thousand  where  an  application  would  be  made  where  the  postmaster 
in  the  vicinity  would  not  know  the  man  personally,  and  not  only  know 
him  personally  but  know  all  about  him.  He  would  know  his  reputa- 
tion; he  would  know  whether  he  was  honest  or  dishonest;  he  would 
know  whether  he  was  a  man  of  good  character  or  otherwise.  So  that 
we  are  in  shape  now,  with  the  machinery  we  have  and  without  addi- 
tional expense,  to  get  practically  all  the  information  we  would  want 
in  order  to  make  a  safe  loan. 

Section  5  provides  for  an  abstract  of  title,  and  the  appraisers,  etc., 
going  into  some  detail  as  to  just  what  shall  be  done  in  order  to 
make  a  prima  facie  showing  to  get  a  loan. 

Section  6  provides  that  the  United  States  district  attorney  of  the 
district  where  the  land  is  situated  shall  pass  on  the  abstract.  Again, 
here  Ave  have  the  machinery,  the  legal  machinery,  to  put  this  into 
operation.  It  provides  also  that,  in  case  of  foreclosure,  such  district 
attorney  shall  represent  the  bureau. 

Section  7  provides  that  post-office  inspectors,  deputy  United  States 
marshals,  and  other  officials  of  the  United  States  Government  shall 
make  investigations,  when  called  upon  by  this  bureau,  and  to  make 
confidential  reports. 

Section  8  provides  for  forfeitures  in  certain  cases,  so  that  if,  after 
taking  all  of  the  safeguards  provided  by  law,  the  Government  should 
be  deceived,  as  occasionally  it  would  be,  without  any  doubt,  they 
could  take  advantage  under  the  law  of  facts  that  would  enable  them 
to  immediately  foreclose  the  mortgage. 

This  section  provides  that  if  the  owner  of  the  land  shall  permit 
the  taxes  to  become  delinquent,  if  he  has  not  applied  the  money  as 
he  promised  he  would,  or  if  he  has  made  any  false  statement  in  his 
application,  or  if  he  neglects  to  properly  care  for  the  improvements 
on  the  land,  or  does  any  other  act  that  materially  injures  the  value 
of  the  security  either  by  overt  act  or  by  neglect  or  inattention,  the 
Government  can  foreclose  the  mortgage,  declare  it  all  due  and  pay- 
able, and  thereafter  the  loan  shall  draw  interest  at  the  rate  of  6 
per  cent. 

Section  9  provides  for  the  making  of  interest  payments.  I  have 
endeavored  all  the  way  through  to  make  it  just  as  cheap  and  as  easy 
as  possible  for  the  man  who  borrows  the  money — in  the  first  place, 
to  get  the  money,  and  in  the  next  place,  to  pay  the  debt — and  this 
provides  that  he  can  pay  to  the  postmaster,  and  that  the  postmaster 
shall  remit  it,  and  provides  that  the  funds  that  this  bureau  has  on 
hand  shall  be  kept  on  deposit  in  one  or  more  of  the  Federal  reserve 
banks  that  are  already  provided  for  by  law. 

I  have  made  provision  in  section  11  that  the  Government  can 
take  up  a  prior  lien  which  has  escaped  their  attention  and  pay  the 
tax  or  any  prior  lien.  It  can  purchase  the  land  at  a  foreclosure  sale, 
and  after  having  purchased  the  land  can  sell  it  again  without  getting 
consent  of  Congress.  Now,  in  brief,  that  is  the  method  provided  in 
this  bill  for  the  loaning  of  money. 

We  now  come  to  the  proposition  of  the  Government  getting  the 
money  for  the  purpose  of  making  the  loans,  and,  briefly  stated,  in 
section  -12  it  is  provided  that  this  bureau  shall  issue  the  bonds  of  the 
United  States,  payable  in  10  years,  drawing  2>\  per  cent  interest. 


RURAL   CREDITS.  921 

That  is  one-half  per  cent  interest  less  than  they  get  for  the  farm 
loan,  and  it  provides  that  the  bonds  shall  be  issued  in  denominations 
of  $100  or  any  multiple  thereof. 

It  is  my  belief  that,  if  this  were  enacted,  the  money  coming  into 
this  bureau  would  come  from  the  small  investor,  often  from  children 
who  are  saving  their  pennies,  and  when  they  get  $100  they  would 
invest  it  in  these  Government  bonds  drawing  3^  per  cent  interest. 
Money  would  come  out  of  the  community  in  which  the  land  was 
located  upon  which  the  loans  were  made. 

In  other  words,  it  would  provide  for  a  clearing  house  where  the 
man  who  has  the  money  and  wants  to  loan  it  on  security  guaranteed 
by  the  Government  could  take  his  money  and  where  the  man  who 
wants  to  borrow  it  on  the  security  provided  for  in  the  bill  could 
come  in  and  get  it. 

It  might  be  compared  to  a  bank,  although  it  has  not  the  functions 
of  an  ordinary  bank.  It  would  be  a  bank,  if  you  called  it  such, 
where  only  one  kind  of  deposits  are  received — deposits  due  in  10 
years ;  time  deposits  due  in  10  years — and  one  that  would  loan  money 
only  on  land,  as  provided  for  in  the  bill. 

One  of  the  reasons  why  an  ordinary  bank  can  not  loan  money 
on  farms  is  because  the  bank's  obligations  are  demand  obligations, 
mostly.  And  if  they  are  not  demand  obligations  they  are  at  least 
short-time  obligations,  and  they  must  make  loans  that  are  usually 
called  "  liquid,"  so  they  can  realize  on  them  without  delay. 

If  we  get  such  a  thing  as  a  bank  that  would  receive  money  on  de-. 
posit  and  issue  certificates  on  it  payable  in  10  years,  these  condi- 
tions would  not  exist;  and  this  would  be  a  bank,  if  you  called  it  a 
bank,  that  received  deposits  only  from  those  who  are  willing  to; 
allow  their  deposits  to  rest  for  10  years. 

My  judgment  is  that  this  bureau  would  get  money  from  every 
hamlet,  and  from  every  post  office,  and  from  every  locality  in  the 
United  States.  It  is  not  putting  the  Government  in  debt,  except  in 
the  most  technical  sense,  because  I  think  anyone  will  concede  that 
if  this  bureau  were  properly  managed  it  would  be  the  safest  busi- 
ness that  the  Government  has  ever  undertaken.  There  would  be  no 
danger  of  there  coming  a  time  when  they  could  not  meet  their  obli- 
gations. 

I  have  also  provided  in  this  section — or  in  some  other  section,  I 
think  it  is  this  one — that  after  the  act  has  been  in  force  one  year 
this  bureau  will  have  the  right  to  lower  the  rate  of  interest  charged 
on  the  loans  made  thereafter  if  the  business  will  warrant  it. 

My  own  judgment  is  that  we  will  find  one-half  of  1  per  cent  will 
be  much  more  of  a  margin  than  will  ever  be  necessary,  and  that 
there  will  be  a  large  profit  accruing  to  the  Government  on  account 
of  it ;  and  I  have  stipulated  in  the  bill  that  the  intention  of  the  law 
is  that  the  bureau  shall  loan  the  money,  charging  as  low  a  price  as 
it  can,  and  as  experience  shows  it  can  be  done,  to  meet  the  obliga- 
tions the  Government  assumes  when  it  issues  the  10-year  bonds. 

So,  in  my  judgment,  after  this  bill  has  been  in  force  for  a  while, 
we  will  find  the  farmer  getting  money  at  less  than  4  per  cent. 

I  had  a  talk  yesterday  with  Senator  Dillingham,  of  Vermont,  who 
is  connected  with  one  of  the  large  insurance  companies.  I  can  not 
recall  the  name  of  it  just  now.  Senator  Hollis,  do  you  know  the 
name? 


922  RURAL   CREDITS. 

Senator  Hollis.  Perhaps  it  is  the  National  Union,  I  am  not  sure. 

Senator  Norris.  No  ;  I  do  not  think  that  is  it. 

Senator  Hollis.  This  is  a  Vermont  company? 

Senator  Norris.  Yes.  It  is  not  material,  however,  what  the  name 
of  the  company  is.  They  have  been  lending  money  for  several 
years  on  farm  loans.  Senator  Dillingham  told  me  yesterday  that 
they  had  to  charge  off  on  their  books — they  invest  in  railroad  bonds 
and  all  kinds  of  securities  in  addition  to  farm  loans — that  they  had 
to  charge  off  on  their  books  several  million  dollars  last  year  on  ac- 
count of  the  depreciation  in  the  value  of  a  great  many  of  their  securi- 
ties ;  but  not  $1  was  charged  off  on  account  of  farm  loans ;  and  that 
taking  their  business  all  together,  taking  it  in  the  aggregate,  the 
profit  on  the  farm  loans  was  sufficient  to  give  them  a  profit  on  the 
entire  business,  although  they  had  charged  off  a  great  deal  of  money 
on  account  of  other  securities. 

He  told  me  that  with  $28,000,000  of  farm  loans  on  the  1st  day 
of  January  this  year  there  was  not — now,  it  might  have  been  a  small 
amount,  but  I  think  he  said  there  was  not  a  dollar  of  unpaid  inter- 
est, no  foreclosures  pending,  and  nothing  of  that  kind.  If  carefully 
done,  it  is  the  safest  business  in  the  world. 

Eeferring  again  to  the  question  of  this  getting  into  politics,  in 
addition  to  those  provisions  that  I  have  referred  to  in  regard  to 
the  bureau  itself,  and  keeping  it  out  of  politics,  I  have  provided  in 
section  17 — but  first  let  me  say  that  it  was  argued  here  the  other  day 
by  the  expert  of  this  committee,  in  answer  to  a  question,  I  think,  that 
I  asked  myself,  that  if  the  Government  would  go  into  the  business 
of  making  loans  direct  it  would  become  a  great  political  machine, 
and  that  Senators  and  Representatives  would  be  daily  going  after 
that  bureau,  and  saying,  "  Here  is  this  man,  or  that  man,  who  wants 
a  loan,  and  I  want  you  to  give  it  to  him." 

Senator  Hollis.  To  whom  do  you  refer,  Senator  Norris,  when 
you  say  "the  expert  of  this  committee"?  I  ask  that,  because  the 
record  ought  not  to  create  an  impression  that  we  have  had  any  ex- 
pert here  to  testify. 

Senator  Norris.  Well,  I  may  be  mistaken;  I  have  not  been  here 
to  many  of  your  hearings.     It  was  Dr.  Coulter  to  whom  I  referred. 

Senator  Hollis.  Oh,  yes;  but  he  is  not  the  expert  of  the  com- 
mittee. 

Senator  Norris.  He  is  not? 

Senator  Hollis.  No;  he  is  a  member  of  the  commission,  and  he 
testified  before  this  committee  in  just  the  same  way  that  the  other 
witnesses  did;  he  was,  however,  one  of  the  joint  authors  of  the 
Fletcher-Moss  bill. 

Senator  Norris.  Well,  perhaps  it  would  be  right  to  say  that  he 
is  "  an  expert." 

Senator  Hollis.  Yes. 

Senator  Norris.  I  think  he  is.  I  am  speaking  of  him  with  a  great 
deal  of  respect,  because  I  think  he  has  given  this  matter  a  great  deal 
of  study. 

Mr.  Weaver.  Would  you  pardon  a  suggestion  in  the  way  of  a  criti- 
cism of  section  13,  Senator  Norris? 

Senator  Norris.  Certainly. 


RURAL  CREDITS.  923 

Mr.  Weaver.  I  think  your  provision  is  exactly  right,  to  the  effect 
that  Senators  and  Representatives  ought  to  be  prohibited  from  ex- 
erting any  political  influence  of  any  kind  in  securing  these  loans; 
but  you  go  further  and  provide  for  the  forfeiture  of  the  office  of  the 
Senator  or  Representative  who  violates  that  provision,  I  suppose  by 
a  judgment  of  a  court,  and  that  could  not  be  done,  I  think.  Under 
the  Constitution  each  House  is  the  exclusive  judge  of  the  election 
and  qualifications  of  its  own  Members ;  and  the  only  way  you  can  get 
rid  of  a  Senator  or  Representative  is  by  expulsion  by  the  body  of 
which  he  is  a  Member. 

Senator  Norris.  Yes;  I  agree  with  you.  I  will  say  that  if  this 
were  the  law  it  would  be  the  duty  of  the  Senate  or  the  House  of 
Representatives  to  take  that  action. 

Mr.  Weaver.  Yes. 

Senator  Norris.  Of  course,  there  is  no  way  to  compel  them  to 
do  it. 

Senator  Hollis.  This  could  be  made  a  legal  cause  if  the  Senate  or 
the  House  should  choose  to  apply  it. 

Senator  Norris.  Yes.    But  it  is  provided  in  section  13 — 

that  it  shall  be  unlawful  for  any  Senator  or  Member  of  the  House  of  Repre- 
sentatives or  any  other  official  of  the  Government  of  the  United  States  to  use 
or  attempt  to  use  any  political  or  other  influence  to  induce  the  bureau  to  make 
or  refuse  to  make  any  loan  or  loans.  Any  person  found  guilty  of  the  conduct 
in  this  section  prohibited,  sball  be  deemed  guilty  of  a  misdemeanor,  and  upon 
conviction  thereof  shall  be  fined  in  any  sum  not  exceeding  $2,000,  and  in  addi- 
tion thereto  shall  be  removed  from  office. 

Even  if  the  provision  was  excluded,  which  Mr.  Weaver  referred  to, 
no  Congressman  would  take  that  risk. 

Mr.  Weaver.  Of  course,  the  theory  of  it  was  that  the  legislature 
should  be  independent  of  the  judiciary,  and  vice  versa. 

Senator  Norris.  Yes. 

Mr.  Weaver.  Otherwise  some  judge  might  depopulate  both 
Houses  of  Congress  if  he  got  angry  with  them. 

Senator  Norris.  Oh,  yes;  I  agree  with  you  on  that.  Of  course, 
this  penalty  would  never  be  applied,  because  all  of  you  know  that  if 
this  bill  were  passed  you  would  want  to  be  relieved  from  that  very 
business.  You  would  know  if  you  were  patriotic  and  honest  that 
you  ought  to  be  relieved  from  it,  and  that  it  was  entirely  outside  of 
your  business,  and  there  would  not  be  a  Member  of  Congress  who 
would  ever  be  guilty  of  it,  because  he  would  take  advantage  of  a 
law  made  for  his  protection  as  much  as  the  protection  of  the  Gov- 
ernment. 

Section  14  of  my  bill  provides  a  penalty  for  other  officials.  It 
provides: 

"  It  shall  be  unlawful  for  any  official  or  any  officer  or  member  of 
any  political  committee,"  and  so  forth;  it  goes  down  even  to  the 
committees  and  provides  a  penalty  there. 

In  order  to  go  a  little  further,  section  15  of  the  bill  provides  for 
publicity  and  makes  it  the  duty  of  this  bureau,  which  is  a  bureau 
that  is  removed  from  the  control  of  Members  of  Congress  and  other 
officials  of  the  Government — it  provides  that  this  bureau  shall  give 
publicity  to  any  attempt  that  is  made  by  anybody  to  influence  its 
actions. 


924  RURAL   CREDITS. 

Section  16  is  a  general  provision  that  provides  for  punishment  for 
false  representation. 

Thai  any  person  who  shall  make  any  false  representation  td  said  bureau  in 
connection  with  the  making  or  the  Investigation  of  any  application  for  a  loan 
shall  be  deemed  guilty  of  a  misdemeanor,  and  upon  conviction  thereof  shall 
be  fined  in  any  sum  uot  exceeding  $1,000  or  be  imprisoned  for  a  term  not 
exceeding  one  year,  or  both  such  fine  and  imprisonment,  in  the  discretion  of 
the  court. 

Now,  I  think,  gentlemen,  if  that  were  put  into  effect,  every  man 
in  every  community  would  have  an  interest  in  it,  and  it  would  be 
practically  an  impossibility  for  a  disreputable  man  to  come  any- 
where near  getting  along.  Men  who  live  in  a  community  where 
there  might  be  a  reckless  disreputable  character,  who  was  trying  to 
get  a  loan  from  the  Government,  would  be  interested  in  notifying 
the  Government,  and  after  a  proper  investigation  was  made  by  the 
proper  officers,  the  Government  would  be  fully  informed  as  to  just 
what  they  ought  to  do. 

There  are  some  other  objections  that  I  do  not  believe  I  care  to 
take  the  time  of  this  committee  to  discuss  now,  that  are  made  to  this 
principle,  and  as  I  said  at  the  beginning  of  my  study  of  this  ques- 
tion I  was  opposed  to  the  principle.  I  did  not  believe  (for  I  was 
taught  that  kind  of  politics)  that  it  would  be  wise  for  the  Govern- 
ment to  engage  in  anything  of  this  kind. 

I  have  now  reached  the  conclusion  that  it  is  proper,  because,  first, 
I  think  that,  properly  safeguarded,  there  is  absolutely  no  risks  to 
run ;  and  secondly,  because  it  would  be  a  great  step  toward  relieving 
a  situation  that  not  only  hurts  us  now  but  will  continue  to  hurt  us 
until  it  is  remedied. 

The  method  that  I  have  briefly  outlined  would,  in  my  judgment, 
bring  the  borrower  and  money  lender  together ;  it  would  remove  the 
middlemen;  it  would  remove  the  men  who,  following  an  honorable 
occupation — I  am  not  complaining  against  anybody — by  making  a 
living  and  making  fortunes,  making  millions  of  dollars  by  simply 
taking  the  money  on  the  one  hand  of  people  having  it  to  lend  and 
giving  it  to  the  fellow  on  the  other  hand  who  wants  to  borrow  it. 
If  we  can  relieve  the  man  who  borrows  the  money  from  the  payment 
of  these  commissions  that  are  necessary  to  keep  a  vast  army  of  men 
in  luxury  we  will  have  done  a  great  thing. 

The  bill  proposed  by  the  commission  provides  for  a  good  deal  of 
machinery.  That  mahcinery  must  all  be  oiled,  and  the  ultimate 
consumer  always  pays  all  the  expenses,  which,  in  this  case,  means 
the  man  who  borrows  the  money. 

We  have  passed  a  banking  and  currency  law  providing  for  a  new 
kind  of  currency  that  the  Government  issues,  and  that  the  Govern- 
ment is  obligated — and  again  I  want  to  say  that  I  am  not  speaking 
of  it  in  a  critical  sense  at  all.  I  am  only  using  it  as  an  illustration — 
that  the  Government  is  obligated  to  redeem;  it  is  the  obligation  of 
the  Government  primarily,  and  it  must  be  redeemed  by  the  Govern- 
ment, as  everybody  knows,  on  demand,  and  in  gold;  in  my  judgment 
we  are  not  taking  a  greater  step  in  the  way  of  governmental  assist- 
ance to  the  activities  of  the  citizenship,  if  we  pass  a  bill  providing 
for  a  bureau  of  farm  loans,  than  we  have  already  taken  in  the  bank- 
ing and  currency  act.  And,  in  my  judgment,  we  would  do  a  great 
deal  more  good  to  our  citizens  and  to  humanity  by  taking  this  step 
than  in  the  one  we  have  already  taken. 


RURAL   CREDITS.  925 

Senator  Hollis.  We  thank  you  very  much,  Senator  Norris,  for 
your  remarks. 

Senator  Norris.  I  wanted  to  ask  permission,  Mr.  Chairman,  to 
have  printed  as  a  part  of  my  remarks  the  bill  that  I  was  discussing, 
which  was  introduced  by  me  (S.  40G1). 

Senator  Hollis.  If  there  is  no  objection  that  will  be  done. 

(The  bill  referred  to  is  as  follows:) 

[S.  4061,  63d  Cong.,  2d  sess.] 

A  BILL  Providing  for  the  establishment  of  a  Bureau  of  Farm  Loans  in  the  Department 

of  Agriculture. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  there  is  hereby  established  in 
the  Department  of  Agriculture  a  bureau  to  be  called  the  Bureau  of  Farm  Loans. 
There  shall  be  appointed  a  director  of  said  bureau,  who  shall  receive  a  salary 
of  $6,000  per  annum,  and  an  assistant  director,  who  shall  receive  a  salary  of 
$4,500  per  annum.  The  assistant  director  shall  perform  the  duties  of  the 
director  of  said  bureau  in  case  of  the  death,  resignation,  removal  from  office, 
or  absence  of  the  director,  and  he  shall  also  perform  such  other  duties  as 
may  be  assigned  to  him  by  the  Secretary  of  Agriculture,  by  the  director,  or  by 
law.  There  shall  also  be  in  said  bureau  a  chief  clerk  and  such  other  agents, 
clerks,  inspectors,  and  employees  as  are  provided  for  in  this  act  or  as  may 
hereafter  be  authorized  by  law,  or  as  may  be  authorized  by  the  Secretary  of 
Agriculture.  The  director  and  assistant  director  shall  hold  their  respective 
offices  for  a  term  of  ten  years  and  shall  be  removed  from  office  during  such 
term  ouly  for  cause.  The  Secretary  of  Agriculture  can  remove  either  of  said 
officers  for  a  violation  of  law  or  neglect  of  duty,  but  only  after  a  public  trial 
upon  charges  duly  made,  of  which  the  accused  official  shall  have  reasonable 
notice,  and  then  only  upon  the  approval  in  writing  of  the  President  of  the 
United  States.  The  director  and  assistant  director  shall  be  appointed  by  the 
President,  by  and  with  the  advice  aud  consent  of  the  Senate,  and  in  case  there 
is  a  vacancy  in  either  of  said  offices  the  appointment  to  fill  the  same  shall  be 
made  for  the  full  term. 

Sec.  2.  That  under  the  rules  and  regulations  made  by  the  director  of  said 
bureau  and  approved  by  the  Secretary  of  Agriculture,  and  in  accordance  with 
the  provisions  hereinafter  provided,  the  said  bureau  shall  make  loan?  on  farm 
lands  located  in  any  of  the  States  of  the  Union  or  in  the  District  of  Columbia. 
Said' loans  shall  be  secured  by  mortgage  made  payable  to  said  bureau,  and  shall 
bear  interest  at  tbe  rate  of  four  per  centum  per  annum,  payable  semiannually. 
No  loan  shall  be  made  upon  any  tract  of  land  less  than  ten  acres  in  area. 
Loans  shall  be  made  only  for  $100  or  any  multiple  of  $100  up  to  and  including 
$2,000.  The  mortgage  securing  any  such  loan  shall  provide  that  at  the  end 
of  five  years  one-fifth  of  said  loan  shall  become  due.  and  that  thereafter  one-fifth 
of  said  loan  shall  become  due  each  year  until  the  entire  loan  matures.  Said 
mortgage  shall  also  provide  that  whenever  any  interest  is  due  the  mortgagor 
or  his  grantee  shall  have  the  right  to  pay  the  entire  loan  or  to  make  a  pay- 
ment of  $100  or  any  multiple  thereof  on  the  principal  thereof,  and  upon  such 
payment  being  made  the  interest  on  the  amount  so  paid  shall  thereupon  cease. 
Said  mortgage  shall  also  provide  that  both  principal  and  interest  shall  draw 
interest  at  the  rate  of  six  per  centum  per  annum  from  maturity. 

Sfc.  3.  That  no  person  shall  be  entitled  to  a  loan  of  money  from  said  bureau 
until  he  has  made  application  therefor  under  oath  upon  blanks  to  be  furnished 
by  said  bureau.  Such  application  can  be  sworn  to  before  any  person  author- 
ized to  administer  an  oath,  and  all  postmasters  and  their  deputies  in  the 
United  States  are  hereby  authorized  to  administer  oaths  to  applicants  making 
application  for  loans  uuder  this  act  and  to  administer  oaths  to  such  applicants 
or  other  persons  to  any  other  affidavit  made  necessary  by  the  rules  aud  regula- 
tions of  said  bureau.  Whenever  any  oath  is  administered  by  a  postmaster  or 
deputy  postmaster  no  charge  shall  be  made  therefor.  No  person  shall  be  enti- 
tled to  a  loan  under  this  act  who  is  not  of  good  moral  character  and  who 
does  not  establish  to  the  satisfaction  of  said  bureau  that  he  is  honest  and 
bears  a  good  reputation  in  the  neighborhood  where  he  resides.  No  loan  shall 
be  made  to  any  person  who  is  not  an  actual  resident  and  engaged  in  the  culti- 


926  RURAL   CREDITS. 

valion  of  the  land  offered  as  security:  Provided,  That  where  the  applicant  for 
the  loan  is  endeavoring  to  secure  the  money  for  the  purpose  of  building  a  house 
upon  the  land  or  for  the  purpose  of  making  part  payment  upon  the  purchase 
price  thereof,  the  bureau  can  waive  this  stipulation  if  convinced  that  it  is  the 
intention  of  applicant  as  soon  as  possible  to  reside  upon  the  land  and  to  culti- 
vate the  same,  the  intention  of  this  act  being  to  provide  money  only  for  persons 
who  intend  to  reside  upon  and  cultivate  the  land  which  they  offer  as  security. 
No  loan  shall  be  made  for  more  than  one-half  of  the  value  of  the  land  offered 
as  security  and  only  for  one  or  more  of  the  following  purposes : 

First.  To  make  payment  of  part  of  the  purchase  money  of  the  land  to  be 
mortgaged. 

Second.  To  pay  off  an  indebtedness  already  existing  against  said  land. 

Third.  To  build  a  house,  barn,  or  other  building  or  buildings  upon  said  land : 
Provided,  That  said  bureau,  under  proper  rule  and  regulation,  can  provide  that 
not  to  exceed  fifty  per  centum  of  any  loan  may  be  used  for  the  purchase  of 
stock  and  farm  implements.  Any  applicant  or  other  person  testifying  falsely 
to  any  material  fact  in  any  application  or  other  affidavit  connected  with  any 
loan  under  this  act  shall,  upon  conviction  thereof,  be  deemed  guilty  of  perjury 
and  punished  accordingly. 

Sec.  4.  That  it  shall  be  the  duty  of  every  postmaster,  deputy  postmaster,  or 
other  employee  or  official  of  the  Government,  without  fee  or  pay  therefor,  to 
make  confidential  reports  to  said  bureau  upon  request  therefor,  upon  anything 
pertaining  to  any  loan  and  upon  the  character  or  standing  of  any  applicant  or 
witness.  Such  postmaster,  deputy  postmaster,  or  other  officer  shall  also,  when 
requested  by  said  bureau,  appoint  appraisers  to  appraise  the  land  offered  for 
security  under  the  regulations  of  and  upon  the  blanks  furnished  by  said  bureau. 

Sec.  5.  That  any  person  applying  for  a  loan  shall  furnish  to  said  bureau  an 
abstract  of  title  to  the  land  offered  as  security  and  shall  pay  all  the  necessary 
expenses  connected  with  the  making  of  said  loan.  Such  applicant  shall  furnish 
conveyance  for  the  appraisers  appointed  to  fix  a  value  upon  land  offered  for 
the  loan,  or  shall  pay  for  the  transportation  of  said  appraisers  to  and  from  the 
land,  and  if  required  by  said  appraisers,  he  shall  pay  a  fee  to  each  of  them,  not 
exceeding  two  in  all,  which  fee  shall  be  ascertained  in  advance  and  fixed  by 
the  official  appointing  said  appraisers.  It  shall  be  the  duty  of  said  bureau  and 
the  officials  appointing  said  appraisers  to  select  efficient,  qualified,  and  unbiased 
persons,  but,  at  the  same  time,  to  regulate  any  fee  that  they  may  charge  for 
such  service  so  as  to  make  the  same  as  small  as  possible.  Said  appraisers  shall 
make  return  upon  blanks  provided  by  the  bureau  and  shall  swear  to  the  same 
before  some  person  qualified  under  this  act  to  administer  an  oath. 

Sec.  6.  That  it  shall  be  the  duty  of  every  United  States  district  attorney  or 
deputy  district  attorney,  upon  request  from  said  bureau,  to  examine  the  ab- 
stract of  title  to  any  land  offered  as  security  under  this  act  and  to  make 
return  thereof  to  the  said  bureau.  It  shall  likewise  be  the  duty  of  any  dis- 
trict attorney  or  deputy  district  attorney,  when  requested  by  the  bureau,  to 
foreclose  any  mortgage  taken  as  security  for  a  loan  under  this  act  and  to  pros- 
ecute the  same  to  final  judgment.  All  such  services  so  rendered  by  an  attorney 
connected  with  the  Department  of  Justice  shall  be  a  part  of  his  official  duty 
and  shall  be  rendered  without  pay,  but  said  bureau  shall  pay  in  all  cases  the 
actual  expenses  of  any  such  attorney  in  connection  with  such  litigation. 

Sec.  7.  That  it  shall  be  the  duty  of  any  post-office  inspector,  United  States 
marshal,  deputy  United  States  marshal,  or  other  employee  or  inspector  of  any 
other  department,  when  engaged  in  official  business  in  the  vicinity  of  any  land 
mortgaged  to  said  bureau,  upon  request  of  said  bureau,  to  make  a  personal  in- 
spection of  the  same  and  to  report  thereon  to  said  bureau.  Such  inspection 
shall  be  made  without  charge,  but  said  bureau  shall  pay  the  actual  expenses,  if 
any,  made  necessary  thereby.  It  shall  likewise  be  the  duty  of  any  postmaster, 
deputy  postmaster,  or  other  governmental  official  residing  or  doing  business  in 
the  vicinity  of  any  land  that  has  been  mortgaged  to  said  bureau,  upon  request 
of  said  bureau,  to  make  a  report  upon  said  loan  or  as  to  whether  the  money 
borrowed  upon  said  land  has  been  expended  or  is  being  expended  in  accordance 
with  the  purposes  for  which  the  same  was  loaned;  and  in  making  any  loan  under 
this  act  the  said  bureau  can  withhold,  under  such  rules  and  regulations  as  it 
may  prescribe,  any  part  of  the  same  for  the  purpose  of  insuring  the  application 
of  said  loan  to  the  purposes  for  which  the  same  was  made. 

Sec.  8.  That  should  the  owner  of  any  land  mortgaged  to  said  bureau  fail  or 
neglect  to  pay  the  interest  thereon  at  or  before  the  time  when  the  same  is  due, 
or  permit  the  taxes  on  the  land  to  become  delinquent,  or  neglect  or  refuse,  with- 


RUBAL   CEEDITS.  927 

out  the  consent  of  said  bureau,  to  apply  the  money  borrowed  in  accordance  with 
the  statements  made  in  the  application  for  the  loan,  or  if  he  has  made  any  false 
statement  as  to  any  material  matter  in  said  application,  or  if  be  neglects  to 
properly  care  for  the  improvements  on  said  land,  or  if  he  do  any  other  act  that 
materially  injures  the  value  of  the  security,  eitber  by  overt  act  or  by  neglect 
and  inattention,  or  sbould  said  land,  without  the  consent  of  the  bureau,  cease  to 
be  farmed  and  cultivated,  then  the  said  bureau  shall  bave  the  right,  at  its  elec- 
tion and  without  notice,  to  declare  the  entire  amount  secured  by  said  mortgage 
due  and  payable,  and  may  take  any  steps  necessary  for  the  foreclosure  of  said 
mortgage  and  the  collection  of  said  loan ;  and  from  and  after  said  election  so 
made  by  the  bureau  the  amount  secured  by  said  mortgage  shall  bear  interest  at 
the  rate  of  six  per  centum  per  annum. 

Sec.  9.  That  in  making  any  payment  of  interest  or  payment  of  the  principal, 
or  part  payment  of  the  same,  upon  any  loan  made  under  this  act  the  person 
making  such  payment  can  pay  the  same  to  any  postmaster  designated  by  said 
bureau,  and  the  same  shall  be  transmitted  by  said  postmaster  either  directly  to 
the  bureau  or  to  such  Federal  reserve  bank  as  may  be  designated  by  the  bureau, 
and  such  postmaster  shall  immediately  notify  the  bureau  of  such  payment  and 
the  transmission  of  the  money  so  paid,  and  thereupon  credit  shall  be  given  for 
the  payment  of  such  money  as  of  the  date  the  same  was  paid  to  the  postmaster. 
The  said  bureau  shall  notify  each  person  to  whom  a  loan  has  been  made  as  to 
the  post  office  where  payments  upon  his  loan  can  be  made.  The  bureau  may 
make  such  designation  by  general  circular  or  by  specific  notice  in  writing,  and 
can  designate  by  such  notice  a  post  office  within  a  county  or  other  district  to 
which  all  payments  within  such  district  can  be  made. 

Sec.  10.  The  bureau  sball  deposit  all  money  it  receives  in  the  Federal  reserve 
banks  provided  for  in  the  act  of  December  twenty-third,  nineteen  hundred  and 
thirteen,  and  in  making  disbursements  of  money  it  shall  do  so  by  check  upon 
such  banks.  Any  Federal  reserve  bank  organized  under  the  said  Federal 
reserve  act  is  hereby  authorized  and  instructed  to  receive  such  deposits  and  to 
pay  checks  or  drafts  drawn  by  said  bureau  upon  said  deposits,  the  same  as  other 
accounts  authorized  to  be  held  by  said  banks  under  said  act. 

Sec  11.  That  the  bureau  shall  have  power  to  sue  and  to  be  sued,  to  com' 
plain  and  defend  in  any  court  of  law  or  equity  having  jurisdiction  of  the  sub- 
ject matter  in  litigation.  To  protect  any  loan  it  may  pay  the  taxes  or  any 
other  prior  lien  due  and  unpaid  against  the  land  securing  said  loan,  and  in  such 
case  the  amount  paid  in  liquidation  of  such  taxes  or  lien  shall  be  added  to  and 
become  a  part  of  its  mortgage  on  said  real  estate  and  from  the  date  of  such 
payment  shall  bear  interest  at  the  rate  of  6  per  cent  per  annum.  It  shall 
have  the  right  and  authority  to  purchase  at  sale  under  judgments  or  decrees, 
of  court  rendered  in  foreclosure  proceedings  of  any  mortgage  it  owns  the  land 
so  mortgaged,  but  in  such  case  it  shall  not  bid  a  greater  amount  for  such 
land  at  such  sale  than  the  amount  due  in  such  proceedings,  together  with  costs 
and  expenses  expended  in  relation  to  said  loan.  In  case  the  bureau  obtains 
title  as  set  forth  in  this  section  to  any  real  estate,  it  shall  have  authority  to 
sell  the  same  at  such  price  as  may  be  for  the  best  interests  of  said  bureau 
in  the  judgment  of  the  director  and  to  convey  title  to  the  purchaser  thereof  by 
deed  signed  and  acknowledged  by  the  director.  In  making  such  sale  it  shall 
be  authorized  to  take  a  return  mortgage  from  the  purchaser  for  part  of  the 
purchase  price  thereof  in  accordance  with  the  provisions  of  this  act. 

Sec  12.  That  in  order  to  secure  money  for  the  purpose  of  making  loans  as 
hereinbefore  provided  the  said  bureau  shall  issue  bonds  which  shall  be  the 
obligation  both  as  to  principal  and  interest  of  the  United  States.  Said  bonds 
shall  be  issued  in  denominations  of  $100  or  any  multiple  thereof  and  shall  bear 
interest  at  the  rate  of  3i  per  centum  per  annum,  payable  semiannually.  Said 
bonds,  together  with  the  interest  thereon,  and  also  all  notes  and  mortgages 
taken  by  said  bureau  upon  farm  lands,  shall  be  entirely  free  from  all  taxation 
of  every  kind,  National,  State,  and  municipal.  When  in  need  of  money  for 
thepurpose  of  making  loans  as  provided  in  this  act,  the  bureau  shall  give  notice 
of  its  intention  to  issue  bonds  and  invite  from  the  public  generally  subscrip- 
tions to  said  bonds.  If  the  amount  of  subscriptions  shall  exceed  the  then  de- 
mand of  the  bureau,  it  shall  give  preference  in  accepting  money  for  said  bonds 
to  those  offered  in  the  smallest  amounts,  the  intention  being  to  give  as  wide 
circulation  and  distribution  to  said  bonds  throughout  the  country  as  is  possible. 
Said  bonds  shall  be  issued  for  the  term  of  ten  years,  with  the  privilege  on  the 
part  of  said  bureau  of  paying  the  same  upon  the  date  of  maturity  of  any  inter- 
est payment  after  five  years.    After  this' act  shall  have  been  in  active  operation 


928  KUEAL   CREDITS. 

for  one  year  said  bureau  shall  have  authority  to  change  the  rate  of  interest 
charged  for  farm  loans  thereafter  made  and  to  also  change  the  rate  of  interest 
upon  the  bonds  herein  provided  for  thereafter  issued,  it  being  the  object  of 
this  act  to  pay  as  low  a  rate  of  interest  upon  said  bonds  as  will  float  said  bonds 
at  par  and  to  charge  as  low  a  rate  of  interest  upon  the  farm  loans  herein  provided 
for  as  will  bring  in  sufficient  revenue  to  pay  said  bonds,  the  interest  thereon, 
the  expenses  connected  with  the  making  of  said  loans,  and  any  losses,  if  any, 
incurred  therein. 

Sec.  13.  That  it  shall  be  unlawful  for  any  Senator,  Member  of  the  House  of 
Representatives,  or  any  other  official  of  the  Government  of  the  United  States 
to  use  or  attempt  to  use  any  political  or  other  influence  to  induce  said  bureau  to 
make  or  refuse  to  make  any  loan  or  loans.  Any  person  found  guilty  of  the 
conduct  in  this  section  prohibited  shall  be  deemed  guilty  of  a  misdemeanor  and 
upon  conviction  thereof  shall  be  fined  in  any  sum  not  exceeding  $2,000  and  in 
addition  thereto  shall  be  removed  from  office. 

Sec.  14.  That  it  shall  be  unlawful  for  any  official  of  any  State  or  any  officer 
or  member  of  any  political  committee  to  use  or  attempt  to  use  any  political  or 
other  influence  to  induce  said  bureau  to  make  or  refuse  to  make  any  loan  or 
loans.  Any  person  found  guilty  of  the  conduct  in  this  section  prohibited  shall 
be  deemed  guilty  of  a  misdemeanor  and  upon  conviction  thereof  shall  be  fined 
in  any  sum  not  exceeding  $1,000. 

Sec.  15.  That  it  shall  be  the  duty  of  the  officials  of  said  bureau  to  give 
publicity  to  any  letter  or  communication  from  any  of  the  persons  named  in  the 
above  two  sections,  requesting  or  urging  said  bureau  to  make  or  to  refuse  to 
make  and  loan  and  to  give  to  the  Department  of  Justice  the  names  of  any  of 
said  mentioned  persons  attempting  to-  influence  the  action  of  said  bureau  in 
allowing  or  refusing  any  application  for  a  loan,  together  with  the  evidence  con- 
nected with  said  attempt,  whether  the  same  be  in  writing  or  otherwise. 

Sec.  16.  That  any  person  who  shall  make  any  false  representation  to  said 
bureau  in  connection  with  the  making  or  the  investigation  of  any  application 
for  a  loan  shall  be  deemed  guilty  of  a  misdemeanor  and  upon  conviction  thereof 
shall  be  fined  in  any  sum  not  exceeding  $1,000  or  be  imprisoned  for  a  term  not 
exceeding  one  year,  or  both  such  fine  and  imprisonment,  in  the  discretion  of  the 
court. 

Senator  Hollis.  Gentlemen,  Senator  Lane,  of  Oregon,  wants  to 
bring  to  our  attention  a  local  condition  that  exists  in  his  part  of  the 
country  concerning  land  that  is  still  owned  by  the  Government,  but 
is  in  the  hands  of  men  who  may  want  to  borrow  money ;  and  Senator 
Lane  has  some  other  gentlemen  here  who  know  about  that  situation, 
and  without  objection  he  will  take  charge  of  the  matter  of  presenting 
this  situation  to  the  committee. 

STATEMENT  OF  HON.  HARRY  LANE,  A  SENATOR  FROM  THE  STATE 

OF  OREGON. 

Senator  Lane.  Mr.  Chairman  and  gentlemen  of  the  committee,  I 
want  to  call  attention,  if  you  please,  to  a  condition  in  relation  to  the 
pending  bill  which  I  think  should  be  provided  for,  a  condition  which 
relates  not  so  much  to  the  bill  as  it  does  to  a  large  number  of  people 
unprovided  for  in  the  bill. 

As  I  understand  it,  the  bill  is  so  drafted  that  no  money  can  be 
loaned  except  where  it  will  be  a  first  lien.  And  that  will  exclude  a 
large  number  of  people  who  need  money  more  than  anyone  else  and 
who  are  the  people  who  are  doing  the  pioneer  work  in  this  country. 

I  refer  to  people  on  the  Government  reclamation  projects.  They 
are  poor  people,  as  a  rule;  they  are  almost  invariably  men  with 
families,  and  they  go  out  in  the  West  and  they  undertake  the  reclama- 
tion of  land  which,  until  it  receives  the  benefit  of  their  labor  and  the 
benefit  of  the  water  which  the  Government  puts  upon  it,  is  a  desert. 


RURAL   CREDITS.  929 

They  transform  that  desert  into  a  garden;  they  transform  it  into 
an  oasis.  Any  of  you  who  have  been  on  the  Snake  River  in  Idaho  in 
the  old  daj^s  and  remember  that  sagebrush  and  jack-rabbit  country 
and  go  through  there  now  and  see  it  the  most  beautiful  and  cultivated 
land  in  America  will  wonder  at  it,  as  you  see  the  sagebrush  at  one 
side  and  the  first  cut  of  the  furrow  giving  40  bushels  of  wheat  to  the 
acre  in  places,  and  alfalfa  cutting  three  crops  a  year,  and  the  most 
beautiful  fruit,  and  fine  homes,  and  the  happy,  thriving  little  com- 
munities— you  can  see  what  they  are  doing.  They  are  doing  a  great 
pioneer  work,  and  a  work  that  is  going  to  put  this  country  into  the 
possession  of  resources  worth  hundreds  of  millions  of  dollars. 

Here  is  the  condition  that  confronts  those  people.  That  land  is 
arid  land.  It  has  never  had  water  on  it,  probably,  in  thousands  of 
years.  So  that  when  you  put  water  on  it,  it  takes  several  years  to 
establish  a  level  upon  which  3tou  can  cultivate  the  soil,  and  then  it 
brings  to  the  surface  the  crops,  and  for  the  first  three  or  four  years  it 
is  really  not  very  productive.  A  great  many  of  those  people — I  should 
say  nearly  one-half  of  them — have  gone  broke  on  the  proposition  for 
the  reason  that  the  Reclamation  Service,  not  understanding  it,  crowds 
them  on  their  payments.  They  would  sell  their  last  hog,  they  would 
sell  their  last  horse  to  hold  on  to  the  land,  and  yet  they  fail  for  the 
reason  that  they  do  not  have  the  money  to  pay  for  it  in  time. 

Now,  after  four  or  five  years  that  land  becomes  valuable,  and  then, 
it  is  worth  $100  an  acre.  When  they  took  hold  of  it  it  was  not  worth 
a  cent  for  any  human  use. 

Now,  those  people  are  the  ones  who  need  to  be  helped  along  for  the 
first  few  years.  They  are  a  class  of  people  who  want  to  live  there, 
to  make  homes  there,  and  to  build  up  that  community.  They  are  not 
sharpers,  they  are  not  the  class  of  people  that  would  take  advantage 
of  anyone,  and  they  are  the  identical  ones  that,  if  you  can  provide  for 
them  safely — and  I  want  to  say  that  I  do  not  wish  the  Government  to 
take  a  particle  of  chance  in  the  matter — should  be  provided  for  and 
have  the  use  of  this  money.  Under  your  bill  as  it  is  at  present  this 
can  not  be  done. 

I  called  the  attention  of  Secretary  Lane,  of  the  Interior  Depart- 
ment, to  this  matter,  and  he  knows  how  vitally  important  it  is  to  his 
department,  and  he  has  written  me  a  letter  here,  and  he  has  sent  Mr. 
W.  A.  Ryan,  of  the  department,  and  Judge  King,  a  representative 
of  the  department,  to  make  a  statement  before  the  committee.  Mr. 
F.  H.  Newell,  as  head  of  the  Reclamation  Service,  as  well  as  Mr. 
Ryan  and  Judge  King,  have  written  a  letter  in  which  they  offer  an 
amendment  to  the  bill  which  they  think  will  make  the  Government 
safe  and  at  the  same  time  put  us  in  a  position  where  we  can  give  these 
people  the  real  help  that  they  actually  need.  I  do  not  want  you  to 
take  any  chances.  I  would  not  ask  you  to  have  the  Government  take 
any  chances. 

Before  leaving  the  subject  I  want  to  suggest  to  the  committee  that 
this  is  no  new  matter,  and  it  is  not  an  untried  proposition.  In  New 
Zealand  they  have  been  doing  this  for  25  years.  I  do  not  know  how 
much  attention  you  have  paid  in  these  hearings  to  New  Zealand,  but 
they  have  been  doing  it  there,  as  I  say. 

Senator  Hollis.  Doing  what  ? 

Senator  Lane.  Loaning  money  to  the  farmers  to  open  new  land. 

37031—14 59 


930  RURAL   CREDITS. 

Senator  Hollis.  Yes. 

Senator  Lane.  In  New  Zealand  a  man  goes  to  the  Government  and 
wants  a  piece  of  land,  and  they  sell  him  land  on  time,  and  they  also 
loan  him  money  to  make  improvements  with. 

Senator  Hollis.  Well,  is  that  Government  land,  Senator  Lane? 

Senator  Lane.  Yes;  Government  land — land  which  they  buy  and 
furnish  free  to  him. 

Senator  Hollis.  The  same  as  we  do  in  the  West,  only  they  charge 
him  more? 

Senator  Lane.  They  charge  him  6  per  cent.  They  borrow  the 
money  in  England  at  4  per  cent  and  they  put  1  per  cent  into  a  sink- 
ing fund.  They  have  never  lost  a  cent.  In  fact,  they  are  making  a 
profit. 

Now,  there  is  another  difference  between  the  two  countries.  Just 
see  the  difference  between  the  people  in  our  country,  whom  we  just 
sit  down  upon  and  oppress  until  they  are  rather  discouraged  from 
ever  getting  out  from  under,  and  the  people  in  that  country,  where 
the  Government  stands  by  the  farm  operator,  who,  as  Senator  Norris 
said,  is  the  real  basis  of  the  prosperity  of  a  country;  and  there  they 
help  him  along  and  see  that  he  has  a  chance  to  pull  through.  In 
fact,  they  give  him  a  chance  to  pay  the  money  and  see  that  he  does 
pull  through.  They  give  him,  for  instance,  three  days'  work  on  the 
.roads  at  $2  a  day,  working  eight  hours  a  day.  And  anybody  can  get 
that  road  work  at  $2  a  day. 

Here  is  one  thing  it  has  done.  It  has  given  them  very  good  roads. 
It  has  given  the  farmer  a  chance  to  get  on  his  feet. 

Another  thing  it  has  done  is  that  it  has  put  the  hobo  out  of  busi- 
ness. There  is  not  a  hobo  in  the  country,  and  there  would  not  be 
a  hobo  in  this  country  if  we  had  such  a  law  as  that.  The  hobo  costs 
this  country  $2  a  day  for  his  support.  He  does  not  earn  that  $2  a 
day,  but  he  steals  it.  He  steals  chickens;  he  steals  corn;  he  is  a 
parasite  and  lives  off  the  community,  but  he  does  actually  cost  us  $2 
a  day  to  support  him. 

Over  in  New  Zealand  they  take  that  fellow  and  make  him  work 
eight  hours  a  day,  and  make  him  support  himself.  The  result  has 
been  that  they  have  just  eradicated  the  hobo  in  that  country;  and,  in 
fact,  the  rankest  old  hobo  they  ever  had,  the  slickest  old  fellow  in  the 
bunch,  he  had  to  go  down  and  do  his  work  on  the  roads,  and  to  get  a 
little  ranch  and  settle  down,  and  to-day  he  is  a  member  of  their 
parliament.  He  is  one  of  the  ablest  fellows  down  there  now. 
[Laughter.] 

Mr.  Seldomridge.  He  might  be  a  United  States  Senator  if  he  were 
here  in  the  United  States.    [Laughter.] 

Senator  Lane.  I  have  no  doubt  he  would,  and,  perhaps,  he  would 
be  an  improvement  on  some  of  us.  But,  seriously,  they  make  valu- 
able citizens  out  of  those  hoboes.  And  so  this  plan  has  merit  in  it, 
and  it  has  been  tried  before,  and  it  will  not  fail  if  you  have  proper 
safeguards  around  it. 

I  wish  to  submit  this  letter  from  Secretary  Lane,  of  the  Interior 
Department,  and  ask  your  consideration  of  it.  I  hope  you  will  put 
some  clause  to  this  effect  in  the  bill.  If  you  do  not,  those  people  are 
going  to  be  hard  pressed.  The  fact  is,  that  they  are  going  to  be 
discriminated  against.  There  are  many  farmers  all  through  the 
country,  as  we  all  know,  quite  a  percentage  of  them,  who  let  their 


RURAL   CEEDITS.  931 

fences  run  down  and  are  lazy,  and  do  not  do  much  good;  but  the 
man  who  goes  out  on  the  sage-brush  country  and  stacks  up  against 
that  proposition  has  got  to  have  it  in  his  heart  and  his  soul  to  suc- 
ceed, or  he  would  not  be  there ;  he  would  be  out  hoboing  somewhere. 
That  fellow  has  tackled  a  very  hard  proposition,  and  he  ought  to 
be  allowed  an  opportunity  to  get  along  and  work  himself  through. 

Mr.  Platt.  Your  point  is  that  he  is  already  obligated  for  the  pur- 
chase price  of  the  land? 

Senator  Lane.  Certainly.  The  Government  holds  him  on  that 
reclamation  project  for  20  years;  that  is  the  period  it  runs  now 
under  our  recent  bill  before  he  pays  it.  But  that  is  a  first  lien,  and 
under  this  bill,  as  it  is  drawn,  they  could  not  lend  him  a  cent  of 
money  on  that  land. 

Mr.  Platt.  Could  not  that  indebtedness  on  the  reclamation  pro- 
ject be  transferred  into  a  long-time  loan? 

Senator  Lane.  I  think  so.  I  had  a  rather  vague  and  hazy  idea — 
for  I  am  not  a  lawyer;  I  am  a  physician  by  profession — that  we 
could  fix  it  so  that  the  Interior  Department  could  take  that  as  a 
part  of  the  claim  on  that  land  and  stand  between  the  Government 
and  any  loss  and  hold  him  on  that  loan. 

When  the  water  is  put  on  the  land  the  value  of  the  land  takes  a 
considerable  jump.  Judge  King,  who  is  here,  can  tell  you  that  the 
price  of  that  land  has  jumped  from  $4  or  $5  an  acre  before  the  water 
was  put  on  to  $100  an  acre  after  the  water  was  put  on.  It  is  a  per- 
fectly safe  proposition  if  this  bill  can  be  so  amended  as  to  protect 
the  Government  legally. 

As  I  say,  Secretary  Lane  is  heartily  in  favor  of  such  an  amend- 
ment. He  urged  me  to  come  here  before  the  committee  and  beg  of 
you  that  you  would  take  this  into  consideration  for  the  purpose  of 
affording  the  necessary  relief.  I  will  read  you  the  letter  from  the 
Reclamation  Service,  which  was  approved  by  Secretary  Lane,  sug- 
gesting an  amendment  which,  in  their  opinion,  would  meet  this 
situation : 

Department  of  the  Interior, 
United   States  Reclamation   Service, 

Washington,  D.  C,  March  llf,  1914. 
Hon.  Harry  Lane, 

United  States  Senate,  Washington,  D.  C. 

Dear  Senator  Lane  :  The  reclamation  commission  this  afternoon  unani- 
mously agreed  to  ask  you  to  procure  the  amendment  of  the  rural-credits  bill 
so  that  lands  upon  irrigation  projects  constructed  under  the  act  of  June  17, 
1902,  and  acts  amendatory  thereof  or  supplementary  thereto  shall  be  exempted 
from  the  inhibition  to  make  loans  upon  other  than  first-mortgage  securities. 
In  order  to  do  this  it  would  be  nceessary,  as  we  understand  the  matter,  to 
introduce  a  clause  to  the  following  intent:  "Except  that  a  prior  lien  held  by 
the  United  States  to  pay  the  charges  under  the  reclamation  act  of  June  17, 
1902  (32  Stat.,  388),  and  acts  amendatory  thereof  or  supplementary  thereto 
shall  not  be  held  as  a  bar  to  loans  to  be  made  under  this  act." 
Cordially,  yours, 

F.  H.  Newell. 
Will  R.  King. 
W.  A.  Ryan. 

Approved,  March  14,  1914. 

Franklin  K.  Lane. 

Now,  Mr.  Chairman,  I  would  like  to  ask  Mr.  Ryan,  of  the  Interior 
Department,  to  indorse  what  I  have  said  and  to  give  you  any  further 
information  you  may  desire. 


932  RURAL   CREDITS. 

Mr.  Seldomridge.  Before  you  leave,  Senator  Lane,  I  would  like 
to  ask  you  this  question :  Does  not  that  same  condition  exist  relative 
to  what  we  call  the  homesteader  on  Government  land  not  under  the 
Reclamation  Service?  Does  not  his  claim  for  financial  relief  appeal 
to  you  just  the  same  as  that  of  the  man  who  is  under  a  reclamation 
project? 

Senator  Lane.  Not  to  quite  the  same  degree,  for  the  reason  that 
this  man  under  the  reclamation  project  is  tied  to  pretty  heavy  pay- 
ments, and  he  is  on  land  which  is  absolutely  sterile  and  a  desert 
proposition,  whereas  the  other  man,  the  homesteader,  usually  picks 
out  the  best  and  fattest  piece  of  land  along  the  creek  bottom,  and 
has  a  chance  to  come  out  all  right.  Still,  I  am  in  favor  of  letting 
him  in  also. 

Mr.  Seldomridge.  I  am  also;  if  you  are  going  to  let  in  the  man 
under  the  reclamation  project,  I  say  also,  take  in  the  dry  farmer. 

Senator  Lane.  I  think  so;  but  this  is  the  most  pressing  condition, 
and  I  wanted  to  call  attention  to  it,  because  here  is  a  class  of  people 
who  are  in  the  most  pressing  need.  The  other  should  also  be  helped. 
I  am  in  favor  of  going  on  the  New  Zealand  plan,  so  far  as  I  am 
concerned  personally;  but  I  do  not  know  how  that  fits  in  with  your 
idea;  but  that  is  another  proposition.  These  people  under  the 
reclamation  projects  absolutely  need  this  relief. 

STATEMENT  OF  WILLIAM  A.  RYAN,  COMPTROLLER  OF  THE 
RECLAMATION  SERVICE,  WASHINGTON,  D.  C. 

Senator  Hollis.  If  you  will,  give  your  full  name  to  the  stenog- 
rapher and  your  position. 

Mr.  Ryan.  William  A.  Ryan,  comptroller  of  the  Reclamation 
Service. 

I  just  want  to  say,  on  behalf  of  the  proposed  amendment,  that  it 
seems  to  be  necessary  if  the  people  on  the  Government's  reclamation 
projects  are  to  have  the  advantage  of  the  proposed  bill,  the  Gov- 
ernment lien  upon  the  land  ranges  from  a  charge  of  $22  per  acre 

Senator  Hollis  (interposing).  Excuse  me,  Mr.  Ryan,  I  wish  you 
would  assume  that  we  do  not  know  anything  about  that,  so  as  to 
get  the  record  complete.  Tell  us  just  who  owns  this  land  and  on 
what  terms  it  was  given  and  what  the  idea  is. 

Mr.  Ryan.  The  land  under  the  reclamation  projects  is  chiefly 
public  land  which  has  been  entered  by  homestead  entrymen,  subject 
to  the  charges  of  the  reclamation  fund  for  the  expense  of  construct- 
ing reclamation  projects.  The  charge  upon  the  land  varies  from  $22 
to  $110  per  acre.  Under  the  present  law  repayments  to  the  reclama- 
tion fund  are  divided  into  10  annual  payments,  usually  about  10  per 
cent  each,  although  under  some  projects  they  are  graduated  to  make 
the  payments  lighter  in  the  earlier  years  and  heavier  in  the  latter 
years.  There  is  a  bill  now  in  Congress  proposing  to  extend  the  time 
to  20  years.  To  the  new  settlers  upon  Government  lands,  the  bill 
provides  for  a  payment  of  5  per  cent  down  at  the  time  of  entry,  then 
there  is  a  period  of  four  years  thereafter  in  which  no  repayments  are 
made,  and  then  a  period  of  five  years  during  which  the  annual  pay- 
ments are  5  per  cent  per  annum,  and  for  the  remaining  10  years  7 
Der  cent  r>er  annum. 


RURAL   CREDITS.  933 

Now,  it  is  believed  that  in  order  that  these  settlers  may  have  the 
benefit  of  this  bill  an  exemption  should  be  made  of  these  lands  which 
are  covered  -by  a  prior  lien  to  the  United  States  from  the  provisions 
of  this  bill  which  make  it  possible  to  loan  money  only  on  first  mort- 
gage security. 

Senator  Hollis.  Let  us  see  what  the  effect  of  that  would  be.  A 
man  on  a  reclamation  tract  would  get  a  loan  from  one  of  these  farm 
land  banks  and  that  would  be  a  second  lien  or  a  second  mortgage. 
In  case  the  mortgagor  did  not  pay  the  Government  his  5  or  7  per 
cent  when  due,  the  farm  land  bank,  in  order  to  protect  itself,  would 
have  to  step  into  his  shoes,  take  the  land  and  pay  the  Government. 
That  is  the  way  it  will  work  out,  is  it  not  ? 

Mr.  Ryan.  I  should  fancy  that  would  be  the  only  thing  that  could 
be  done. 

Under  the  terms  of  this  bill,  as  I  read  it,  it  would  be  possible  for 
the  land  bank  to  loan  the  farmer  enough  money  to  take  up  all  the 
charges  due  the  Government,  but  it  is  hardly  possible  in  the  early 
years  of  the  development  that  any  bank  would  loan  a  very  great 
margin  over  and  above  these  charges,  so  that  the  benefit  to  the  farmer 
would  be  nil. 

Senator  Hollis.  That  is,  the  fair  appraisal  value  of  the  land  at 
that  time  would  not  come  up  to  the  requisites  of  the  bill? 

Mr.  Ryan.  It  would  not,  but  as  each  year  goes  on,  and  the  farmer 
adds  improvements,  especially  if  he  has  the  means  whereby  to  make 
these  improvements,  the  value  of  this  land  will  rapidly  increase  and 
become,  very  soon,  very  much  greater  than  the  lien  of  the  Govern- 
ment. It  would  take  from  five  to  seven  years  to  subdue  this  land 
properly. 

The  land  is  desert  land,  it  has  from  the  beginning  of  time  been 
devoid  of  vegetation,  it  has  never  been  cultivated,  it  is  rich  in  the 
mineral  elements  which  go  to  make  up  fertility,  but  it  is  absolutely 
devoid  of  the  vegetable  content — -the  humus  so  vital  to  successful 
farming.  It  is  necessary  for  the  farmer  not  only  to  live  upon  the 
land,  but  to  prepare  it  for  cultivation  by  leveling  the  soil  and  digging 
the  ditches  necessary  to  conduct  water  to  all  parts  of  the  land,  and 
to  cultivate  those  crops  which  restore  the  missing  elements  to  the  soil. 
This  is  done  chiefly  by  the  cultivation  of  alfalfa,  which  plant  has  the 
capacity  not  only  to  live  and  flourish  amid  these  desert  conditions, 
but  to  restore  to  the  soil  the  missing  elements,  the  humus  and  the 
nitrogenous  qualities. 

Mr.  Bulkley.  When  yon  speak  of  an  amendment  to  the  bill,  which 
bill  are  you  talking  of? 

Mr.  Ryan.  I  have  not  the  bill  in  my  hand. 

Mr.  Platt.  He  is  talking  about  the  Moss  bill,  is  he  not  ? 

Mr.  Bulkley.  I  do  not  know. 

Mr.  Platt.  You  are  referring  to  the  Moss  bill,  are  von  not? 

Mr.  Ryan.  House  bill  12585. 

Mr.  Hayes.  That  is  the  Moss  bill. 

Mr.  Bulkley.  Let  me  ask  you  what  you  are  going  to  do  about  this 
situation?  If  you  make  a  part  of  these  mortgages  second  liens, 
that  will  have  its  effect  on  the  market  price  of  the  bonds,  will  it  not? 

Mr.  Ryan.  I  fancy  not.  It  is  a  good  deal  like  bonded  indebted- 
ness of  a  State,  a  tax  assessed  by  the  States  on  the  land.     It  is  a 


934  RURAL  CREDITS. 

very  small  charge  per  annum.  In  the  case  of  those  who  are  now 
upon  the  projects  prior  to  the  passage  of  the  act  that  has  been  re- 
cently introduced,  their  payments  will  amount  to  2  per  cent  per 
annum  for  the  first  four  years,  4  per  cent  each  for  the  next  two  years, 
and  6  per  cent  per  annum  for  the  next  14  years. 

Mr.  Bulkley.  Do  the  banks  generally  regard  that  as  good  as  a 
first  mortgage? 

Mr.  Ryan.  They  do  not  now,  because  of  the  circumstances  that  I 
have  recited  to  you,  of  the  necessity  of  subduing  the  land  first.  After 
the  land  has  been  subdued,  then  they  make  the  loans. 

Senator  Lane.  They  have  that  feeling  out  there  in  that  country, 
some  of  the  banks,  I  am  informed,  that  it  helps  them  to  help  the 
farmer  along  on  these  lands,  and  they  are  beginning  to  do  it  now 
with  profit  to  both  the  bank  and  the  settler. 

Mr.  Bulkley.  Do  they  regard  them  as  good  as*first  mortgages? 

Senator  Lane.  I  do  not  know  as  they  do  that,  but  they  regard 
them  as  safe  investments. 

Mr.  Seldomridge.  What  interest  do  they  charge? 

Senator  Lane.  They  charge  from  8  to  10  per  cent,  I  think. 

Mr.  Ryan.  Eight,  ten,  and  twelve  per  cent. 

Mr.  Bulkley.  I  do  not  quite  see  why  investors  should  take  the 
bonds,  particularly  if  they  saw  they  were  second  liens. 

Senator  Lane.  They  will  take  them,  I  think,  for  the  reason  that 
the  property  increases  in  value  faster,  in  proportion  to  the  improve- 
ments that  are  made,  than  any  other  land  that  we  have  in  America, 
do  they  not? 

Mr.  Ryan.  I  think  that  is  true. 

Mr.  Bulkley.  If  we  are  going  to  enact  the  Moss-Fletcher  bill  we 
have  got  to  sell  bonds  at  what  they  will  sell  for  on  the  market,  and 
it  does  not  make  any  difference  how  poor  we  make  the  security  by 
permitting  the  loans  to  be  made  on  second  or  third  liens,  we  will 
have  to  pay  for  it  by  decreasing  the  bidding  on  the  bonds. 

Senator  Lane.  I  do  not  think  so.  I  think  they  will  be  bought  by 
these  western  banks  which  are  familiar  with  the  situation,  that 
fully  understand  on  their  part  that  they  are  absolutely  good  se- 
curities. The  banks  themselves  that  form  into  associations  will  help 
take  care  of  that  matter. 

Mr.  Platt.  How  certain  is  the  increase  of  these  values?  These 
banks,  under  the  Moss-Fletcher  bill,  are  local  institutions.  Would 
a  local  bank  organized  in  the  neighborhood  of  one  of  these  reclama- 
tion projects  be  justified  in  appraising  this  land  in  accordance  with 
what  is  known  of  its  certainty  of  increase;  that  is,  is  it  certain  to 
increase  or  certain  to  decrease?  If  it  is  certain  to  increase  I  should 
think  that  it  might  be  justified  in  appraising  it  high  enough  so  that 
the  farmer  could  pay  his  money  right  down. 

Mr.  Ryan.  I  was  just  going  to  address  myself  to  this  thought, 
that  under  the  provisions  of  this  bill  there  is  a  cooperative  land 
bank  provided  for.  Under  this  bill  as  it  stands  there  would  be  no 
cooperative  farm  banks  under  this  law  on  our  reclamation  projects. 
They  could  not  loan  under  the  circumstances.  But  if  that  provision 
permitting  such  banks  to  loan  on  land  under  an  existing  lien  is  in 
the  law,  you  will  find  they  will  be  organizing  these  cooperative  banks 
on  our  reclamation  projects. 


RURAL   CREDITS.  935 

Mr.  Seldomridge.  Do  these  people  need  money  on  their  land,  that 
own  it,  in  view  of  the  fact  that  the  Government  proposes  now  to 
extend  the  time  for  the  payment  to  20  years?  Do  they  not  need 
accommodations  for  short-time  credit  rather  than  for  mortgage 
loans  ? 

Mr.  Ryan.  They  certainly  need  the  accommodations  for  short- 
time  credit.    There  is  no  doubt  about  that. 

Mr.  Seldomridge.  Is  not  that  the  need  that  exists  rather  than  the 
other  ? 

Mr.  Ryan.  That  is  a  vital  need  at  the  present  time. 

Mr.  Seldomridge.  That  is,  short-time  loans? 

Mr.  Ryan.  Yes ;  for  stocking  their  farms  with  cattle,  etc. 

Mr.  Bulkley.  Why  would  it  not  be  better  to  allow  these  mort- 
gages to  go  ahead  of  the  Government  lien  and  let  the  Government 
take  a  second  lien? 

Mr.  Ryan.  I  do  not  know  how  that  could  be  done. 

Mr.  Bulkley.  It  would  be  easy  enough  to  do  if  it  is  advisable. 

Senator  Hollis.  We  could  provide  that  in  the  law  just  as  well  as 
we  can  anything  else. 

Mr.  Woods.  Do  these  people  pay  the  Government  $22  an  acre? 
Is  that  the  average? 

Mr.  Ryan.  From  $22  up  to  as  high  as  $110  per  acre,  according  to 
the  cost  of  the  project. 

Mr.  Woods.  Do  they  pay  interest  on  the  deferred  payments? 

Mr.  Ryan.  No  ;  there  is  no  interest  at  all. 

Mr.  Seldomridge.  Are  the  projects  completed? 

Mr.  Ryan.  Many  of  them  are. 

Mr.  Seldomridge.  So  that  the  actual  cost  per  acre  is  determined? 

Mr.  Ryan.  There  are  17  completed  units. 

Mr.  Seldomridge.  You  can  determine  the  actual  cost  per  acre  then, 
can  you  not? 

Mr.  Ryan.  As  to  those  17,  yes;  as  to  the  others,  we  can  not. 

Senator  Hollis.  Has  the  history  been  such  and  have  the  results 
been  so  consistent  that  you  can  lay  a  sure  basis  for  prophecy  as  to 
what  will  result  in  these  different  sections?  Do  you  feel  that  there 
is  enough  history  to  be  sure  as  to  what  will  happen  hereafter? 

Mr.  Ryan.  With  relation  to  the  increase  of  the  value  of  the  land 
do  you  mean? 

Senator  Hollis.  Yes ;  its  productivity  after  you  get  it  established. 

Mr.  Ryan.  With  the  great  majority  of  the  acreage,  yes.  Of 
course,  there  is  a  feature  in  connection  with  the  reclamation  pro- 
jects— the  water-logging  of  the  lands  and  the  lack  of  drainage  sys- 
tem.    Some  of  the  lands  will  not  be  enhanced  in  value. 

Senator  Hollis.  We  had  a  Mr.  Ady  here,  who  came  from  that 
part  of  the  country,  and  he  testified,  and  I  understood,  he  was  here 
on  behalf  of  some  settlers  who  were  in  a  similar  situation,  and 
asking  to  have  the  time  extended.  I  do  not  know  whether  it  was 
on  the  payments  to  the  Government  under  the  reclamation  project 
or  not.    Do  you  know  about  that? 

Mr.  Ryan.  Yes,  sir;  it  was. 

Senator  Hollis.  Evidently  the  results  there  were  not  as  good  as 
they  figured  on  or  he  would  net  have  had  to  have  that  extension. 

Mr.  Ryan.  That  is  true  with  regard  to  a  considerable  area  of  the 
Klamath  project,   which   he  represents.     The   reclamation   law,   as 


936  RURAL  CREDITS. 

passed  by  Congress,  provided  for  a  return  to  the  reclamation  fund 
in  10  years.  That  was  too  optimistic  a  view  of  what  these  lands 
were  capable  of  doing.  But  the  history  of  irrigation  in  the  West 
is  one  of  almost  unbroken  prosperity,  Avhere  people  have  had  the 
proper  time  in  which  to  make  their  payments. 

Mr.  Platt.  As  a  rule,  do  people  pay  the  Government  more  than 
half  of  the  value  of  the  land  itself  after  it  comes  under  full  culti- 
vation ? 

Mr.  Ryan.  "Very  much  less  than  half,  I  should  say.  You  take 
the  Boise  project,  which  is  on  the  Snake  River.  It  was  simply  raw 
land,  bare  of  improvements,  with  merely  the  prospect  of  irriga- 
tion, and  they  sold  as  high  as  $250  an  acre,  and  the  total  cost  of 
reclaiming  that  land  is  only  about  $62  an  acre — raw  lands,  before 
there  was  any  water  on  them  at  all.  I  do  not  mean  to  say  by  that 
that  that  represents  the  true  or  average  value  of  the  lands  under 
that  project,  but  I  think  the  Senator's  estimate  of  $100  an  acre  is 
very  reasonable,  and  that  the  lands  there  after  the  water  is  put  on 
them — after  they  are  subdued — are  worth  ATery  much  more  than 
$100  an  acre. 

Mr.  PLATT7"lt  would  not  be  safe  for  banks,  such  as  the  Moss  bill 
provides  for,  to  loan  double  the  purchase  price  of  the  land  in  the 
start,  on  long  time,  would  it? 

Mr.  Ryan.  Double  the  purchase  price? 

Mr.  Platt.  Double  the  Government  purchase  price. 

Mr.  Ryan.  The  water-right  price?  Oh,  yes;  the  water  right  is 
always  worth  its  cost  and  perhaps  a  great  deal  more.  I  think  Judge 
King  can  tell  you  more  about  that  than  I,  because  he  is  more  familiar 
with  the  history  of  that  country.  I  heard  him  tell  yesterday  of  shares 
in  a  water  company  which  he  bought — a  share  for  each  acre.  I  un- 
derstand, for  which  he  paid  $5 — he  afterwards  sold  for  $50. 

Mr.  Hayes.  You  would  regard,  for  instance,  in  Colorado,  where 
they  have  private  irrigation  systems,  $20  per  acre  as  a  very  moderate 
price  for  a  water  right,  would  you  not? 

Mr.  Ryan.  Very  moderate,  indeed. 

Mr.  Platt.  I  do  not  know  enough  about  the  subject.  When  you 
speak  of  water  rights,  you  mean  all  that  the  purchaser  is  paying  for 
the  land,  or  not? 

Mr.  Ryan.  Oh,  no;  merely  what  he  pays  for  the  water.  He  pays 
the  Government  annually  simply  for  the  water.  It  does  not  repre- 
sent the  value  of  the  land.  He 'merely  pays  the  Government  or  re- 
turns to  the  reclamation  fund  the  cost  of  building  the  ditches,  stor- 
ing and  distributing  the  water. 

Air.  Platt.  Land  acquired  by  him  under  the  homestead  act? 

Mr.  Ryan.  Land  acquired  by  him  under  the  homestead  act,  or 
which  is  purchased  by  him  from  some  one  who  has  obtained  it  under 
the  public-land  laws. 

Mr.  Hayes.  In  order  that  the  committee  may  have  knowledge  of 
just  what  the  situation  is.  let  me  say  that  I  am  very  familiar  with 
irrigation  projects  in  Colorado,  and  I  should  regard  $40  an  acre  as 
a  reasonable  price  for  such  a  water  right  as  the  Government  gives 
us  in  all  its  irrigation  projects. 

Mr.  Platt.  Then,  would  you  say  it  would  be  reasonable  to  ap- 
praise such  lands  at  $80  an  acre? 


RURAL   CREDITS.  937 

Mr.  Hayes.  You  mean  to  appraise  the  land  at  $80  an  acre  right  at 
the  start? 

Mr.  Platt.  Yes. 

Mr.  Hayes.  Oh,  certainly  not;  but  the  water  right  is  independent 
of  the  land,  absolutely. 

Mr.  Platt.  What  I  was  trying  to  get  at  was  whether  there  was 
sufficient  certainty  in  the  value  of  these  lands  to  justify  one  of  these 
banks  in  loaning  enough  to  take  up  the  water  right  at  once  and  have 
something  left  over  for  the  purchase  of  his  land  ? 

Mr.  Hayes.  If  the  land  is  fertile  and  rich  and  worthy  of  develop- 
ing, I  should  say  it  would  be  perfectly  safe  to  make  a  loan  on  the 
land  without  any  regard  to  the  water  right  at  all.  It  is  worth  that 
money  at  any  time. 

Mr.  Ryan.  There  is  just  this  point :  No  man  would  borrow  money 
and  pay  interest  on  it  to  take  up  an  obligation  that  ran  for  a  period 
of  10  or  20  years  as  to  which  he  paid  no  interest  at  all. 

It  does  not  seem  to  me  by  the  terms  of  the  bill  you  would  ever 
make  any  loans  on  reclamation  projects,  and  that  is  the  one  crying 
necessity  of  our  reclamation  projects — that  is,  procuring  money 
wherewith  the  farmer  may  make  his  improvements.  That  would  not 
be  true  of  private  projects  where  they  select  the  settlers  to  go  on  this 
land  with  a  view  to  their  financial  ability  to  make  those  improve- 
ments. But  the  Government  has  gone  forward  with  the  idea  of  en- 
abling the  poor  man  to  go  out  and  make  a  home,  but  we  have  sur- 
rounded them  with  conditions  that  make  it  almost  impossible  for  him 
to  carve  out  a  home  on  that  desert. 

Mr.  Bulkley.  What  would  you  think  of  allowing  these  settlers  to 
borrow  some  reasonably  small  amount  and  let  it  be  a  lien  ahead  of 
the  Government  lien  ? 

Mr.  Ryan.  I  do  not  see  any  particular  objection  to  that.  I  had 
not  given  thought  to  that  subject.  However,  the  reclamation  law 
provides  that  it  shall  be  a  prior  lien.  The  idea  of  making  the  recla- 
mation charges  a  subsidiary  lien  to  that  of  the  bank  had  not  occurred 
to  me.  But,  now  that  you  speak  of  it,  it  suggests  itself  to  me  that 
this  might  happen,  that  if  you  make  the  Government's  a  subsidiary 
lien,  the  settler  might  simply  discharge  that  land  of  that  second 
lien  by  borrowing  money  under  the  first  lien  and  then  allowing  the 
land  to  be  sold  at  mortgage  sale. 

Mr.  Hayes.  Let  me  suggest  another  thing:  The  land  would  be 
valueless  to  anybody  without  the  water  right,  would  it  not  ? 

Mr.  Ryan.  Without  the  water  right  ? 

Mr.  Hayes.  Therefore,  the  Government  would  be  perfectly  safe, 
would  it  not,  but  the  man  could  not  do  a  thing  with  it  unless  they 
discharged  the  obligation  to  the  Government.  That  would  be  in 
the  nature  of  a  water  right,  it  would  be  absolutely  valueless  without 
that  right. 

Mr.  Ryan.  I  think  the  suggestion  of  the  gentleman  from  Ohio  is 
all  right.  It  seems  to  me  so.  I  do  not  see  how  the  Government 
could  take  any  risk. 

Senator  Hollis.  Still  the  bank's  lien  would  not  come  ahead  of 
the  Government  if  the  Government  should  foreclose. 


938  RURAL   CREDITS. 

Mr.  Hayes.  It  might,  strictly  and  legally,  but  not  as  a  matter  of 
fact,  because  the  land  that  would  be  taken  by  foreclosure  would  be 
valueless  without  the  water  right. 

Mr.  Bulkley.  That  would  not  carry  out  the  suggestion  I  made. 
The  suggestion  was  that  we  could  find  some  way  to  require  these 
banks  to  accept  such  loans  under  proper  security,  but  if  the  mort- 
gaged lands  were  independent  of  the  water  right  that  would  be  a 
different  proposition.  Of  course  I  had  in  mind  that  the  water  was 
appurtenant  to  the  land. 

Mr.  Hayes.  I  am  not  so  sure  of  that,  Mr.  Bulkley.  The  water 
right  runs  for  20  years,  and  that  would  mean  $1  an  acre  per  year 
in  order  to  pay  it  off.  That  would  be  a  very  reasonable  charge 
for  it.  I  do  not  know  of  any  place  where  you  can  get  it  for  that. 
It  has  to  be  in  the  nature  of  a  yearly  expense.  That  is  all  it 
amounts  to. 

Mr.  Ryan.  That  is  the  way  it  presented  itself  to  my  mind,  as  a 
tax.  If  this,  instead  of  being  a  Government  project,  were  an  irri- 
gation district  and  issued  bonds  and  there  was  an  annual  tax  upon 
that  irrigation  district  to  the  same  amount  that  our  charges  now 
constitute,  there  would  be  no  hesitancy  about  loaning  the  money 
on  those  lands,  because  that  would  then  fall  in  the  form  of  a  tax 
upon  the  land;  but  in  our  situation  we  have  a  prior  lien,  and  under 
the  terms  of  your  act  it  is  impossible  to  loan  this  money  except  on 
first  mortgage. 

Mr.  Bulkley.  Much  depends  on  what  is  behind  that.  If  the  land 
is  free  and  the  only  value  there  is  is  in  the  water  right,  you  have  not 
got  much  left  to  mortgage.  If  you  have  some  value  behind  it,  then 
there  might  be  something  left. 

Mr.  Ryan.  As  I  understand  the  terms  of  this  act,  all  that  came 
into  my  mind  was  as  to  the  cooperative  bank  provided  for,  a^local 
institution,  as  to  which  the  directors  and  members  were  the  persons 
who  were  loaning  the  money,  and  who  were  borrowing,  and  that 
they,  having  a  full  knowledge  of  the  value  and  the  prospective  value 
of  these  lands,  would  be  perfectly  willing  to  make  loans  on  second- 
lien  security — that  is,  mortgage  subsidiary  to  the  Government  lien. 

Mr.  Bulkley.  Do  you  mean  to  say  that  there  are  people  right 
in  the  community  that  have  money  to  buy  the  bonds  ? 

Mr.  Ryan.  Yes;  I  think  there  are.  There  are  some  people  who 
are  talking  about  organizing.  This  idea  has  been  suggested  to  them 
all  through  the  projects.  Secretary  Land,  on  his  visit  to  the  proj- 
ects last  summer,  counseled  them  all  to  organize  cooperative  banks. 
There  are  some  rich  men  in  these  communities,  and  if  the  coopera- 
tive banks  were  organized  they  would  then  issue  their  bonds,  as  pro- 
vided by  this  law,  and  procure  the  money  necessary  to  make  the 
improvements. 

Mr.  Bulkley.  The  bonds  could  be  sold  right  in  that  community? 

Mr.  Ryan.  I  think  they  could  be  sold  there,  and  to  persons  who 
could  be  induced  to  make  investments  in  the  West.  It  would  not 
necessarily  be  confined  to  the  people  of  that  community,  but  the 
people  of  the  United  States. 

Senator  Hollis.  Mr.  Ryan,  you  have  not  submitted  your  amend- 
ment.    Is  Judge  King  going  to  do  that  ? 

Mr.  Ryan.  The  amendment  was  included  in  the  letter  which  was 
presented  to  the  committee. 


RURAL  CREDITS.  939 

Senator  Hollis.  Then  it  is  already  in? 

Mr.  Ryan.  Yes,  sir. 

Mr.  Seldomridge.  I  would  like  to  ask  you  a  question  in  connection 
with  this  matter  which  you  have  presented.  What  is  the  purpose 
that  would  be  subserved  by  a  loan  to  a  person  living  upon  a  reclama- 
tion project;  in  other  words,  what  would  they  do  with  the  money? 

Mr.  Ryan.  I  am  very  glad  you  raised  that,  because  I  have  in  mind 
a  particular  instance  where  such  an  opportunity  would  have  been  of 
great  advantage  to  a  man  who  has  abandoned  one  of  our  reclamation 
projects  because  of  his  inability  to  earn  sufficient  money  out  of  the 
soil — to  make  that  soil  produce  enough — to  meet  the  payments  to 
the  Government,  and  he  has  gone  down  here  to  Jersey  City  and 
entered  the  employ  of  a  private  institution  in  order  that  he  may  earn 
money  enough  to  carry  out  the  requirements  of  the  law  with  respect 
to  the  reclamation  and  cultivation  of  that  tract  of  land  and  his  re- 
payments to  the  Government.  That  is  a  man  who  is  earnestly 
desirous  of  subduing  the  land  and  bringing  it  under  cultivation  and 
making  for  himself  a  home;  and  yet,  because  he  had  not  saved 
enough  money  to  invest  in  the  buildings  and  the  cultivation  of  that 
land,  in  the  putting  in  of  trees,  orchards,  and  cattle,  he  has  been 
obliged  to  seek  private  employment  to  earn  money  with  which  to 
do  those  things.  In  many  of  our  projects  it  is  necessary  for  them 
to  invest  in  stock  in  order  to  utilize  the  products  of  the  land.  In 
other  projects  they  have  to  put  in  orchards  and  trees,  that  are  a 
long  time  in  coming  to  the  bearing  stage. 

Mr.  Seldomridge.  The  need,  then,  is  for  money  to  be  expended 
for  a  productive  purpose  ? 

Mr.  Ryan.  For  a  productive  purpose;  yes. 

Mr.  Seldomridge.  It  would  not  be  used  in  the  mere  matter  of  ex- 
penditure for  food  and  clothing  and  the  necessities  ? 

Mr.  Ryan.  Oh,  no;  for  productive  purposes  on  the  land.  I  think 
the  provisions  of  the  bill  are  ample  to  cover  that;  that  the  directors 
of  this  cooperative  bank  would  not  loan  money  to  one  of  their  mem- 
bers who  was  not  worthy  and  was  not  entitled  to  it,  and  who  was  not 
going  to  use  it  for  a  beneficial  purpose.  That,  to  my  mind,  is  cared 
for  in  this  bill,  and  is  the  great  feature  of  this  bill. 

Mr.  Seldomridge.  I  am  not  familiar  with  the  provisions  of  the 
reclamation  act.  Does  the  Government  require  residence  on  the 
project  in  order  that  its  provisions  may  be  availed  of? 

Mr.  Ryan.  Yes,  sir;  residence  and  cultivation. 

Mr.  Seldomridge.  Could  not  some  amendment  be  made  to  the  act 
in  the  matter  of  relieving  that  stringency  of  residence  that  would 
enable  many  to  complete  their  payments? 

Mr.  Ryan.  It  would  result  in  speculative  holdings,  with  lack  of 
proper  cultivation  and  lack  of  proper  effort  to  make  the  lands  pro- 
ductive. As  a  matter  of  fact,  wherever  it  has  been  made  possible 
for  them  to  leave  the  land,  they  leave  it  and  go  away  and  not  culti- 
vate it,  but  come  back  and  get  the  benefit  of  the  increased  A'alues  due 
to  the  other  man's  efforts.    We  want  to  keep  them  there. 

Mr.  Seldomridge.  How  would  you  do  that  if  you  permitted  them 
to  make  loans  ?    Would  not  that  danger  exist  also  ? 

Mr.  Ryan.  I  think  in  the  terms  of  this  act  you  have  thrown  so 
many  safeguards  around  the  lending  of  money  that  it  is  not  possible 


940  RURAL   CREDITS. 

for  a  man  to  get  enough  money  on  his  land  to  make  it  advantageous 
for  him  to  desert  it. 

Senator  Hollis.  How  do  the  actual  settlers  on  the  land  pay  for 
their  subsistence  during  those  four  or  five  lean  years,  until  the  land 
is  properly  productive? 

Mr.  Ryan.  Those  who  have  not  brought  sufficient  money  with 
them  work  out  amongst  their  neighbors  and  get  the  money  in  that 
way.  I  have  talked  with  a  great  many  of  them  who  have  taken 
small  contracts  with  the  Reclamation  Service  who  have  worked  on 
the  roads,  who  have  hired  out  to  their  neighbors,  or  who  have  gone 
into  the  little  villages  and  worked  as  carpenters  and  blacksmiths, 
and  at  various  other  operations,  and  spent  the  most  of  their  time  on 
their  land,  but  with  outside  labor  to  earn  just  enough  money  to  make 
a  living. 

Mr.  Hayes.  Is  it  not  true  in  certain  reclamation  projects,  as,  for 
example,  the  Salt  River  project,  that  the  cost  per  acre  of  water  some- 
times ranges  as  high  as  $60? 

Mr.  Ryan.  Oh,  yes;  I  have  testified  that  it  runs  from  $22  to  $110 
an  acre.  The  average  is  about  $50.  The  Salt  River  Valley  actual 
cost  has  not  yet  been  fixed,  but  it  will  probably  go  as  high  as  $70 
an  acre. 

Mr.  Hayes.  $70? 

Mr.  Ryan.  The  land  is  very  productive  and  that  will  be  a  very 
small  percentage  of  the  actual  value  of  the  land. 

Mr.  Hayes.  And  at  present  the  owner  must  pay  one-tenth  of  that 
every  year  ? 

Mr.  Ryan.  Yes,  sir. 

Mr.  Hayes.  Of  course  that  is  almost  out  of  the  question  unless  he 
has  money  ? 

STATEMENT  OF  WILL  R.  KING,  CHIEF  COUNSEL  RECLAMATION 
SERVICE,   WASHINGTON,   D.   C. 

Senator  Lane.  I  will  say  that  that  Judge  King  used  to  be  on  our 
supreme  bench,  and  was  one  of  the  best  members  we  ever  had.  He 
is  a  very  well-known  citizen  of  Oregon. 

Mr.  King.  Do  not  tell  all  you  know  about  me. 

Senator  Hollis.  What  is  your  position  with  the  Government 
here  ? 

Mr.  King.  I  am  chief  counsel  of  the  Reclamation  Service,  and  also 
one  of  the  reclamation  commissioners. 

This  matter  has  been  pretty  well  gone  over,  but  there  are  some 
features  of  it  that  I  want  to  call  your  attention  to.  In  the  first  place, 
we  should  keep  in  mind  that  this  first  lien  is  a  lien  held  by  the  Gov- 
ernment, and  that  both  liens  will  be  held  by  the  Government,  as  I 
understand  it,  under  the  act;  that  is,  the  loans  are  to  be  made  by 
the  Government. 

Senator  Hollis.  No. 

Mr.  King.  They  will  be  held  by  the  bank? 

Senator  Hollis.  Yes. 

Mr.  King.  Well,  I  have  not  read  the  bill  carefully.  The  Govern- 
ment is  behind  the  loan,  is  it  not,  in  the  way  of  selling  the  bonds? 

Senator  Hollis.  Not  under  this  bill. 


RURAL   CREDITS.  941 

Mr.  King.  The  Government  holds  the  first  lien,  varying  from  $22 
to  $110  per  acre,  depending  on  the  project,  where  it  is  constructed, 
etc.  I  might  say,  on  investigation,  that,  as  a  rule,  where  the  lien 
is  the  largest  in  that  respect  the  lands  are  better  able  to  pay  than 
where  the  price  per  acre  or  cost  of  the  project  is  less,  and  that  is 
due  largely  to  the  fact  that  it  may  be  in  an  altitude  or  locality  where 
they  can  raise  all  kinds  of  crops,  like  in  the  Salt  River  Valley,  Ariz. 
There  are  some  places  in  Arizona  where  they  can  raise,  as  I  under- 
stand it,  oranges  and  various  kinds  of  crops,  while  in  other  sections, 
like  in  Klamath  County,  Oreg.,  the  altitude  is  very  high,  and  the 
farmers  are  limited  to  the  growing  of  but  few  things. 

The  Government  holding  these  first  liens,  it  occurs  to  me,  should 
not  be  considered  in  a  matter  of  this  kind,  for  this  reason :  It  is  this 
lien,  which  places  a  value  upon  the  land,  which  makes  the  land  valu- 
ble.  Take,  for  example,  an  irrigated  farm  in  Oregon  that  might  be 
worth  $200  per  acre,  and  that  is  not  an  unusual  price  in  eastern  Ore- 
gon for  irrigated  lands.  Take  the  same  kind  of  soil  in  the  western 
part  of  the  State,  where  they  do  not  irrigate,  and  they  would  do  very 
well  to  get  $100  per  acre  for  same  character  of  land.  The  Gov- 
ment  under  this  bill  would  loan  money  en  that  $100  land  without  this 
lien,  but  under  this  bill  would  not  loan  on  the  $200  per  acre  land 
having  this  lien,  which  lien,  being  the  bill  for  irrigation,  gives  the 
real  value  to  the  land.  In  fact,  the  long-time  payments  suggested 
leaves  the  lien  in  a  similar  position  in  that  respect  to  the  taxes  which 
are  paid  upon  the  land,  which  are  always  a  first  lien.  For  example, 
in  irrigation  districts,  where  the  districts  are  bonded,  the  bonds  are 
first  lien,  yet  the  bankers,  as  I  understand  it,  loan  on  the  lands  every- 
where, regardless  of  that  first  lien. 

Senator  Hollis.  That  is  true  of  a  great  variety  of  liens  on  lands 
that  are  in  the  shape  of  taxes.  For  instance,  the  county  wants  to 
build  a  bridge  and  issues  bonds  to  raise  the  money,  the  payments  of 
these  bonds  come  to  the  owner  of  the  land  in  the  shape  of  taxes  which 
have  to  be  paid  before  anything  that  he  puts  on  in  the  shape  of  a 
mortgage  is  paid. 

Mr.  King.  That  has  to  be  met,  and  the  fact  that  he  has  to  pay 
these  taxes — the  fact  that  the  taxes  are  imposed  upon  him — makes  his 
land  many  times  more  valuable  than  it  would  otherwise  have  been. 
For  example,  for  the  building  of  a  bridge  in  his  community,  he  will 
have  to  pay  his  part  for  the  cost  of  that  bridge,  yet  it  enhances  the 
value  of  his  land  probably  20  per  cent  by  reason  of  the  convenience. 

Senator  Hollis.  If  you  take  care  of  what  you  want  it  might  be 
provided  for  the  purposes  of  this  act  that  the  payments  to  the  recla- 
mation fund  shall  be  considered  the  same  as  taxes. 

Mr.  King.  Yes;  placed  on  the  same  basis  as  taxes.  That  would 
take  care  of  it,  and,  as  suggested  by  the  gentleman  here  a  few  mo- 
ments ago,  whoever  purchases  that  land  without  the  water  right  gets 
practically  nothing.  I  think  it  would  be  safe  to  say  that  in  eastern 
Oregon,  where  the  land  is  worth  $100  to  $200  per  acre,  that  the  same 
land  without  water  rights  would  not  exceed  $10  per  acre  in  value, 
and  it  would  not  be  unreasonable  to  say  $5  per  acre.  I  know,  for 
example,  in  the  Snake  River  Valley  near  Ontario,  Oreg. — and  I  have 
lived  in  that  section  of  the  country  since  1878 — that  the  best  lands  in 
that  section  were  valued  at  about  $10  per  acre  before  water  was 


942  RURAL  CREDITS. 

placed  upon  them,  and  that  value  was  largely  due  to  the  fact  that 
they  expected  to  get  water  on  the  lands  from  the  canals  to  be  con- 
structed, yet  lands  above  the  canal,  where  they  never  expected  to  get 
any  water,  equally  as  good  lands,  were  practically  worthless.  There 
are  a  good  many  people  there  now  who  have  paid  very  high  prices 
for  the  same  land  in  the  same  locality,  yet  would:  not,  before  water 
was  furnished,  pay  the  $1.25  an  acre  required  by  law  in  order  to 
prove  up  on  the  land,  because  they  never  expected  to  get  any  water. 
But  now  they  have  a  "  high-line  "  canal,  put  in  by  private  enterprise, 
and  the  value  of  those  lands  ranges  as  high  as  $250  per  acre.  I  know 
of  a  man  from  Milwaukee  who  purchased,  I  think  he  said,  something 
like  400  acres,  and  I  have  forgotten  the  exact  price  paid,  but  he  paid 
what  might  appear  as  an  enormous  price  for  it,  something  like  $200 
or  $250  an  acre,  before  having  been  cultivated,  and  he  has  now  placed 
an  orchard  valued  at  $500  per  acre  and  upward. 

Mr.  Seldomridge.  He  has  no  trouble  getting  any  money  ? 

Mr.  King.  He  has  no  trouble  getting  money,  yet  the  price  he  had 
to  pay  for  this  water  was  a  first  lien  on  this  land.  The  same  way  in 
Willow  Creek  Valley  in  the  same  county.  Water  rights  there,  under 
private  enterprise,  cost  in  the  neighborhood  of  $100  per  acre,  yet  the 
banks  loan  money  on  the  land  because  the  very  thing  that  created 
the  lien  is  what  gives  the  land  its  value.  What  would  be  the  differ- 
ence between  taking  a  farm  on  this  side  of  the  road  that  has  no 
water  right,  if  such  a  thing  could  be  possible  and  would  produce 
good  crops  without  it,  that  is  worth  $100  per  acre,  and  taking 
another  one  on  the  other  side  of  the  valley  or  in  another  part  of  the 
State,  to  be  more  accurate,  in  which  they  have  a  water  right  that  is 
worth  $200  per  acre  by  reason  of  having  that  water  right?  You 
would  loan  on  the  $100  per  acre  land,  but  you  would  not  loan  on 
the  $200  per  acre  land,  having  $100  value  independent  of  cost  of 
water  right,  assuming  the  water  right  cost  $100  per  acre,  you  still 
have  the  value  of  the  land  ($100  per  acre)  independent  of  the  water 
right,  to  say  nothing  of  figuring  it  from  the  standpoint  of  its  present 
worth.  When  you  take  into  consideration  that  this  is  paid  in  equal 
annual  installments — I  do  not  know  that  it  is  exactly  equal,  but 
they  have  a  long  time  in  which  to  pay  it,  without  interest — if  you 
will  estimate  the  present  worth  of  that  you  will  find,  in  place  of 
being  $100  per  acre  perhaps  it  would  cost  about  $50;  for  that  reason 
you  will  not  find  anyone  borrowing  money  to  pay  off  the  noninterest- 
bearing  indebtedness.  Of  course,  as  some  one  suggested,  the  fact 
that  he  pays  no  interest  places  him  in  better  condition,  perhaps,  than 
some  others  who  do  not  have  water  rights  on  this  land ;  but  in  this 
connection  let  us  take  into  consideration  that  the  man  who  is  getting 
this  money  without  the  interest  has  burdens  thrust  upon  him  which 
the  other  'man  who  does  not  have  to  rely  upon  the  water  right  does 
not  have. 

Mr.  Seldomridge.  I  want  to  ask  you  a  question  there  about  the 
title.  Can  a  settler  on  a  reclamation  project  transfer  his  title  after 
he  has  lived  on  it,  say,  for  one  or  two  years? 

Mr.  King.  After  he  has  lived  long  enough  to  make  final  proof. 

Mr.  Seldomridge.  What  do  you  mean  by  making  final  proof? 

Mr.  King.  After  he  has  cultivated  a  certain  amount  of  the  land 
and  reclaimed  a  certain  quantity  of  the  land,  etc.  Is  not  that  right, 
Mr.  Ryan? 


RURAL   CREDITS.  943 

Mr.  Ryan.  It  is  not  more  than  half.  He  simply  has  to  pay  up 
all  that  is  due  at  the  time  he  makes  his  final  proof,  at  the  end  of  a 
period  of  four  years,  or  at  the  time  of  making  final  proof  if  he  has 
paid  all  charges  to  the  reclamation  fund,  he  can  make  final  proof, 
but  title  would  not  issue  to  him. 

Mr.  Seldomridge.  Suppose  he  resides  on  a  project,  then  after  hav- 
ing lived  on  it  three  years,  finding  he  can  not  make  the  payments 
and  is  absolutely  compelled  to  make,  a  second  lien,  issue  a  second 
mortgage  on  his  property,  the  person  holding  that  second  mortgage, 
in  the  event  of  foreclosure,  Avould  receive  all  of  the  rights  which 
the  other  person  had  obtained? 

Mr.  King.  He  would  step  into  his  shoes  and  take  it  where  he 
leaves  off. 

Mr.  Seldomridge.  The  Government  would  recognize  that? 

Mr.  King.  And  he  continues  and  makes  the  payments  thereon, 
but  if  he  should  abandon  the  property  back  to  the  Government, 
then  the  Government  would  not  recognize  a  subsequent  settler  to  the 
extent  of  giving  the  second  man  credit  for  the  first  settler's  payments. 

Mr.  Seldomridge.  I  understood  you  to  say  a  minute  ago  that  a 
settler  under  a  reclamation  project  could  not  transfer  his  rights 
until  he  had  complied  with  certain  conditions. 

Mr.  King.  Well,  that  is  true. 

Mr.  Hayes.  He  would  have  to  make  final  proof. 

Mr.  King.  He  must  make  final  proof.  That  is,  he  must  live  on 
the  land  a  certain  period  of  time,  and  cultivate  the  land  in  accordance 
with  the  requirements  of  the  reclamation  rules  and  regulations. 

Mr.  Platt.  How  would  it  be  if  we  should  amend  this  bill  so  that 
we  simply  provide  that  loans  could  be  made  upon  that  kind  of 
land  with  the  prior  liens  of  the  Government,  but  that  the  bonds 
should  be  issued  in  a  seires  showing  that  they  were  issued  with 
that  prior  lien  existing.  It  seems  to  me  we  might  safely  do  that, 
provided  the  local  banks  did  not  mix  up  its  bonds,  and  have  back  of 
them  some  mortgages  which  were  first  liens  and  some  which  were 
second  liens,  so  that  the  investor  would  know  just  what  he  was 
buying. 

Mr.  King.  I  think  that  could  be  done;  and  it  would  make  a  very 
little  difference  in  the  sale  of  the  bonds,  because  they  would  be 
purchased  by  people  who  understood  the  conditions. 

Mr.  Platt.  It  would  seem,  if  you  put  it  that  way,  that  there  would 
be  no  objection. 

Mr.  Weaver.  I  was  going  to  ask  you  if  you  thought  there  would 
be  a  market  for  second-mortgage  bonds. 

Mr.  King.  Yes,  sir ;  of  that  class. 

Mr.  Platt.  It  seems  to  me  it  is  more  in  the  nature  of  a  tax  than 
a  mortgage. 

Mr.  King.  This  is  not  really  a  mortgage,  it  is  a  lien.  It  is  true 
in  one  sense  it  is  a  mortgage,  but  it  is  what  you  might  call  sui 
generis,  peculiar  to  itself. 

Mr.  Weaver.  It  is  an  encumbrance  that  has  to  be  paid,  no  matter 
what  you  call  it. 

Mr.  King.  Assume,  for  example,  that  all  the  taxes  to  be  paid 
upon  land  for  the  next  20  years  could  be  estimated,  and  provision 
made  for  the  payment  of  the  taxes  as  they  came  due,  we  would  have 


944  RURAL  CREDITS. 

exactly  the  same  conditions  as  here  presented.  In  fact  that  system 
was  attempted  in  my  State  at  one  time;  it  was  estimated  for  three 
or  four  years,  I  believe,  and  they  had  a  fixed  amount,  but  the 
Supreme  Court  held  it  was  unconstitutional. 

Mr.  Hayes.  What  is  the  usual  amount  for  a  man  that  goes  into 
one  of  these  projects  and  takes  up  the  land?  What  is  the  usual 
amount  that  is  allotted  to  him? 

Mr.  King.  The  usual  amount  of  land? 

Mr.  Hayes.  Yes. 

Mr.  King.  Well,  the  limit  has  been  1(50  acres  under  the  reclamation 
act,  but  thus  far  but  few  of  the  units  have  been  definitely  fixed ;  but 
in  some  lacalities  we  expect  to  fix  them  at  40  acres. 

Mr.  Hayes.  That  is,  at  the  outside  ? 

Mr.  King.  It  will  be  in  some  localities;  but  take  it  throughout  the 
United  States,  I  think  it  will  be  safe  to  say  the  average  will  not 
be  over  possibly  80  acres ;  don't  you  think  so,  Mr.  Ryan  ? 

Mr.  Ryan.  No  ;  I  think  it  will  be  less  than  that.  The  limit  of  the 
largest  farm  now  that  has  been  established  by  the  Reclamation 
Service  is  80  acres. 

Under  the  reclamation  act  160  acres  is  permissible,  but  80  acres 
of  irrigable  land,  I  believe,  is  the  largest  unit,  with  very  few  ex- 
ceptions. There  are  a  lot  of  entries  for  160  acres,  and  the  amended 
reclamation  bill  which  is  now  before  Congress  provides  that  the 
holders  of  those  160-acre  entries  will  be  permitted  to  relinquish  the 
excess  over  and  above  the  area  of  the  farm  unit  as  established  by 
the  reclamation  act.  Most  farm  units  that  have  been  made  fix  the 
irrigable  area  at  80  acres  or  less,  so  that  the  average  will  be  down  to 
about  40  acres.  There  are  some  of  them  as  low  as  10 — 10  and  20 
acre  units. 

Mr.  Hayes.  Now,  in  the  Salt  River  project,  what  is  the  usual  unit? 

Mr.  King.  The  limit  contemplated  there  is  40  acres. 

Mr.  Hayes.  Forty  acres?     That  is  what  I  thought. 

Mr.  King.  Yes.  And  take  the  West  Umatilla  extension,  in  Oregon, 
that  has  not  been  fixed;  but  I  think  we  expect  to  reduce  it  to  a 
lower  acreage  than  that. 

Mr.  Hayes.  So  that  we  might  have  it  in  the  record,  let  us  take 
the  Salt  River  as  probably  an  average  project.  The  expense  there 
we  have  been  advised  was  $70  an  acre,  the  cost  of  the  project.  Now, 
if  we  give  them  20  years'  time  in  which  to  make  payments  that 
would  amount  to  $1.40  an  acre  per  year  for  40  acres.  That  is  $140 
for  each  tract  of  40  acres.  It  is  $140  for  a  40-acre  tract  per  vear, 
which  is  $2,800  all  together.    That  would  be  the  tax. 

Mr.  King.  I  do  not  quite  catch  that  point. 

Mr.  Hayes.  $70  an  acre  for  40  acres  is  $2,800,  and  divided  into  20 
annual  pa}7ments  would  be  $140  each. 

Mr.  King.  For  40  acres? 

Mr.  Hayes.  For  40  acres,  so  that  the  tax  on  a  40-acre  tract  would 
be  $140  a  year. 

Mr.  King.  This  man  would  pay  $140  a  year  in  addition  to  his 
State  and  county  tax,  but  along  with  that  he  has  the  advantages  of 
several  crops  each  year;  the  productiveness  of  his  farm  is  increased 
about  tenfold  as  compared  to  some  other  man's  land  who  is  without 
water,  and  who  does  not  have  to  pay  that  extra  tax.     We  call  it  a 


RURAL   CREDITS.  945 

tax.  Hence,  considering  it  from  that  standpoint,  he  is  a  safer  man 
to  loan  the  money  to,  even  if  you  make  a  second  loan,  than  the  other. 

Mr.  Platt.  Does  he  have  to  pay  any  more  for  his  water,  or  does 
he  get  his  water  free? 

Mr.  King.  He  only  pays  the  actual  cost  of  maintenance  of  keeping 
up  the  reclamation  project.  The  lands  are  assessed  pro  rata,  and 
each  man  pays  his  share.     That,  of  course,  will  continue. 

Mr.  Woods.  Does  the  Government  keep  on  operating  the  project 
for  20  years? 

Mr.  King.  It  keeps  it  up  until  the  project  is  turned  over  to  the 
landowners,  which  may  be  done,  under  the  reclamation  act,  after 
one-half  has  been  paid;  then  it  turns  it  over  to  them,  subject  to  the 
supervision  of  the  Government  in  a  way  to  see  that  they  carry  out 
their  contracts,  and  the  settlers  themselves  will  handle  the  project, 
collect  the  fees,  and  pay  the  Government. 

It  occurs  to  me  that  unless  this  exception  is  placed  in  the  bill  that 
it  will  be  in  fact,  and  for  all  practical  purposes,  a  discrimination 
against  those  who  have  lands  requiring  irrigation  under  Government 
projects,  because  you  practically  say  to  them  that  money  may  not  be 
loaned  to  them  notwithstanding  they  offer  as  good  security  and 
their  lands  are  more  productive,  with  better  opportunity  in  the 
end  to  repay  the  loan,  than  the  man  without  irrigation;  that  is  to 
say,  that  loans  will  be  made  to  people  who  do  not  have  the  advan- 
tage of  irrigation.  Now,  a  man  who  has  never  been  in  an  irrigated 
country,  and  has  not  considered  this  very  much,  is  not  inclined  to 
to  take  that  view  of  it.  But  in  an  irrigation  district,  on  the  irriga- 
tion sections  in  the  arid  and  semiarid  States,  there  will  be  but  little 
difficulty  in  understanding  it.  In  fact  that  is  the  view  which  will 
be  taken  of  it;  that  is  to  say,  it  is  a  discrimination  against  the 
farmer  who  may  purchase  a  water  right  for  his  land.  Unless  I  am 
mistaken,  the  bankers  in  Malheur  County,  Oreg.,  which  is  one  of  the 
principal  irrigation  sections  of  the  State,  loan  money  on  lands  with- 
out questioning  the  lien  placed  upon  them  for  water  rights.  The 
State  of  Oregon  thus  loans  its  State  school  money.  I  was  agent  for 
the  State  there  for  several  years.  No  question  was  asked  about  the 
prior  liens  that  might  exist  by  reason  of  water-rights  contracts.  The 
fact  that  a  person  owns  stock  in  some  company  and  was  not  able 
to  pay  for  his  water  right  and  might  eventually  lose  his  water  right 
did  not  occasion  any  worry  at  all,  except  that  the  stock  was  assigned 
over  to  the  State. 

Mr.  Seldomridge.  Do  you  think  that  the  Government  could  prop- 
erly appraise  these  lands  out  there  for  their  real  value  and  validate 
that  appraisement? 

Mr.  King.  Well,  not  any  more  than  we  appraise  lands  in  levying 
assessments  for  municipal,  county,  and  State  purposes.  They  never 
assess  them  for  their  real  value.  They  claim  they  do,  but  they 
never  do. 

Mr.  Seldomridge.  It  seems  to  me  that,  taking  into  consideration 
the  fact  that  the  water  right  resides  in  the  Government,  it  will  be 
necessary  to  have  a  very  strict  appraisement  of  land  to  be  offered  for 
mortgage,  under  official  direction. 

37031—14 60 


946  KUEAL   CREDITS. 

Mr.  King.  Well,  it  might  be,  but  I  fail  to  see  where  there  would 
be  any  difference,  as  a  matter  of  practice,  because,  as  has  been  sug- 
gested, the  lands  are  absolutely  worthless  without  the  water,  and 
whenever  the  lands  are  sold  under  the  mortgage  the  purchaser  under 
the  mortgage  foreclosure  must,  for  his  own  protection,  pay  for  these 
water  rights  under  the  first  lien.  There  is  no  escape  from  it.  Other- 
wise he  gets  nothing.  You  will  find  plenty  of  them  ready  to  pur- 
chase, and  I  think  it  is  safe  to  predict  that  if  this  suggested  amend- 
ment is  made  there  will  not  only  be  money  loaned  by  people  who  are 
in  the  money-lending  business,  as  second  mortgages,  but  they  will 
take  it  as  a  third  lien,  even  if  you  can  call  the  water-right  contract  a 
first  lien.  For  example,  in  States  where  we  loan  school  funds,  as  in 
my  State,  a  man  can  borrow  money  to  the  extent  of  one-third  of  the 
value  of  the  land,  independent  of  the  improvements,  at  6  per  cent. 
It  is  nothing  unusual  for  a  man  to  put  another  mortgage  on  the  land, 
and  the  banks  and  people  in  the  money-lending  business  are  glad  to 
get  it.  Of  course  they  keep  it  within  reasonable  bounds.  I  think 
that  this  would  work  out  in  the  same  manner.  I  think  you  will  find 
that  in  all  the  States  where  money  is  loaned  by  the  State,  as  it  is  in 
Oregon,  it  will  be  loaned  notwithstanding  this  will  be  a  first  lien  upon 
the  land.  I  have  reference  to  the  water  right.  That  question  will 
never  be  asked,  because  in  those  States  the  matter  is  so  well  under- 
stood that  it  is  seen  that  no  chances  are  being  taken  on  that  account. 

Is  there  anything  further,  gentlemen? 

Mr.  Woods.  Judge  Kings,  I  understood  you  to  say  that  some  of 
these  settlers  or  owners  did  not  get  title  for  four  years.  Is  that 
title  to  the  land? 

Mr.  King.  Not  all  of  them.  They  can  not  get  the  title  until  they 
have  lived  on  the  land  for  four  years. 

Mr.  Woods.  Some  of  them  have  private  titles  ? 

Mr.  King.  Yes,  sir.  I  am  speaking  of  Government  lands.  As 
far  as  private  lands  are  concerned,  of  course,  they  have  their  title. 

Mr.  Woods.  How  would  the  owner  transfer  title  to  the  bank  as 
security  for  the  loan? 

Mr.  King.  You  mean  under  the  private  lands?  The  private 
lands  would  give  a  mortgage. 

Mr.  Woods.  Under  the  Government  land,  prior  to  the  first  four 
years. 

Mr.  King.  He  can  not  transfer  the  title. 

Mr.  Woods.  How  would  the  bank  make  the  loan  ? 

Mr.  King.  The  bank  does  not  make  the  loan. 

Mr.  Woods.  What  security  would  they  have  ? 

Mr.  King.  I  do  not  think  they  would  have  any  until  after  final 
proof  is  made. 

Mr.  Woods.  Is  that  not  the  time  that  they  need  assistance  most? 

Mr.  King.  Well,  the  situation  is  this,  there  are  thousand  of  them 
who  already  have  been  living  upon  their  lands  the  required  time 
who  would  apply.  I  am  glad  you  brought  that  question  up,  because 
I  have  heard  it  asked  here  as  to  why  the  same  privileges  should 
not  be  extended  to  every  man  who  was  not  depending  on  irrigation, 
so  that  he  could  improve  his  land  the  first  four  or  five  years.  The 
fact  is  that  you  can  not  loan  to  a  man  before  he  makes  final  proof. 
You  could  loan,  but,  of  course,  the  mortgage  would  be  worthless. 
But  after  final  proof  has  been  made  upon  a  homestead,  whether  it 


RURAL   CREDITS.  947 

is  under  a  Government  project  or  not,  then  it  is  in  position  so  that 
a  loan  may  be  made  upon  it  and  become  a  first  mortgage.  The 
same  condition  exists  with  reference  to  reclamation  projects. 

Mr.  Woods.  You  are  speaking  of  real  estate  loans? 

Mr.  King.  Yes ;  real  estate  loans.  So  they  are  in  the  same  position 
until  they  make  the  final  proof.  But  on  practically  all  of  these 
projects  now  that  have  been  under  construction,  there  is  a  very  large 
percentage,  I  think,  who  have  lived  there  during  the  required  length 
of  time,  and  who  could  make  their  final  proof  and  borrow  the 
money  if  that  is  permitted. 

Senator  Hollis.  We  thank  you  very  much. 

STATEMENT  OF  HON.  WILLIS  J.  HILLINGS,  REPRESENTATIVE  IN 
CONGRESS  FROM  THE  STATE  OF  PENNSYLVANIA. 

Mr.  Hulings.  The  Senate  committee  has  been  good  enough  to 
listen  to  me,  and  I  have  not  anything  much  to  add  to  that  except  to 
emphasize  two  or  three  particulars.  I  have  presented  a  bill  (H.  R. 
9988),  and  perhaps  it  might  be  well  to  suggest  at  the  start  that  if  the 
mind  of  this  committee  is  made  up  not  to  report  any  bill  that  has 
not  for  its  foundation  Government  aid,  it  would  be  of  little  use  for 
me  to  say  anything,  because  I  believe  that  that  is  the  true  basis  of 
the  relief  that  is  sought  in  this  agricultural  credit  matter. 

Senator  Hollis.  I  should  hesitate  to  be  responsible  for  forecasting 
what  this  committee  might  do. 

Mr.  Hulixgs.  But  if  they  are  open-minded  on  this  question,  then 
I  wish  to  suggest  this,  that  the  bills  that  I  see  have  been  presented 
for  your  consideration,  all  of  them  involve  a  great  machine  of  Gov- 
ernment control.  One  of  them,  at  least,  provides  for  the  inevitable 
drift  of  the  great  volume  of  agricultural  credit  into  the  control  of  the 
banking  class.  They  build  up  a  political  machine;  they  involve  an 
enormous  unnecessary  expense  and  make  the  whole  system  intricate 
and  expensive,  which  I  think  is  easily  avoidable.  The  theme  or 
concept  of  my  bill  is  a  building  and  loan  association  turned  just  the 
other  way  around.  The  ordinary  building  and  loan  association, 
which  has  been  such  a  great  benefaction  to  the  people  of  the  country, 
provides  for  payments  of  small  stipends  monthly  for  a  period  of  3*0, 
40,  or  50  months,  at  the  end  of  which  time  the  contributor  gets  a 
paid-up  share  of  $200,  paid  in  cash.  Such  a  system  is  not  possible,  I 
think,  in  a  farming  community,  for  the  reason  that  in  the  towns  the 
wage  earners  or  men  who  have  a  stated  and  a  certain  income,  can 
cut  their  cloth  according  to  their  means,  and  they  can  make  these 
contributions,  but  the  farmer  only  has  an  income  once  a  year,  and 
that  is  not  certain.  He  must  wait  for  the  year  to  see  whether  he  is 
going  to  get  anything.  So  the  plan  of  organizing  a  number  of 
banks,  country  banks,  farmers'  banks,  that  will  find  their  capital 
through  contributions  of  farmers,  I  think  is  impracticable. 

So  I  have  drafted  this  bill  that  has  for  its  basis  the  formation  of 
organizations  of  not  less  than  25  farmers  that  can  organize  a  coop- 
erative association,  with  a  capital  stock  of  not  less  than  $25,000. 
Their  subscriptions  to  this  stock  are  paid  in  by  giving  their  note 
through  a  trustee  for  the  use  of  the  United  States,  these  notes  to  be 
secured  by  mortgage  on  approved  real  estate,     I  need  not  go  into 


948  RUKAL   CREDITS. 

that.  If  everything  is  found  to  be  correct  they  take  these  notes,  to- 
gether with  the  note  of  the  organization  or  association,  for  a  similar 
amount— $25,000.  These  individual  notes  and  mortgages  are  put 
back  of  that  association  note  as  a  collateral  security.  The  associa- 
tion note  is  payable  in  amortized  payments,  bearing  3  per  cent.  If 
everything  is  all  right  the  Secretary  of  the  Treasury  hands  the  asso- 
ciation $25,000  in  currency.  Where  the  Treasury  gets  that  is  not 
set  out  in  the  bill,  but  presumably  it  is  found  by  selling  the  3  per 
cent  bonds.  The  term  of  this  law  is  25  years.  Being  then  extin- 
guished by  these  amortized  payments  the  Secretary  of  the  Treasury 
hands  back  to  the  trustee,  who  is  an  appointed  officer,  these  indi- 
vidual notes  and  mortgages,  which  are  payable  according  to  the 
rate  of  interest,  presumably  6. per  cent,  so  that  it  will  not  interfere 
with  bank  rates  in  the  neighborhood — presumably  6  per  cent.  The 
maker  of  that  note  knows  that  by  the  payment  of  that  6  per  cent 
during  the  time  his  debt  and  interest  is  extinguished.  He  can  do 
that  and  also  provide  an  adequate  sum  for  organization  expenses. 

These  organization  expenses  naturally  will  not  be  so  great  as  in 
the  ordinary  building  and  loan  association,  which  is  found  to  be  less 
than  three-quarters  of  1  per  cent  per  annum,  because  the  building 
and  loan  association  meets  monthly.  This  association  need  not 
meet  more  than  once  every  six  months,  at  the  times  when  the  install- 
ments come  due.  These  installments  would  be  paid  to  the  trustee, 
the  trustee  sends  to  the  Government  the  amount  necessary  to  meet 
the  amortized  payment  of  the  association  note,  and  the  balance  is 
put  into  the  treasury  of  the  association  and  there  it  remains  and 
forms  a  fund,  which,  by  gradual  appreciation,  becomes  large  enough 
to  afford  the  short-time  loan  to  such  of  its  members  as  may 
require  it. 

Now,  then,  these  associations  have  no  Government  control;  there 
is  no  banking  paraphernalia  or  expense  of  employees  or  clerks  or 
Government  controller ;  everything  of  that  sort  is  avoided,  and  these 
associations  in  time  will  encourage  cooperative  operation  even  for 
marketing  the  products  of  the  farm  or  for  receiving  the  contribu- 
tions from  farmers  or  other  persons  in  the  neighborhood  which  they 
loan  out  on  short-time  loans,  and  it  does  not  make  any  difference  what 
kind  of  business  they  go  into.  It  does  not  make  any  difference 
whether  their  business  is  successful  or  not,  it  can  not  in  any  wise 
affect  the  security  of  the  Government  and  it  can  not  affect  the  in- 
tegrity of  the  loan  which  is  made. 

Now,  I  have  looked  at  the  Bathrick  bill,  and  that  seems  to  be 
very  greatly  commended  and  approved  by  some  of  these  farmers' 
associations  and  bankers. 

Mr.  Weaver.  What  do  you  think  of  the  Bathrick  bill? 

Mr.  HuiiiNGS.  Well,  I  think  if  Mr.  Bathrick's  bill  could  just  be 
stripped  of  the  expense  and  machinery  which  is  altogether  unneces- 
sary— in  other  words,  if  Mr.  Bathrick  should  adopt  my  bill  he  would 
have  a  good  bill .     [Laughter.] 

I  think  Mr.  Bathrick's  bill  is  a  better  bill  than  the  Moss-Fletcher 
bill,  because  those  bills  do  not  go  to  the  heart  of  the  subject  and 
provide  funds  to  make  the  thing  work. 

Mr.  Weaver.  Do  you  not  think  Mr.  Doolittle's  bill  is  better  than 
any  of  them?  He  provides  the  easiest  way  of  getting  money — just 
print  it  on  the  printing  press. 


RURAL   CREDITS.  949 

Mr.  Hulings.  Oh,  well,  I  do  not  hold  to  such  views  at  all.  It 
is  a  mere  question  whether  this  agricultural  industry  is  of  enough  im- 
portance to  be  worthy  of  Government  aid.  The  enormous  amount 
of  farm  indebtedness,  the  beggarly  pittance  which  the  average 
farmer  has  in  the  United  States  is  driving  men  away  from  the  farm, 
and  they  are  going  to  the  superior  attractions  of  the  city,  and  we  wail 
and  bemoan  their  leaving  the  farm.  They  are  bound  to  leave  the 
farm  and  are  going  to  keep  on  leaving  the  farm  unless  we  do  some- 
thing; and  I  believe  one  of  the  best  things  in  the  world  is  to  give  the 
farmer — the  farmer  who  needs  it — the  best  tool  in  his  trade  that  you 
can  give  him,  and  that  is  cheap  credit. 

Mr.  Chairman,  I  have  said  all  that  I  want  to  say.  I  believe  most 
of  these  gentlemen  have  heard  me  before.  But  if  you  are  going  to 
take  into  consideration  at  all  the  question  of  Government  aid,  I 
believe  this  bill  that  I  have  presented  here,  or  a  modification  of  it — 
for  I  have  no  private  pride  in  the  bill — provides  the  most  direct 
way  to  reach  the  farmer. 

Senator  Hollis.  So  that  we  may  have  it  in  the  record,  will  you 
please  state  what  is  the  number  of  your  bill  ? 

Mr.  Hulings.  H.  R.  9988. 

Mr.  Platt.  Your  bill  provides  for  the  issue  of  bonds  to  enable  the 
Government  to  get  the  money,  does  it  not? 

Mr.  Hulings.  No.  I  may  say  it  originally  did,  and  Speaker 
Clark,  for  that  very  reason  referred  the  bill  to  the  Ways  and  Means 
Committee,  and  when  I  found  that  that  had  been  done  I  went  to 
the  Speaker  and  asked  him  to  refer  it  to  this  committee,  which  he 
declined  to  do  for  that  reason,  and  then  I  introduced  the  bill  again 
without  that  provision  authorizing  the  Treasurer  to  sell  2  per  cent 
bonds,  and  then  there  was  no  reason  why  it  should  not  be  referred 
to  this  committee,  and  it  was  so  referred. 

Senator  Hollis.  How  do  you  provide  in  your  bill  that  the  Gov- 
ernment should  raise  the  money? 

Mr.  Hulings.  It  only  provides  that  the  Treasurer  shall  pay  the 
money,  and  I  presume  that  if  the  committee  should  adopt  that 
scheme  they  would  simply  put  in  the  section  that  I  dropped  out. 

Senator  Hollis.  That  is,  we  get  around  the  honorable  Speaker  by 
adopting  that  amendment? 

Mr.  Hulings.  Yes,  sir. 

Senator  Hollis.  I  see. 

(Whereupon  the  subcommittees  took  a  recess  until  2.30  o'clock 
p.  m.) 

AFTER  RECESS. 

The  subcommittees  reassembled  after  the  expiration  of  the  recess. 

STATEMENT  OF  H.  MARTIN  WILLIAMS,  OF  WASHINGTON,  D.  C. 

Mr.  Williams.  Mr.  Chairman  and  gentlemen  of  the  committee,  I 
have  hesitated  considerably  about  coming  here  and  making  some 
observations  upon  a  subject  which  I  regard  as  very  important.  I  did 
not  know  whether  it  was  proper  for  me  to  do  it  or  not,  holding  a 


950  RURAL   CREDITS. 

position  in  Congress,  as  I  do;  but  at  the  risk  of  doing  something 
that  may  be  regarded  as  improper,  I  want  to  make  one  or  two  sug- 
gestions with  regard  to  this  farm  credit  matter. 

As  I  understand  it,  your  committee  is  charged  with  the  duty  of 
providing  for  a  system  of  farm  credit  or  loans  to  the  farmers  of  this 
country.     Am  I  right  about  that? 

Mr.  Bulkley.  That  is  correct. 

Mr.  Williams.  And  from  what  I  have  seen  in  the  public  press  I 
assume  that  the  proposed  scheme  is  to  provide  for  the  loaning  of 
money  to  the  farmers  upon  their  land  as  security,  taking  mortgages 
upon  them.     Is  that  the  scheme? 

Mr.  Bulkley.  Yes;  we  have  been  working  along  those  lines.  Of 
course,  the  question  of  short-term  credit  has  also  been  under  con- 
sideration. 

Mr.  Williams.  Well,  that  being  true,  and  knowing  that  this  com- 
mittee and  the  Congress  as  well  are  trying  to  devise  and  hope  to  de- 
vise legislation  along  lines  that  would  benefit  the  farming  classes  of 
this  country,  I  want  to  suggest  that  the  scheme  of  farm  loans  upon 
farm  property  or  landed  farm  property  will  never  reach  the  object 
that  is  sought  to  be  obtained.  It  will  never  reach — it  will  never 
benefit  the  tenant  farmers  of  this  country,  the  men  who  have  no  land, 
and  who  number  in  round  numbers  about  2,000,000  of  farmers  in  this 
country. 

Take  the  State  of  Illinois,  for  instance,  and  there  are  130,000  ten- 
ant farmers,  men  who  do  not  own  enough  of  land  in  which  to  bury  a 
little  dead  baby  two  hours  old.  They  are  living  upon  land  owned 
by  other  people,  either  big  landowners  or  land  farmers  or  land 
monopolists. 

For  instance,  in  one  county,  the  County  of  Logan,  111.,  one  foreign 
estate  owns  80,000  acres  of  the  best  land  in  the  State,  and  the  same 
estate  owns  enough  land  in  the  surrounding  counties  to  bring  the 
total  up  to  150,000  acres. 

The  State  of  Missouri  has  about  120,000  tenant  farmers.  The 
State  of  Georgia  has  more  than  either  one  of  those  States,  and  I  sub- 
mit that  any  legislation  that  dees  not  make  some  provision  for  the 
tenant  farmer,  for  the  man  down  at  the  bottom,  will  fail  to  secure  the 
end  sought  to  be  attained  by  any  legislation  of  this  sort. 

I  would  regard  the  enactment  of  a  mortgage-loan  system  to 
farmers,  to  be  secured  by  mortgages  upon  their  lands,  as  the  very 
worst  thing  that  could  possibly  happen  for  the  small  farmer  and 
the  tenant  farmer.  The  effect  would  be  to  enable  farmers  who  owned 
considerable  bodies  of  land,  especially  those  farmers  who  farm  the 
farmers  instead  of  farming  the  farms,  to  acquire  more  land.  The 
effect  would  be  to  increase  land  values  and  make  it  more  impossible, 
or  more  difficult,  I  should  say,  for  the  small  farmer,  for  the  tenant 
farmer,  the  man  that  we  ought  to  manage  in  some  way  or  another  to 
enable  to  get  a  little  bit  of  land  that  he  could  call  his  own,  instead  of 
being  a  benefit,  it  would  be  a  detriment  to  him. 

I  have  an  extract  from  an  agricultural  paper  published  in  Georgia. 
It  is  called  the  Home  and  Farmstead.  It  is  just  a  brief  extract;  it 
says: 

Senator  Fletcher's  bill  creating  Federal  land  banks  provides  cheap  money  for 
the  farmers  who  have  land  to  offer  as  security.  Well  and  good,  so  far.  But 
there  is  in  it  no  provision  and  no  hope  for  the  tenant  farmer,  however  indus- 


RURAL   CREDITS.  951 

trious,  thrifty,  honcest,  and  aspiring  lie  may  be;  no  hope  for  the  white  tenant 
farmers  of  Georgia,  who,  with  their  families,  represent  a  population  of  450,000 
people;  and  no  hope  for  the  white  tenant  farmers  of  the  South,  who  number 
with  their  families  4,500,000.  The  negro  tenant  farmers,  with  lower  standards 
of  living,  fare  better;  they  are  rising  into  farm  ownership  faster  than  the  white, 
at  the  rate  ranging  all  the  way  from  2  to  5  to  1  in  the  different  States. 

Mr.  Chairman,  that  is  all  I  care  to  submit  to  the  committee — just 
the  thought  that  any  legislation  that  fails  to  take  into  account  the 
tenant  farmers,  the  men  who  are  struggling  against  adverse  circum- 
stances, who  live  from  hand  to  mouth,  year  in  and  year  out,  will  be  a 
fraud  upon  them ;  it  will  be  worse  than  no  legislation  at  all ;  and  I 
am  sure  that  this  committee  and  Congress  really  desire  to  do  that 
which  will  benefit  the  people  who  need  the  fostering  care  of  the 
Government  most. 

I  am  not  one  of  those,  however,  who  believe  in  the  Government 
being  a  parent.  With  my  old-fashioned  Democratic  ideas  I  have 
thought,  some  how  or  other,  that  all  that  was  necessary  in  this  Gov- 
ernment, or  in  this  world,  was  to  give  every  man  an  equal  free  oppor- 
tunity in  the  race  for  life,  and  then  let  him  take  care  of  himself. 

But  we  have  not  got  free  opportunities.  To  my  mind,  the  way  to 
correct  this  evil,  the  way  to  dissipate  these  enormous  landed  estates 
and  these  enormous  farms  is  to  reform  our  system  of  taxation ;  take 
taxes  off  of  improvements;  take  taxes  off  of  farm  stock  and  farm 
machinery,  and  off  of  personal  property,  and  put  them  upon  the  sell- 
ing value  of  the  land,  and  in  that  way  you  will  break  up  the  large 
farms  and  either  compel  the  owners  to  dispose  of  them  or  to  let  them 
go  at  a  reasonable  rental.  I  can  see  no  other  way  out  of  that  diffi- 
culty. 

Mr.  Chairman,  I  want  to  thank  you  very  much  for  giving  me  the 
opportunity  to  submit  these  observations;  and  if  anyone  desires  to 
ask  any  question  I  will  try  to  answer  it  if  possible. 

Senator  Hollis.  Do  you  believe  in  the  single  tax,  Mr.  Williams  ? 

Mr.  Williams.  Absolutely.  I  believe  it  is  the  only  salvation  for 
industrial  and  financial  depression. 

Senator  Hollis.  And  that  is  what  you  meant  when  you  said  to 
take  the  tax  off  all  implements,  stock,  and  so  on,  and  put  it  on  the 
land,  is  it? 

Mr.  Williams.  That  is  what  I  meant  exactly;  to  tax  land  values 
instead  of  taxing  labor  and  thrift  and  industry. 

Senator  Hollis.  Do  you  think  that  would  diminish  the  price. of 
real  estate  in  farming  localities? 

Mr.  Williams.  Certainly,  it  would  have  that  effect. 

Senator  Hollis.  And  that  it  would  tend  to  place  the  land  in  the 
hands  of  owners  instead  of  tenants? 

Mr.  Williams.  Yes;  I  think  that  would  be  the  ultimate  end. 

Senator  Hollis.  Yes.  Now,  can  you  make  for  the  benefit  of  the 
committee  some  practical  suggestions  as  to  how  we  can  help  the 
tenant  farmers  in  this  legislation  we  have  under  consideration  ?  Of 
course  we  all  want  to  help  them,  but  we  know  it  is  a  very  difficult 
thing. 

Mr.  Williams.  I  know  that ;  but  I  can  not  make  a  suggestion  along 
that  line.  I  have  not  given  it  sufficient  thought,  and  I  am  sure  I 
could  not  submit  anything  that  would  be  of  value  to  the  committee 
along  that  line.     I  think  it  is  going  to  be  a  long  way  out.     I  do  not 


952  RURAL   CREDITS. 

think  it  is  going  to  be  done  by  legislation  by  this  Congress.  I  think 
it  is  going  to  take  some  time  to  devise  legislation  which  will  give 
relief  to  this  large  body  of  the  American  people  who  need  it  the  most. 

Senator  Hollis.  Do  not  be  discouraged,  Mr.  Williams,  if  we  do 
not  do  it  in  this  bill. 

Mr.  Williams.  Oh,  no. 

Senator  Hollis.  But  I  think  eventually  we  will  work  out  some  sys- 
tem of  personal  credit  that  will  be  of  great  help. 

Mr.  Williams.  I  think  so.  I  think  that  is  true.  I  know  that  my 
acquaintance  with  the  men  who  compose  the  American  Congress 
justifies  my  belief  in  their  absolute  sincerity  and  their  ability,  when 
once  they  bring  their  thoughts  to  bear  upon  these  questions,  to  work 
them  out  finally. 

Mr.  Bulkley.  We  thank  you  very  much  for  your  attendance,  Mr. 
Williams. 

STATEMENT  OF  HON.  PATRICK  D.  NORTON,  A  REPRESENTATIVE 
IN  CONGRESS  FROM  THE  STATE  OF  NORTH  DAKOTA. 

Mr.  Norton.  Mr.  Chairman  and  gentlemen  of  the  committee,  I  ap- 
preciate very  much  the  opportunity  afforded  me  to  make  a  few 
remarks  on  this  important  subject  of  rural  credits. 

I  have  lived  in  North  Dakota,  the  State  which  I  in  part  repre- 
sent in  Congress,  for  something  more  than  31  years.  During  all 
that  time  I  have  been  interested  in  and  engaged  in  farming.  I  am 
very  well  acquainted  with  conditions  in  that  State  affecting  credits 
which  farmers  require  to  carry  on  their  business. 

I  believe  that  I  am  very  safe  in  saying  that  I  have  witnessed  as 
much  suffering  and  as  much  hardship  on  the  part  of  farmers  on 
account  of  exorbitant  interest  charges  as  has  been  witnessed  by  any 
man  who  has  appeared  before  your  committee.  The  subject  of  high 
interest  rates  on  rural  credits  has  been  a  live  subject,  an  all-absorb- 
ing subject  in  my  home  State  for  many  years. 

During  the  past  seven  years  I  have  lived  in  the  western  part  of 
Nort  Dakota,  or,  more  accurately  speaking,  in  the  southwestern  part 
of  that  State.  This  section  of  the  State  has  only  recently  been  de- 
veloped for  farming  purposes.  Prior  to  1907  that  particular  section 
of  the  State  was  given  over  chiefly  to  stock  raising  and  grazing. 

Before  moving  to  my  present  location  at  Hettinger,  Adams  County, 
I  lived  in  the  eastern  part  of  the  State,  at  Devils  Lake. 

At  the  present  time  the  interest  rate  on  farm  loans — that  is,  first- 
mortgage  farm  loans,  secured  by  first  mortgage  on  farm  lands — in  the 
eastern  part  of  our  State  is  about  7  per  cent,  whereas  in  tl  e  western 
part  of  the  State  the  rates  range  from  8  to  12  per  cent.  The  maxi- 
mum legal  rate  of  interest  in  North  Dakota  is  12  per  cent. 

In  discussing  this  subject,  and  the  bills  which  are  now  before  the 
committee  and  which  are  being  given  your  consideration,  it  might 
be  well  for  us  to  state  to  you  how  farm  loans  are  handled  at  the  pres- 
ent time  in  our  State. 

I  may  say  that  I  am  very  well  acquainted  with  the  manner  of 
making  farm  loans  secured  by  first  mortgages  on  farm  lands,  as  I  have 
negotiated  many  such  loans  for  farmers,  and  have  also  made  such 
loans  on  my  own  account.     I  have  been  paid  high  interest  rates  and 


RURAL   CREDITS.  953 

have  myself  paid  a  great  amount  of  interest  at  the  very  high  inter- 
est rates  that  exist  in  my  State. 

To-day  we  have  in  North  Dakota  something  over  600  banks,  in- 
cluding State  banks  and  national  banks.  In  the  western  part  of  the 
State,  when  a  farmer  desires  to  make  a  loan  upon  his  land  to-day, 
the  usual  practice  is  for  him  to  go  to  one  of  the  State  banks  doing 
business  near  his  farm.  These  banks  are,  for  the  most  part,  institu- 
tions with  a  capital  stock  ranging  from  $10,000  to  $20,000. 

Mr.  Woods.  Mr.  Norton,  what  is  the  minimum  capital  permitted 
in  your  State  under  the  law  ? 

Mr.  Norton.  The  minimum  capital  under  the  existing  law  is 
$10,000.  i    • 

As  I  was  about  to  say,  a  farmer  goes  to  his  local  State  or 
National  bank  and  asks  to  make  a  loan.  He  makes  out  an  applica- 
tion for  the  loan,  giving  the  description  of  his  land,  the  improve- 
ments on  it,  and  the  description  of  other  property  that  he  may  have; 
a  statement  as  to  his  indebtedness;  a  statement  of  the  purpose  for 
which  the  loan  is  to  be  made,  and  a  statement  as  to  the  amount  of  loan 
he  desires  to  make;  and  he  authorizes  the  bank  to  which  this  state- 
ment is  made  to  arrange  for  a  loan  on  his  land. 

The  loan  is  granted  to  him  at  the  prevailing  rate  of  interest 
charged  by  the  bank. 

Now,  I  want  to  say  that  in  a  very  few  cases  do  the  banks  carry 
these  loans.  Either  before  the  loan  is  made  to  the  farmer,  or  very 
soon  thereafter,  this  loan  is  sold  to  some  commission  mortgage  loan 
agent,  in  an  Eastern  State,  or  to  some  affiliated  bank  in  an  Eastern 
State.  The  greater  part  of  the  loans  made  in  North  Dakota  are 
sold  to  banks  or  loan  agents  in  the  States  of  Minnesota,  Iowa,  Wis- 
consin, Illinois,  and  Indiana. 

The  local  bank  making  the  loan  direct  to  the  farmer  calculates, 
in  the  course  of  its  regular  business,  to  sell  this  mortgage  to  its 
eastern  correspondent,  so  as  to  net  it  a  rate  of  at  least  2  per 
cent  for  each  year  the  loan  has  to  run.  That  is,  if  the  loan  is 
made  to  the  farmer  at  12  per  cent  it  is  sold  to  its  eastern  correspond- 
ent at  a  rate  not  greater  than  10  per  cent. 

In  some  cases — in  many  cases — when  these  loans  are  made  direct 
to  the  farmers  by  local  banks  at  12  per  cent  they  are  sold  to  eastern 
loan  agents  or  eastern  banks  at  a  rate  to  net  the  purchaser  8  per  cent, 
and  sometimes  as  low  as  6  per  cent  per  annum. 

In  the  sale  of  the  mortgage  that  is  executed  by  the  farmer,  very 
frequently  this  mortgage  passes  through  the  hands  of  several  loan 
agents  or  mortgage  loan  brokers,  and  in  each  case  there  is  a  com- 
mission of  about  1  per  cent  per  annum  for  handling  the  loan  which 
goes  to  the  loan  agent. 

So  that  the  one  who  ultimately  carries  the  loan  receives  but  a 
small  part  of  the  rate  of  interest  that  is  charged  to  the  farmer. 

The  farmers  of  my  State,  under  existing  laws  and  under  existing 
economic  conditions,  are  not  able  and  have  not  been  able  to  protect 
themselves  from  these  exorbitant  commissions  and  high  interest 
rates. 

I  have  been  very  much  interested  for  several  years  in  the  subject 
of  rural  credits,  and  I  have  carefully  read  the  bills  that  have  been 
introduced  in  the  Congress  and  that  are  being  considered  by  your 


954  RURAL   CREDITS. 

committee.  I  have  in  particular  carefully  read  the  bill  introduced 
by  Senator  Fletcher  in  the  Senate  and  Representative  Moss  in  the 
House,  the  bill  commonly  spoken  of  as  "  the  Moss-Fletcher  bill," 
which  proposes  to  provide  for  the  establishment  of  national  farm- 
land banks. 

I  want  to  say  to  the  chairman  of  this  committee  and  to  the  com- 
mittee that  from  a  reading  and  study  of  this  bill  I  have  been  unable 
to  discover  how  the  sj'stem  outlined  in  the  bill,  when  put  into  practi- 
cal operation,  is  going  to  prevent  excessive  commission  charges  on 
farm  loans  or  give  relief  to  the  farmers  of  the  country  from  the 
high  interest  rates  they  are  now  obliged  to  pay.  I  have  been  unable 
to  see  how  the  system  that  is  now  being  carried  on  by  the  banks  and 
loan  agencies  of  the  country  is  not  going  to  be  carried  on  in  practi- 
cally the  same  manner  under  the  system  outlined  in  this  bill. 

As  I  understand  the  bill,  it  provides  for  the  establishment  of 
banks  having  a  minimum  capital  of  $10,000,  these  banks  to  loan 
direct  to  the  farmers  at  a  rate  of  interest  not  to  exceed  by  more  than 
1  per  cent  the  rate  at  which  they  may  issue  farm-mortgage  bonds 
or  bonds  issued  by  the  bank.  They  are  called  in  the  bill  "land- 
mortgage  bonds,"  I  believe. 

Mr.  Woods.  Yes;  land-mortgage  bonds. 

Mr.  Norton.  Land-mortgage  bonds ;  that  is  the  designation  given  in 
the  bill.  In  North  Dakota  at  the  present  time  a  great  many  of  our 
State  banks  are  affiliated  with  banks  in  adjoining  States;  that  is, 
the  stockholders  of  the  North  Dakota  banks  are  stockholders  in  banks 
in  adjoining  States,  and  stockholders  in  banks  that  handle  to-day 
as  brokers  a  large  amount  of  farm  mortgages  made  by  the  farmers 
of  my  State. 

It  occurs  to  me,  under  the  system  outlined  in  the  Moss-Fletcher 
bill — and  this  is  not  an  idea  alone  of  my  own,  but  it  has  been  brought  to 
my  attention  by  many  letters  from  farmers  in  my  State — that  there 
is  no  particular  inducement  to  cause  the  officers  of  the  farm-land 
banks  to  sell  farm-land  bonds  at  the  lowest  possible  rate  of  interest. 
That  is,  a  farm-land  bank  established  in  western  North  Dakota 
could  sell  its  farm-land  bonds  to  some  correspondent  in  Iowa  at  a 
rate  of  9  per  cent  and  then  under  the  terms  of  the  proposed  law 
make  a  loan  to  the  local  farmer  at  the  rate  of  10  per  cent. 

As  far  as  many  of  those  who  have  written  to  me  are  able  to  deter- 
mine ,there  is  no  certain  guaranty  under  the  provisions  of  this  bill, 
in  its  practical  operation,  that  the  farmers  whom  it  seeks  to  aid  will 
be  given  loans  at  any  reasonable  rate  of  interest. 

It  occurs  to  me  that,  whatever  Federal  legislation  is  enacted  by 
Congress  on  the  subject,  it  should  aim  in  a  practical  way  to  prevent 
the  imposition  upon  the  farmers  of  the  country  of  the  many  commis- 
sion charges  that  they  are  now  subjected  to  on  the  loans  that  they  are 
obliged  to  make.  I  think  that  is  one  of  the  greatest  evils  of  present 
methods.     In  fact,  I  know  this  is  true  in  my  own  State. 

I  might  say  to  the  committee,  regarding  the  sentiment  that  exists 
among  the  farmers  of  my  State  on  this  subject,  that  while  they  are 
not  in  favor  of  a  socialistic  or  paternalistic  form  of  government, 
they  do  not  believe  the  Government  would  be  extending  its  proper 
functions  too  far  if  it  gave  some  direct  assistance  to  those  actually 
engaged  in  farming,  so  as  to  guarantee  to  them  credits  that  they  must 
necessarily  have  to  carry  on  the  business  of  farming  at  a  rate  of 


RURAL   CREDITS.  955 

interest  that  would  not  be  greater  in  any  case  than  the  rate  of  interest 
required  to  be  paid  by  men  engaged  in  commercial  pursuits. 

For  the  past  24  or  25  years  the  State  of  North  Dakota  has  made 
loans  from  its  university  and  school  land  funds  direct  to  the  farmers 
of  the  State.  Before  being  elected  as  a  Member  of  Congress,  I  oc- 
cupied the  position  of  secretary  of  state  of  North  Dakota.  As  sec- 
retary of  state  I  was  ex  officio  member  of  the  board  of  university  and 
school  lands.  This  board  had,  among  its  other  multifarious  duties, 
the  duty  of  making  loans  on  farm  lands  from  the  university  and 
school  land  fund  of  the  State.  The  loans  were  made  at  the  rate  of 
5  per  cent  per  annum,  and  were  made  for  periods  of  12  years,  with 
the  option  of  paying  the  principal  on  any  interest-due  date  after 
5  years. 

I  want  to  say  that  the  experience  that  the  State  has  had  along  this 
line  has  been  a  most  successful  one  from  the  point  of  view  of  the  State, 
and  from  the  point  of  view  of  the  borrower. 

Mr.  Woods.  Mr.  Norton,  would  it  bother  you  to  be  interrupted 
now? 

Mr.  Norton.  Not  at  all. 

Mr.  Woods.  Were  there  ever  any  losses  in  those  loans  so  far  as 
you  knew? 

Mr.  Norton.  I  do  not  recall  that  there  ever  was  any  loss.  My 
best  information  and  best  recollection  is  that  the  State  never  lost  a 
dollar  in  all  the  time  it  has  been  in  the  business  of  making  loans 
direct  to  the  farmers  of  my  State. 

Mr.  Woods.  I  assume  there  were  quite  a  number  of  applications 
always  on  file. 

Mr.  Norton.  Yes ;  a  great  many  applications  on  file ;  a  great  many 
more  than  we  could  supply  loans  to  with  the  limited  funds  available 
for  this  purpose. 

Mr.  Woods.  Did  you  ever  know  of  a  case  where  political  influence 
was  used  in  order  to  secure  advantage  by  the  borrowers  ? 

Mr.  Norton.  No;  I  do  not  know  of  such  a  case.  I  am  sure  that 
nothing  of  that  kind  ever  took  place  while  I  was  on  the  board.  The 
men  who  were  on  the  board  did  not  feel  that  it  was  a  matter  that 
could  be  looked  at  in  that  way.  There  was  so  much  money  appor- 
tioned to  each  county,  and  then  the  applications  were  examined  in 
the  order  in  which  they  were  filed,  and  as  they  were  approved,  they 
were  allowed  in  the  order  in  which  they  were  filed,  accordingly  as 
the  money  was  available  for  that  county.  I  have  never  heard  any 
complaints  that  there  was  any  undue  political  influence  brought  to 
bear  in  the  making  or  granting  of  these  loans.  There  was  never  any 
feeling  like  that  throughout  the  State  as  far  as  I  can  now  recall.  I 
never  heard  of  any  such  complaints,  and  I  have  been  in  political  con- 
tests more  or  less  there  ever  since  I  left  school.  If  there  had  been 
any  charges  of  that  kind  I  would  have  been  sure  to  hear  of  them 
during  my  administration. 

I  want  to  say  to  the  committee  further  that  the  section  of  the  State 
which  I  represent  is  made  up  of  a  considerable  number  of  foreigners 
and  descendants  of  foreign-born  citizens.  We  have  among  our  popu- 
lation a  great  many  farmers  who  are  surprisingly  well  informed  on 
the  subject  of  rural  credits.  I  have  received  some  very  interesting 
letters  from  them.     I  have  myself  been  surprised  to  discover  the 


956  RURAL   CREDITS. 

information  that  farmers  in  my  district  have  on  this  subject.  They 
seem  to  be  particularly  well  acquainted  with  rural-credit  conditions 
in  Norway,  Sweden,  and  Denmark.  A  large  percentage  of  the  farm- 
ers in  the  southwestern  part  of  the  State  are  Russians,  and  many  of 
these  farmers  are  a  very  intelligent  class  of  people.  They  are 
familiar  with  the  rural-credit  conditions  in  Russia.  Others,  judging 
from  their  letters,  are  acquainted  with  rural-credit  conditions  in 
France. 

They  frequently  write  me  that  they  are  surprised  that  this  country, 
which  boasts  so  much  of  its  enlightened  conditions  and  its  progressive 
ideas,  is  so  far  behind  the  countries  from  which  they  came  in  the 
matter  of  a  practical  system  to  provide  credits  for  those  engaged 
in  agricultural  pursuits.  I  must  confess  that  I  have  been  somewhat 
humiliated,  as  a  rather  thorough  and  patriotic  American,  in  reading 
some  letters  I  have  received  from  Russian  farmers,  who  declare  that 
even  in  that  benighted  country  an  industrious  farmer  is  enabled  to 
secure  credits  necessary  to  carry  on  the  business  of  farming  at  fairer 
and  more  reasonable  rates  of  interest  than  are  obtained  in  western 
North  Dakota. 

I  have  introduced  in  the  House  a  bill  (H.  R.  12755),  which  I  shall 
have  inserted  in  the  record. 

(The  bill  referred  to  will  be  found  at  the  conclusion  of  Mr.  Norton's 
statement. ) 

Mr.  Norton  (continuing).  This  bill  which  I  introduced  aims  to 
provide  a  practical  system  of  credits  for  farmers,  and  aims  to  guar- 
antee a  reasonable  rate  of  interest — a  certain  definite  rate  of  not  to 
exceed  4  per  cent  per  annum  on  long-time  loans.  I  am  confident 
that  the  legislation  outlined  in  this  bill  is  practical  and  will  effect 
real  relief  from  existing  exorbitant  interest  rates  on  rural  credits. 
As  you  already  have  a  great  deal  of  testimony  on  both  sides  of  this 
question  before  your  committee,  I  am  not  going  to  go  into  the  sub- 
ject in  detail,  as  I  otherwise  should.  All  that  I  wish  to  say  at  this 
time  is  that  many  business  men,  as  well  as  a  large  majority  of  the 
farmers  in  my  State,  are  in  favor  of  direct  Government  aid  to  farmers 
and  to  farm-credit  associations  in  the  solution  of  this  question  of 
Federal  rural-credit  legislation. 

It  seems  to  me  that  it  is  essential  that  the  greatest  possible  en- 
couragement should  be  given  in  this  country  to  the  ownership  of 
farm  homes.  I  believe  in  any  legislation  that  is  enacted  on  this  sub- 
ject that  should  be  the  principal  aim  in  view,  and  that  the  aid  to  be 
extended  by  the  Federal  Government  should  be  extended  primarily 
to  those  who  make  their  homes  on  the  land  and  to  those  who  actually 
bring  into  existence  by  their  efforts  the  products  of  the  farm. 

Senator  Hollis.  Mr.  Norton,  have  you  examined  the  bill  that  has 
been  introduced  by  Senator  Norris?  Did  you  hear  his  testimony  this 
morning  ? 

Mr.  Norton.  No;  I  did  not  hear  the  Senator's  testimony. 

Senator  Hollis.  It  seems  to  me.  looking  the  bills  over,  that  the 
two  bills  are  quite  similar. 

Mr.  Norton.  Yes;  I  have  read  Senator  Norris's  bill;  and  I  think 
the  fundamental  principles  of  the  two  bills  are  practically  the  same. 

Senator  Hollis.  He  explained  his  bill,  section  by  section,  this 
morning. 

Mr.  Norton.  I  am  pleased  to  know  that  the  Senator  did  this. 


RURAL   CREDITS.  957 

Senator  Hollis.  And  with  that  remark  in  the  record,  it  will  show 
how  much  they  are  alike.  I  wondered  if  they  were  drawn  in  col- 
laboration. 

Mr.  Norton.  No  ;  they  were  not. 

Mr.  Bulkley.  Is  there  any  important  difference  between  them? 

Mr.  Norton.  In  my  bill  provision  is  made  for  branch  bureaus  of 
the  farm  credit  board,  and  there  are  many  different  administrative 
features  in  the  two  bills.  I  believe  that  the  practical  working  of  a 
system  of  rural  credits  will  disclose  the  fact  that  the  administrative 
features  of  the  system  proposed  can  be  best  handled  in  each  State; 
that  is,  the  work  in  connection  with  making  the  loans  in  each  State 
can  be  better  handled  in  each  State  than  it  can  be  handled  from  one 
central  point,  such  as  Washington.  My  bill  further  emphasizes  en- 
couragement to  rural  credit  associations.  I  am  of  the  opinion  that, 
just  as  rapidly  as  possible,  all  loans  should  be  made  through  rural 
credit  associations  composed  of  actual  farmers,  and  then  that  these 
loans  to  be  made  by  rural  credit  associations  should  be  carried  by  the 
loan  fund  provided  by  the  Federal  Government. 

Now,  I  might  say  that  some  loan  firms  are  doing  practically  this 
to-day,  but  instead  of  granting  low  rates  of  interest  to  farmers,  they 
are  reaping  the  profits  of  the  system  themselves. 

The  Wells-Dickey  Co.,  operating  in  the  eastern  part  of  North 
Dakota  and  in  Minnesota,  makes  loans  throughout  North  Dakota  at 
rates  of  interest  of  8  to  10  per  cent,  sometimes  as  high  as  12  per  cent. 
This  company  is  incorporated  for  a  large  amount.  They  issue  a  bond, 
a  Wells-Dickey  Co.  bond,  which  they  have  no  great  difficulty,  I  am 
informed,  in  selling  to  net  the  purchaser  5  per  cent  per  annum.  The 
bonds  they  issue  are  secured  by  the  farm-mortgage  loans  that  they 
make. 

This  system  carried  out  to-day  does  not,  however,  redound  to  the 
benefit  of  the  farmer  who  makes  the  loan  and  who  has  to  pay  the 
interest  and  all  the  loan  charges. 

I  think  that  is  all  I  desire  to  say  to  the  committee  at  this  time.  I 
wish  to  again  assure  you  of  my  appreciation  of  your  courtesy  in  giv- 
ing me  this  hearing,  and  I  trust  that  the  legislation  which  will  be 
enacted  by  this  Congress  will  be  practical  legislation,  legislation  that 
will  in  effect  guarantee  and  make  certain  that  the  farmers  of  this 
country  will  be  able  to  secure  the  credits  that  are  necessary  for  car- 
rying on  their  business  at  fair  and  reasonable  rates  of  interest. 

Mr.  Platt.  Does  your  bill  provide  that  the  Government  shall  raise 
the  money  for  the  loans  by  issuing  bonds? 

Mr.  Norton.  By  issuing  bonds;  yes;  at  3^  per  cent;  the  bonds 
payable  in  20  years.  If  there  are  any  particular  questions  concern- 
ing my  bill  which  any  member  of  the  committee  desires  to  ask  I  will 
be  very  glad  to  answer  them,  and  I  shall  be  very  glad  to  answer  any 
questions  concerning  conditions  in  my  State  or  concerning  this  gen- 
eral subject  of  rural  credits  in  so  far  as  I  may  be  able. 

Mr.  Platt.  I  thought  your  statement  about  the  letters  which  you 
had  from  farmers  in  your  State  was  interesting.  Do  any  of  those 
letters  from  Eussian  farmers  tell  about  the  credit  systems  in  Russia  ? 

Mr.  Norton.  They  do  not  go  into  detail  or  into  particulars,  but 
they  state  that  loans  can  be  made  from  the  Government,  as  they  ex- 
press it.  at  very  low  rates  of  interest. 


958  RURAL   CREDITS. 

Mr.  Bulkley.  That  has  been  stated  by  Dr.  Coulter,  who  traveled 
in  Russia. 

Mr.  Norton.  Yes;  I  have  also  gone  over  the  question  somewhat 
with  Dr.  Coulter.  Since  this  question  has  been  generally  discussed 
the  past  six  months  I  have  been  surprised  to  learn  the  amount  of 
information  that  these  Russian  farmers  have  on  the  subject  and  the 
manner  in  which  they  look  upon  our  Nation's  backwardness  in  this 
respect. 

Mr.  Platt.  Those  loans  in  Russia,  however,  are  made  rather  from 
sociological  or  political  reasons  than  for  the  purpose  of  promoting 
agriculture. 

Mr.  Norton.  For  political  reasons?    I  do  not  so  understand. 

Mr.  Platt.  For  the  purpose  of  enabling  the  people  to  settle  on 
land  which  has  been  held  in  large  tracts  before,  very  much  as  the 
Government  of  Great  Britain  helps  the  Irish  peasants  to  settle  on 
land  on  which  they  have  been  living  for  the  past  500  years,  perhaps. 

Mr.  Norton.  Well,  as  I  understand  it,  they  are  made  to  encourage 
the  ownership  of  farm  homes,  to  encourage  the  citizens  of  that 
country  to  engage  in  farming;  and  I  take  it  that  that  will  be  the 
primary  object  of  any  legislation  that  this  Congress  may  enact,  will 
it  not? 

Mr.  Platt.  Well,  I  suppose  so.  We  have  not  the  same  problems 
to  meet  at  all  that  Russia  has  or  the  same  that  Ireland  has.  We 
have  not  a  class  of  tenants  who  have  been  living  in  one  place  for  a 
long  time  and  whom  it  is  very  desirable  to  enable  to  own  the  land. 

Mr.  Norton.  But  we  do  have  in  this  country  the  same  problem  to 
meet  that  they  have  there,  the  problem  being  to  keep  our  people  in 
this  country  upon  the  farms  and  to  protect  them  from  being  im- 
poverished by  exorbitant  interest  charges. 

Mr.  Platt.  That  is  the  problem  there,  I  suppose,  as  well  as  here, 
to  some  extent.  But  in  your  territory  it  is  a  part  of  the  problem  to 
keep  the  people  from  going  to  Canada,  is  it  not  ? 

Mr.  Norton.  Well,  the  problem  is  to  keep  our  farms  occupied. 
Yes ;  that  is  one  of  the  problems. 

Mr.  Platt.  What  do  they  get  in  Canada?  They  get  Government 
loans  there? 

Mr.  Norton.  No;  at  the  present  time  and  for  the  past  few  years, 
they  get  free  Government  lands  there.  That  is  the  attraction  in 
western  Canada — free  Government  land,  homestead  land. 

Mr.  Platt.  Is  there  any  tendency  among  the  farmers  of  North 
Dakota  of  foreign  parentage  to  organize  the  same  sort  of  cooperative 
associations  that  prevail  in  their  home  countries — their  native 
countries? 

Mr.  Norton.  Yes;  there  have  been  some  few  attempts  along  that 
line;  I  am  not  very  familiar  with  that;  but  some  of  the  Jewish 
settlements  have  made  attempts  along  that  line,  and  I  think  some  of 
the  Russian  settlements  in  the  southern  part  of  the  State  have 
done  so. 

Mr.  Platt.  The  Russian  farmers  are  not  Jews  as  a  rule,  are  they  ? 

Mr.  Norton.  Well,  some  of  the  Russians  are  Jews,  but  not  as  a 
general  rule. 

Mr.  Platt.  Are  they  settled  in  colonies  according  to  religion,  or 
anything  of  that  sort? 


BUBAL   CBEDITS.  959 

Mr.  Norton.  No,  I  do  not  think  so;  not  so  far  as  I  know.  They 
are  of  different  religious  denominations. 

Mr.  Bulkley.  Mr.  Norton,  is  it  constitutional  for  the  Govern- 
ment to  borrow  money  on  bonds  for  the  purpose  of  lending  it  to 
farmers  ? 

Mr.  Norton.  Is  it  constitutional? 

Mr.  Bulkley.  Yes. 

Mr.  Norton.  As  far  as  the  Federal  question  is  concerned? 

Mr.  Bulkley.  Yes. 

Mr.  Norton.  Well,  I  certainly  consider  that  it  is. 

Mr.  Bulkley.  What  do  you  rest  that  on  in  the  Constitution? 

Mr.  Platt.  The  general  welfare  clause? 

Mr.  Norton.  On  what  sections  of  the  Constitution,  do  you 
mean  ? 

Mr.  Bulkley.  Yes;  what  provision  in  the  Constitution? 

Mr.  Norton.  Well,  I  am  not  prepared  to  say  as  to  just  what  sec- 
tions of  the  Constitution  this  authority  may  be  found,  or  to  discuss 
this  phase  of  the  subject  at  length  now. 

Mr.  Bulkley.  It  will  be  seriously  urged,  you  know,  that  it  is  not 
constitutional  for  Congress  to  do  this  thing ;  and  I  have  not  looked  it 
up  carefully  yet,  and  would  like  to  have  any  authority  that  you  may 
have  on  it. 

Mr.  Norton.  Well,  I  shall  be  very  glad  to  submit  authorities  on 
that,  but  I  have  not  considered  that  this  was  a  question  that  would 
be  very  seriously  raised.  Of  course,  I  have  not  had  any  doubt  that 
it  could  be  raised ;  any  question  might  be  raised. 

Mr.  Bulkley.  Well,  it  is  pretty  seriously  urged,  and  if  it  is  true, 
there  is  no  use  for  use  to  talk  about  doing  that. 

Mr.  Norton.  Oh,  certainly  not. 

Mr.  Bulkley.  Well,  if  there  are  no  further  questions,  we  are  very 
much  obliged  to  you. 

Mr.  Norton.  I  might  say,  in  conclusion,  that  I  realize  that  there 
is  a  good  deal  of  opposition  to  the  Government  going  in  this  matter 
into  what  is  termed  paternalism  in  aiding  farmers  and  giving  them' 
so-called  special  privileges. 

But  we  are  doing  this  in  a  small  way  now.  In  the  irrigation  dis- 
tricts all  over  the  West,  the  Government  has  expended  between 
$80,000,000  and  $90,000,000  to  carry  on  irrigation  projects,  and  allows 
farmers  to  pay  for  these  lands  on  terms  that  practically  amounts  to 
an  amortization  payment  plan.  There  is  a  bill  now  before  Congress 
which  is  amendatory  of  the  laws  governing  irrigation  projects,  and 
which  has  the  approval  of  the  Secretary  of  the  Interior,  which  pro- 
vides that  entrymen  on  irrigation  projects  may  pay  for  their  land  in 
20  years,  by  making  small  interest  payments  of  2  per  cent  per  an- 
num for  the  first  4  years,  and  gradually  increasing  it  to  a  maximum 
rate  of  6  per  cent,  which  finally  pays  in  full  the  sale  price  of  the 
land. 

So  I  do  not  believe,  in  view  of  what  we  are  already  doing,  that 
this  objection  can  be  successfully  urged. 

Mr.  Bulkley.  Of  course,  there  is  a  question  of  policy  there,  and 
you  might  consistently  vote  for  Federal  aid  if  you  believed  it  was 
expedient.  But  I  take  it  that,  if  we  believed  it  was  unconstitutional, 
we  ought  not  to  vote  for  it,  even  if  we  were  in  favor  of  the  policy. 


960  RURAL    CREDITS. 

Mr.  Nortox.  I  quite  agree  with  you  there;  and  I  shall  be  glad  to 
submit  authorities  on  that  view  of  the  subject. 

Mr.  Bulkley.  Yes.  Well,  if  there  are  no  further  questions,  the 
whole  series  of  hearings  on  this  subject  will  be  considered  at  an  end. 

(The  bill  referred  to  by  Mr.  Norton  is  as  follows:) 

[H.  R.  12755,  63d  Cong.,  2d  sess.] 

A  BILL  For  the  establishment  of  a  Farm  Credit  Bureau  in  the  Department  of  Agricul- 
ture, to  reduce  the  rate  of  interest  of  farm  mortgages,  and  to  encourage  agriculture 
and  the  ownership  of  farm  homes. 

Be  it  enacted  J)y  the  Senate  and  House  of  Representatives  of  the  United 
States  of  America  in  Congress  assembled,  That  there  is  hereby  established  in 
the  Department  of  Agriculture  a  bureau  to  be  known  as  the  Farm  Credit 
Bureau.  The  said  bureau  shall  be  in  charge  of  a  commissioner,  to  be  appointed 
by  the  President  of  the  United  States,  by  and  with  the  consent  of  the  Senate. 
The  commissioner  shall  hold  office  for  a  term  of  ten  years,  and  shall  be  removed 
from  office  during  such  term  only  for  cause.  He  shall  receive  a  salary  of  $8,000 
per  annum.  The  commissioner  may  be  removed  from  office  by  the  Secretary  of 
Agriculture  for  violation  of  law  or  neglect  of  duty,  but  only  after  a  public 
charge  duly  made,  of  which  he  shall  have  reasonable  notice,  and  then  only  upon 
approval  in  writing  by  the  President  of  the  United  States. 

There  shall  also  be  in  said  bureau  a  chief  clerk  and  such  other  clerks,  agents, 
and  employees  as  are  provided  for  in  this  act,  or  as  may  be  hereafter  authorized 
by  law  or  as  may  be  authorized  by  the  Farm  Credit  Board  hereinafter  provided 
for. 

Sec.  2.  That  the  said  commissioner  shall  appoint  a  chief  clerk,  chief  ex- 
aminer, and  a  treasurer  as  officers  of  the  bureau.  This  chief  clerk  shall  receive 
a  salary  of  $5,000  per  year.  The  treasurer  shall  receive  a  salary  of  $4,000 
per  year,  and  each  shall  give  bond  in  such  sum  and  terms  as  shall  be  prescribed 
by  the  board  hereinafter  provided  for.  The  commissioner  shall  engage  such 
employees  as  shall  be  necessary,  appoint  appraisers  and  administrative  agents 
of  the  bureau,  and  shall  have  charge  of  all  employees  and  conduct  of  the  busi- 
ness of  the  bureau.  The  commissioner  shall  have  power  to  dismiss  any  of  said 
officers,  and  is  hereby  authorized  to  incur  all  expenses  necessary  to  the  estab- 
lishment, organization,  and  maintenance  of  the  said  bureau. 

In  the  absence  or  disability  of  the  commissioner  the  chief  clerk  shall  act  as 
deputy  commissioner,  and  during  the  time  he  so  acts  shall  perform  the  duties 
of  the  said  commissioner,  and  no  legal  action  shall  rest  upon  a  question  of  the 
authority  of  the  said  deputy  commissioner  to  perform  such  duties. 

Sec.  3.  That  the  purpose  of  this  act  shall  be  to  loan  money  upon  the  security 
of  farm  first  mortgages  direct  to  farmers,  to  farmers  through  the  ageucy 
of  farm  credit  associations,  or  as  hereinafter  provided.  The  term  "farmer" 
for  the  purpose  of  this  act  shall  be  construed  to  mean  any  person,  firm,  or  cor- 
poration engaged  exclusively  in  the  business  of  tilling  the  soil  and  raising 
farm  products,  or  that  shall  hereafter  engage  in  the  said  business. 

The  term  "  farm  credit  association  "  shall  be  construed  to  mean  any  associa- 
tion of  farmers  who  actually  reside  upon  and  operate  farms  organized  for  the 
purpose  of  procuring  better  credit  facilities  with  which  to  conduct  the  business 
of  raising  farm  produce,  and  which  shall  comply  with  regulations  prescribed  by 
the  board  hereinafter  created. 

Sec.  4.  That  there  is  hereby  created  a  board  to  be  known  as  the  Farm  Credit 
Board,  hereinafter  referred  to  as  the  board.  This  board  shall  consist  of  the 
Secretary  of  the  Treasury,  the  Secretary  of  Agriculture,  and  the  Postmaster 
General  of  the  United  States,  who  shall  act  without  additional  compensation, 
and  two  citizens  of  the  United  States,  who  are  farmers  within  the  meaning 
of  this  act,  and  who  shall  fairly  represent  the  agricultural  interest  of  the 
different  sections  of  the  country.  The  said  farmers  shall  be  appointed  by  the 
President,  by  and  with  the  consent  of  the  Senate,  for  a  term  of  three  years. 
Said  farmers  shall  receive  a  per  diem  of  $20  for  each  day  their  services  are 
required  by  the  board,  together  with  their  actual  necessary  traveling  expenses 
between  their  homes  and  the  place  where  the  board  may  convene. 

The  board  is  hereby  authorized  and  directed  to  prescribe  procedure,  regula- 
tions, and  forms,  not  otherwise  herein  prescribed,  and  to  provide,  if  at  any 
time  found  necessary,  for  the  establishment  of  branch  bureaus  in  each  of  the 
several  States  for  the  best  means  of  carrying  out  this  act. 


RURAL   CREDITS.  961 

The  Secretary  of  Agriculture  shall  be  president  of  the  board.  Within  thirty 
days  after  appointment,  as  hereinbefore  provided,  of  the  commissioner  and 
chief  clerk  of  the  bureau,  the  board  shall  meet  in  the  city  of  Washington, 
District  of  Columbia,  at  a  place  designated  by  its  president,  and  perform  the 
duties  herein  provided,  and  shall  hold  further  meetings  upon  the  call  of  its 
president.  The  chief  clerk  of  the  bureau  shall  be  secretary  of  the  board  with- 
out additional  compensation.  The  secretary  of  the  board  shall  keep  a  record 
of  all  its  proceedings,  and  all  rules  and  regulations  which  shall  be  preserved 
in  the  archives  of  the  Department  of  Agriculture,  and  copies  thereof  shall  be 
transmitted  to  the  commissioner  of  the  bureau.  All  decisions  on  matters 
coming  before  the  board  shall  be  by  vote  of  the  majority,  each  member  having 
one  vote,  and  three  members  present  shall  constitute  a  quorum  for  the  trans- 
action of  business. 

Sec.  5.  That  the  commissioner  of  the  bureau  shall  receive  applications  for 
loans,  supervise  collections,  keep  a  correct  registry  of  all  securities,  and,  by  his 
direction,  all  disbursements  from  the  funds  of  the  bureau  necessary  to  carry 
out  this  act  shall  be  made.  He  shall  keep  correct  account  of  the  loans,  sales, 
investments,  receipts,  expenditures,  profit  and  loss,  and  make  a  report  of  these 
and  other  work  of  the  bureau  to  Congress  at  the  end  of  the  fiscal  year. 

Sec.  6.  That  the  commissioner,  chief  clerk,  and  the  treasurer  of  the  bureau 
shall  constitute  the  staff  of  the  bureau  before  which  all  applicants  for  loans 
may  appear  personally  or  by  attorney,  and  present  additional  evidence  if  their 
application  shall  have  been  denied  in  whole  or  in  part.  The  decision  of  the 
majority  of  the  said  staff  shall  be  final. 

Sec.  7.  That  the  commissioner  of  the  bureau,  by  himself  or  his  agent,  duly 
appointed  for  such  purpose,  for  and  on  behalf  of  the  Government  of  the  United 
States,  is  hereby  authorized  and  empowered  to  appear  in  any  United  States 
court,  or  State,  Territory,  or  District  court  in  the  United  States  in  any  legal 
procedure  on  any  question  arising  from  the  making  or  collecting  of  loans,  sales, 
or  purchase  made  under  the  provisions  of  this  act.  The  said  commissioner  may 
designate,  under  regulations  prescribed  by  the  board,  any  farm  credit  or  finan- 
cial association  as  loan  agent,  but  farm  credit  association  shall  be  preferred. 

Sec.  8.  That  to  secure  money  for  the  purpose  of  making  the  loans,  as  herein 
provided,  and  for  the  carrying  out  of  the  provisions  of  this  act,  the  Secretary 
of  the  Treasury  is  hereby  authorized  and  directed  to  borrow  money  on  the 
credit  of  the  United  States,  as  may  be  directed  and  under  the  terms  and  condi- 
tions prescribed  by  the  board,  and  from  time  to  time  he  shall,  as  may  be 
requested,  issue  registered  bonds  to  the  United  States,  which  shall  be  duly 
countersigned  by  the  Comptroller  of  the  Treasury.  If  so  directed  by  the  board 
the  said  Secretary  of  the  Treasury  shall  issue  registered  bonds  of  one  series  to 
redeem  the  bonds  of  another  series.  All  the  bonds  provided  by  this  act  shall 
bear  interest  not  in  excess  of  three  and  one-half  per  centum  per  annum,  pay- 
able semiannually,  and  shall  be  exempt  from  taxes  or  duties  of  the  United 
States,  as  well  as  from  taxation  in  any  form  by  or  under  State,  municipal,  or 
local  authority.  The  bonds  issued  under  this  act  shall  be  issued  for  a  term 
of  twenty  years  and  with  the  privilege  of  paying  the  same  upon  the  date  of 
maturity  of  any  interest  payment  after  five  years.  The  bonds  so  issued  shall 
not  be  sold  at  less  than  par,  and  shall  be  of  such  maximum  and  minimum 
denominations  and  terms  not  herein  provided  for  as  shall  appear  to  the  board 
to  secure  the  best  market  among  all  the  citizens  of  the  United  States,  and  the 
Treasurer  shall  give  notice  of  his  intention  to  issue  bonds,  and  shall  invite 
from  the  public  generally  subscriptions  to  said  bonds.  If  the  amount  of  said 
subscriptions  shall  exceed  the  amount  of  bonds  to  be  issued,  he  shall  give 
preference  in  accepting  money  for  said  bonds  to  those  offered  in  the  smallest 
amounts,  the  intention  being  to  give  as  wide  circulation  and  distribution  to 
said  bonds  throughout  the  country  as  possible:  Provided,  That  the  total  sum 
of  bonds  outstanding  shall  bear  as  close  relation  as  possible  to  the  sum  of 
securities  and  accepted  applications  for  loans  held  by  the  bureau:  Provided, 
That  after  this  Act  shall  have  been  in  active  operation  for  one  year  said  board 
shall  have  authority  to  reduce  the  rate  of  interest  charged  for  farm  loans 
thereafter  made,  and  so  also  reduce  the  rate  of  interest  upon  the  bonds  herein 
provided  for  thereafter  issued.  It  being  the  object  of  this  Act  to  pay  as  low 
a  rate  of  interest  upon  said  bonds  as  will  float  said  bonds  at  par  and  to  charge 
as  low  a  rate  of  interest  upon  the  farm  loans  herein  provided  for  as  will 
37031—14 61 


962  RURAL  CREDITS. 

bring  a  sufficient  revenue  to  pay  said  bonds,  the  interest  thereon,  and  expenses 
connected  with  the  making  of  said  loans,  and  losses,  if  any,  incurred  therein. 

Sec.  9.  That  each  day  all  .sums  of  money  procured  by  the  sale  of  bonds, 
together  with  all  receipts  of  the  bureau,  shall  be  covered  into  the  Treasury  of 
the  United  States,  and  it  shail  be  the  duty  of  the  Treasurer  of  the  United  States 
to  keep  an  account  of  such  sums  in  his  charge,  and  they  shall  not  be  used  for 
any  purpose  other  than  as  herein  provided.  With  the  exception  of  such  part 
of  this  fund  as  shall  be  required  to  pay  the  running  expenses  of  the  bureau, 
the  accrued  interest  on  outstanding  bonds,  and  the  amount  of  bonds  as  they 
may  mature,  the  fund  so  provided  shall  constitute  a  loan  fund  which  shall  be 
loaned  or  invested  with  as  little  delay  as  possible,  as  herein  provided. 

Se<"\  10.  That  the  treasurer  of  the  bureau  is  hereby  authorized  to  draw  war- 
rants, which  shall  be  countersigned  by  the  commissioner,  against  the  said  loan 
fund,  and  the  said  treasurer  shall  keep  account  of  such  moneys  in  manner  as 
shall  be  prescribed  by  the  commissioner,  and  all  accounts  of  the  bureau  shall  be 
audited  by  the  Auditor  for  the  Department  of  Agriculture  iu  the  Department 
of  the  Treasury. 

Sec.  11.  That  the  bureau  shall  make  to  farmers  loans  on  farm  lands  located 
in  any  of  the  States  in  the  Union  or  in  the  District  of  Columbia,  under  rules  and 
regulations  made  by  the  board  and  in  accordance  with  the  provisions  herein. 
Said  loans  shall  be  secured  by  firsl  mortgages  made  payable  to  the  bureau,  and 
shall  bear  interest  at  the  rate  of  four  per  centum  per  annum,  payable  annu- 
ally. That  the  terms  of  every  loan  extending  for  more  than  five  years  shall 
contain  a  mandatory  provision  for  its  amortization  or  reduction  by  annual  or 
semiannual  payments  on  account  of  the  principal,  and  the  terms  of  every  loan 
shall  provide  that  at  any  interest-due  date  the  mortgagor  or  his  grantee  shall 
have  the  right  to  pay  the  entire  loan  or  to  make  payment  of  $100  or  any  multi- 
ple thereof  on  the  principal  thereof,  and  upon  such  payment  being  made  the 
interest  on  the  amount  so  paid  shall  thereon  cease.  Said  mortgage  shall  pro- 
vide that  both  the  principal  and  interest  shall  draw  interest  at  the  rate  of  six 
per  centum  per  annum  from  maturity. 

That  the  bureau  shall  make  loans  to  farmers  upon  farms  (first  mortgages). 
through  farm-credit  associations  or  designated  financial  associations  acting  as 
agents  of  the  bureau,  under  regulations  prescribed  by  the  board,  upon  the 
same  terms  as  prescribed  in  the  preceding  paragraph  of  this  section,  and  the 
commissioner  shall  pay  to  the  said  association  a  commission  annually  of  not 
in  excess  of  one-half  of  one  per  centum  on  said  loans:  Provided,  That  said  asso- 
ciations shall  become  security  for  all  mortgages  upon  which  loans  are  made 
through  them. 

Sec  12.  That  no  person  shall  be  entitled  to  a  loan  of  money  from  the  bureau 
until  he  has  made  application  therefor  under  oath  upon  blanks  to  be  furnished 
by  the  bureau.  Such  application  can  be  sworn  to  before  any  person  author- 
ized to  administer  an  oath,  and  all  postmasters  and  their  deputies  in  the  United 
States  are  hereby  authorized  to  administer  oaths  to  applicants  making  appli- 
cation for  loans  under  this  act,  and  to  administer  oaths  to  such  applicants  or 
other  persons  to  any  other  affidavits  made  necessary  by  the  rules  and  regula- 
tions of  the  board.  Whenever  any  oath  is  administered  by  a  postmaster  or 
deputy  postmaster  no  charge  shall  be  made  therefor.  No  person  shall  be  en- 
titled'to  a  loan  under  this  act  who  is  not  of  good  moral  character  and  who  does 
not  establish  to  the  satisfaction  of  said  bureau  that  he  is  honest  and  bears  a 
good  reputation  in  the  neighborhood  where  he  resides.  No  loan  shall  be  made 
to  any  person  who  is  not  an  actual  resident  and  engaged  in  the  cultivation  of 
the  land  offered  as  security:  Provided,  That  where  the  applicant  for  the  loan 
is  endeavoring  to  secure  the  money  for  the  purpose  of  building  a  house  upon 
the  land,  or  for  the  purpose  of  making  part  payment  upon  the  purchase  price 
thereof,  the  bureau  can  waive  the  stipulation  if  convinced  that  it  is  the  inten- 
tion of  the  applicant  as  soon  as  possible  to  reside  upon  the  land  and  to  culti- 
vate the  same,  the  intention  of  this  act  being  to  provide  money  only  for  per- 
sons who  intend  to  reside  upon  and  cultivate  the  land  which  they  offer  as 
security.  No  loans  shall  be  made  for  more  than  sixty  per  centum  of  the  value 
of  the' land  offered  as  security,  and  only  for  one  or  more  of  the  following 
purposes : 

First.  To  make  practical  improvements  on  the  land  to  be  mortgaged. 

Second.  To  aid  in  increased  production  of  said  land. 

Third.  To  make  payment  of  the  part  of  the  purchase  money  of  the  land  to 
be  mortgaged,  or  to  pay  off  an  indebtedness  already  existing  against  said  land: 
Provided,  That  fifty  per  centum  of  any  loan  may  be  used  for  the  purchase  of 


KUEAL   CREDITS.  963 

stock  and  farm  implements.  No  loans  shall  be  made  upon  the  security  of  a 
single  mortgage  for  an  amount  in  excess  of  $15,000  and  no  Loan  shall  be  made 
for  less  than  $200,  and  loans  upon  single  mortgages  for  amounts  less  than 
$6,000  shall  receive  the  preference.  No  loans  shall  be  made  in  any  case  for  an 
amount  in  excess  of  sixty  per  centum  of  the  value  of  the  property  offered  as 
security. 

Sec.  13.  That  it  shall  be  the  duty  of  every  postmaster,  deputy  postmaster, 
or  other  employee  or  official  of  the  Government,  without  fee  or  pay  therefor,  to 
make  confidential  reports  to  said  bureau,  upon  request  therefor,  upon  anything 
pertaining  to  any  loan  and  upon  the  character  or  standing  of  any  applicant  or 
witness.  Such  postmaster,  deputy  postmaster,  or  other  officer  shall  also,  when 
requested  by  said  bureau,  appoint  appraisers  to  appraise  the  land  offered  for 
security  under  the  regulations  of  and  upon  the  blanks  furnished  by  said  bureau. 

Sec.  14.  That  any  person  applying  for  a  loan  shall  furnish  to  said  bureau  an 
abstract  of  title  to  the  land  offered  as  security  and  shall  pay  all  the  necessary 
expenses  connected  with  the  making  of  said  loan.  Such  applicant  shall  furnish 
conveyance  for  the  appraisers  appointed  to  fix  a  value  upon  the  land  offered  for 
the  loan,  or  shall  pay  for  the  transportation  of  said  appraisers  to  and  from  said 
land,  and  if  required  by  said  appraisers  he  shall  pay  a  fee  to  each  of  them,  not 
exceeding  two  in  all,  which  fee  shall  be  ascertained  in  advance  and  fixed  by  the 
official  appointing  said  appraisers.  It  shall  be  the  duty  of  said  bureau  and  the 
officials  appointing  said  appraisers  to  select  efficient,  qualified,  and  unbiased  per- 
sons, but  at  the  same  time  to  regulate  any  fee  that  they  may  charge  for  such 
service  so  as  to  make  the  same  as  small  as  possible.  Such  appraisers  shall 
make  return  upon  blanks  provided  by  the  bureau,  and  shall  swear  to  the  same 
before  some  person  qualified  under  this  act  to  administer  an  oath. 

Sec.  15.  That  it  shall  be  the  duty  of  every  United  States  district  attorney  or 
deputy  district  attorney,  upon  request  from  said  bureau,  to  examine  the  abstract 
of  title  to  any  land  offered  as  security  under  this  act,  and  to  make  return  thereof 
to  the  said  bureau.  It  shall  likewise  be  the  duty  of  any  district  attorney  or 
deputy  district  attorney,  when  requested  by  the  bureau,  to  foreclose  any  mort- 
gage taken  as  security  for  a  loan  under  this  act  and  to  prosecute  the  same  to 
final  judgment.  All  such  services  so  rendered  by  an  attorney  connected  with  the 
Department  of  Justice  shall  be  a  part  of  his  official  duty  and  shall  be  rendered 
without  pay.  but  said  bureau  shall  pay  in  all  cases  the  actual  expenses  of  any 
such  attorney  in  connection  with  such  litigation. 

Sec.  16.  That  it  shall  be  the  duty  of  any  post-office  inspector,  United  States 
marshal,  deputy  United  States  marshal,  or  other  employee  or  inspector  of  any 
other  department  when  engaged  in  official  business  in  the  vicinity  of  any  land 
mortgaged  to  said  bureau,  upon  request  of  said  bureau,  to  make  a  personal 
inspection  of  the  same  and  to  report  thereon  to  said  bureau.  Such  inspection 
shall  be  made  without  charge,  but  said  bureau  shall  pay  the  actual  expenses, 
if  any,  made  necessary  thereby.  It  shall  likewise  be  the  duty  of  any  post- 
master, deputy  postmaster,  or  other  governmental  official  residing  or  doing 
business  in  the  vicinity  of  any  land  that  has  been  mortgaged  to  said  bureau, 
upon  reauest  of  said  bureau,  to  make  a  report  upon  said  loan  or  as  to  whether 
the  money  borrowed  upon  said  land  has  been  expended  or  is  being  expended  in 
accordance  with  the  purposes  for  which  the  same  was  loaned,  and  in  making 
any  loan  under  this  act  the  said  bureau  can  withhold,  under  such  rules  and 
regulations  as  the  board  may  prescribe,  any  part  of  the  same  for  the  purpose 
of  insuring  the  application  of  said  loan  to  the  purposes  for  which  the  same  was 
made. 

Sec.  17.  That  should  the  owner  of  any  land  mortgaged  to  said  bureau  fail 
or  neglect  to  pay  the  interest  thereon  at  or  before  the  time  when  the  same  is 
due,  or  permit  the  taxes  on  the  land  to  become  delinquent,  or  neglect  or  refuse, 
without  the  consent  of  the  bureau,  to  apply  the  money  borrowed  in  accordance 
with  the  statements  made  in  the  application  for  the  loan,  or  if  he  has  made 
any  false  statement  as  to  the  material  matter  in  said  application,  or  if  he  neg- 
lects to  properly  care  for  the  improvements  on  said  land,  or  if  he  do  any  other 
act  that  materially  injures  the  value  of  the  security,  either  by  overt  act  or  by 
neglect  and  inattention,  or  should  said  land,  without  the  consent  of  the  bureau, 
cease  to  be  farmed  and  cultivated,  then  the  said  bureau  shall  have  the  right  at 
its  election  and  without  notice  to  declare  the  entire  amount  secured  by  said 
mortgage  due  and  payable,  and  may  take  any  steps  necessary  for  the  fore- 
closure of  said  mortgage  and  the  collection  of  said  loan,  and  from  and  after  said 
election  so  made  by  the  bureau  the  amount  secured  by  said  mortgage  shall  bear 
interest  at  the  rate  of  six  per  centum  per  annum. 


964  RTJEAL   CREDITS. 

That  in  making  any  payment  of  interest  or  payment  of  the  principal,  or  part 
payment  of  the  same,  upon  any  loan  made  under  this  act  the  person  making 
such  payment  can  pay  the  same  to  any  post  master  designated  by  said  bureau, 
and  such  postmaster  shall  immediately  notify  the  bureau  of  such  payment,  and 
the  transmission  of  the  money  so  paid,  and  thereupon  credit  shall  be  given  for 
the  payment  of  such  money  as  of  the  date  the  same  was  paid  to  the  postmaster. 
The  said  bureau  shall  notify  each  person  to  whom  a  loan  has  been  made  as  to 
the  post  office  where  payments  upon  this  loan  can  be  made.  The  bureau  may 
make  such  designation  by  general  circular  or  by  specific  notice  in  writing,  and 
can  designate  by  such  notice  a  post  office  within  a  county  or  other  district  to 
which  all  payments  within  such  district  can  be  made. 

Sec.  IS.  That  the  bureau  shall  have  power  to  sue  and  to  be  sued,  to  complain 
and  defend  in  any  court  of  law  or  equity  having  jurisdiction  of  the  subject 
matter  in  litigation.  To  protect  any  loan  it  may  pay  the  taxes  or  any  other 
prior  lien  due  and  unpaid  against  the  land  securing  said  loan,  and  in  such  case 
the  amount  paid  in  liquidation  of  such  taxes  or  lien  shall  be  added  to  and 
become  a  part  of  its  mortgage  on  said  real  estate,  and  from  the  date  of  such 
payment  shall  bear  interest  at  the  rate  of  six  per  centum  per  annum.  It  shall 
have  the  right  and  authority  to  purchase  at  sale  under  judgments  or  decrees 
of  court  rendered  in  foreclosure  proceedings  of  any  mortgage  it  owns  the  land 
so  mortgaged,  but  in  such  case  it  shall  not  bid  a  greater  amount  for  such  land 
at  such  sale  than  the  amount  due  in  ^uch  proceedings,  together  with  costs  and 
expenses  expended  in  relation  to  said  loan.  In  case  the  bureau  obtains  title 
as  set  forth  in  this  section  to  any  real  estate,  it  shall  have  authority  to  sell  the 
same  at  such  price  as  may  be  for  the  best  interests  of  said  bureau  in  the  judg- 
ment of  the  commissioner,  and  to  convey  title  to  the  purchaser  thereof  by  deed 
signed  and  acknowledged  by  the  commissioner.  In  making  such  sale  it  shall 
be  authorized  to  make  a  return  mortgage  from  the  purchaser  for  part  of  the 
purchase  price  thereof  in  accordance  with  the  provision  of  this  act. 

Sec.  19.  That  it  shall  be  unlawful  for  any  Senator,  Member  of  the  House  of 
Representatives,  or  any  other  official  of  the  Government  of  the  United  States 
to  use  or  attempt  to  use  political  or  any  other  influence  to  induce  said  bureau 
to  make  or  refuse  to  make  any  loan  or  loans.  Any  person  found  guilty  of  the 
conduct  in  this  section  prohibited  shall  be  deemed  guilty  of  a  misdemeanor  and 
upon  conviction  thereof  shall  be  fined  in  any  sum  not  exceeding  $2,000,  and  in 
addition  thereto  shall  be  removed  from  office. 

That  is  shall  be  unlawful  for  any  official  of  any  State  or  any  officer  or  mem- 
ber of  any  political  committee  to  use  or  attempt  to  use  any  political  or  other 
influence  to  induce  said  bureau  to  make  or  refuse  to  make  any  loan  or  loans. 
Any  person  found  guilty  of  the  conduct  in  this  section  prohibited  shall  be 
deemed  guilty  of  a  misdemeanor  and  upon  conviction  thereof  shall  be  fined 
in  any  sum  not  exceeding  $1,000  or  be  imprisoned  for  a  term  of  not  exceeding 
one  year,  or  both  such  fines  and  imprisonment,  in  the  discretion  of  the  court. 

Sec  20.  That  any  person  or  persons  who  shall  make  any  false  representation 
to  said  bureau  in  connection  with  the  making  of  any  loan  or  in  connection  with 
the  investigation  of  any  application  for  a  loan,  shall  be  guilty  of  a  felony,  and 
upon  conviction  shall  be  fined  not  more  than  $5,000,  which  fine  shall  be  paid 
into  the  loan  fund,  or  shall  be  imprisoned  for  a  term  of  not  exceeding  five 
years,  or  shall  be  -sentenced  to  both  such  fine  and  imprisonment,  in  the  dis- 
cretion of  the  court. 

Sec  21.  That  there  is  hereby  appropriated  from  any  unexpended  balance  in 
the  Treasury  of  the  United  States  the  sum  of  $100,000  for  the  purpose  of  carry- 
ing out  the  provisions  of  this  act  pertaining  to  preliminary  expenses  and  or- 
ganization. 

SUPPLEMENTAL  STATEMENT  OF  ABEL  ADY,  OF  KLAMATH 

FALLS,  0REG. 

(The  following  statement  was  submitted  by  Mr.  Ady  and  ordered 
incorporated  in  the  record :) 

Two  distinct  banking  features  are  required  to  meet  the  financial  needs  of 
the  American  farmers,  namely,  the  accumulation  and  control  of  local  capital 
for  short-time  loans,  and  a  method  of  concentrating  capital  into  the  rapidly- 
developing  farm  districts  for  long-time  farm  loans. 

The  first  feature  requires  cooperative-  farm  banks  with  a  minimum  amount 
of  capitalization,  and  with  a  limited  per  cent  of  shares  that  may  be  held  by 


RURAL    CREDITS.  965 

any  one  individual,  and  a  limit  to  one  vote  for  each  individual  shareholder,  and 
with  an  unlimited  amount  of  depositors  so  as  to  permit  farmers  to  control 
their  collective  capital  for  mutual  use  as  a  guard  against  control  of  such  capital 
by  money  lenders  through  the  medium  of  other  banks. 

Appropriate  provision  should  be  made  for  Federal  five-year  deposits  at  3  per- 
cent, and  equal  in  amount  to  all  State  five-year  deposits  at  4  per  cent,  being 
made  in  such  banks  in  order  to  start  the  same  in  localities  of  undeveloped 
country  where  money  is  scarce.  All  loans  to  be  subject  to  the  requirements  of 
tbe  Federal  banking  laws,  with  such  rules  and  regulations  as  may  be  mutually 
approved  by  the  Secretary  of  the  Interior,  the  State  comptroller,  and  the  board 
of  directors  of  the  cooperative  bank :  and  the  loans  confined  to  less  than  three 
years  in  time. 

The  second  feature  may  be  met  by  providing  national  farm-land  banks,  one 
in  each  State,  or  convenient  group  of  States,  with  the  right  to  sell  the  stock 
to  cooperative  farmers'  banks.  To  issue  and  sell  bonds  to  the  limit  of  the  face 
value  of  such  farm  mortgages  (as  it  shall  from  time  to  time  receive)  which 
bond  issue  shall  be  limited  to  15  times  the  bank's  capitalization;  and  to  assign 
bond  mortgages  to  other  national  farm-land  banks  for  issuance  of  bonds  thereon 
after  its  own  bond  issue  has  reached  the  limit  of  14  times  its  own  capitaliza- 
tion. This  transfer  of  mortgages  from  one  bank  to  another  is  to  serve  as  a 
means  of  drawing  capital  from  developed  farm  localities  where  it  is  not  needed 
to  undeveloped  localities  where  the  capital  is  needed;  this  banking  system  of 
balancing  supply  and  demand  being  the  especial  use  for  the  national  farm-land 
bank.  Appraisements  should  be  made  jointly  by  a  Federal  fiduciary  agent,  a 
representative  of  the  State  comptroller,  and  a  representative  of  a  local  cooper- 
ative farmers'  bank.  The  latter  having  knowledge  of  local  land  conditions  that 
would  present  a  borrower  from  taking  advantage  of  special  conditions  and 
favorable  seasons,  and  thereby  showing  to  a  stranger  $100  land  that  might  not 
be  worth  $100  under  ordinary  conditions. 

Provisions  should  permit  local  cooperative  farmers'  banks  to  guarantee  col- 
lection and  divide  equally  with  the  national  farm-land  bank  the  difference  be- 
tween the  rate  of  interest  on  the  bond  issues  and  the  rate  of  interest  on  farm 
mortgages.  As  collections  must  be  taken  care  of  locally,  the  fanners  could 
best  take  care  of  collections  of  mortgages  and  interest  on  the  same  and  the 
national  farm-land  bank  take  care  of  the  sale  of  the  bonds  and  payment 
of  principal  and  interest  on  same. 

The  necessity  of  getting  "  back  to  the  farm,"  is  admitted.  The  control  of 
capital  by  classes  of  men,  chiefly  in  sympathy  with  the  development  of  corpo- 
rations and  millionaires  has  driven  our  farmers  to  the  cities,  and  there  is  no 
way  of  getting  them  "back  to  the  farm,"  or  of  leaving  them  the  possibility  of 
remaining  on  the  farm,  except  with  the  use  of  capital. 

With  all  due  respect  to  some  of  the  glowing  descriptions  given  of  monuments 
earned  by  money  lenders,  under  past  methods  of  farm  loans,  I  assure  you  that 
few  of  our  Western  farmers  have  succeeded  in  paying  the  required  rates  of 
interest  and  hod  money  enough  left  to  secure  a  monument  for  the  borrower. 

SUPPLEMENTAL  STATEMENT  OF  HERBERT  MYRICK,  PRESIDENT 
OF  THE  ORANGE  JUDD  CO.,  SPRINGFIELD,  MASS. 

(The  following  was  submitted  by  Mr.  Myrick  and  ordered  incor- 
porated in  the  record:) 

[An  epitome  tentatively  drafted  by  Herbert  Myrick,  Mar.  6,  1914,  after  testifying  before 
joint  subcommittees  on  rural  credits  of  United  States  Senate  and  House,  and  after 
reviewing  all  the  evidence.] 

1.  National  farm  finance  act:  This  title  is  comprehensive,  dignified,  business- 
like, expressive,  self-reliant,  inspires  confidence,  is  uniquely  American.  Do  not 
use  the  term  "  rural  credits,"  which  suggests  lack  of  assets,  unthrifty  borrow- 
ing, pauperism. 

2.  One  comprehensive  measure  in  two  parts:  Part  1.  National  rural  banks 
for  personal  credits;  part  2,  National  farm-land  banks  for  mortgage  credits. 

An  American  method  adapted  to  the  people,  needs,  conditions,  customs,  habits, 
and  institutions  throughout  rural  America. 

3.  One  Federal  system  enabling  (a)  national  banks  under  existing  law,  the 
proposed  {b)  rural  banks,  and  (c)  farm-land  banks  to  compete  in  supplying  the 


966  RURAL   CREDITS. 

Deeds  of  agriculture  and  rural  industry;  also  to  cooperate  in  so  doing  through 
the  (<7)  Federal  reserve  banks. 

Both  types,  rural  and  farm  land,  are  administered  by  the  Treasury  Depart- 
ment, under  the  Comptroller  of  the  Currency,  through  a  deputy  comptroller  of 
rural  banks  and  a  deputy  comptroller  of  farm-land  banks.  In  fundamentals, 
subject  to  Federal  Reserve  Board.  No  new  bureaus,  no  unnecessary  expense, 
no  untried  methods,  no  needless  red  tape.  The  same  governmental  supervision, 
examination,  and  control  that  applies  to  national  and  Federal  reserve  banks. 

Part  1 — National   rural   banks. 

4.  How  formed:  Ten  or  more  natural  persons  may  organize  a  national  rural 
bank  with  not  less  than  $2,000  paid-up  capital,  in  shares  of  a  par  value  of  $5 
each,  double  liability  same  as  for  national-bank  stock.  Only  one  vote  for  eacb 
member ;  no  proxies.  Not  to  exceed  20  per  cent  of  the  stock  may  be  held  by 
one  person.  Interest  on  capital  not  to  exceed  legal  rate  in  its  State;  further 
earnings  available  for  distribution  may  be  apportioned  as  dividends  on  patron- 
age, nonmembers  receiving  only  half  the  dividend  paid  to  members. 

5.  Business:  Transacts  all  kinds  of  banking  business,  but  only  with  its  mem- 
bers, until  its  paid-up  capital  stock  shall  be  $25,000,  when  it  shall  become  enti- 
tled to  all  duties  and  privileges  of  a  full-fledged  national  bank,  including  mem- 
bership in  its  Federal  reserve  bank. 

These  are  to  be  the  little  local  thrift  banks  for  rural  savings  and  petty  per- 
sonal loans.  Through  the  rural  bank's  indirect  connection  with  the  Federal 
reserve  bank,  the  benefits  of  the  reserve  system  are  brought  within  reach  of 
each  farmer  or  rural  resident.  The  rural  bank  may  negotiate  mortgages  on  the 
farms  of  its  members  as  agent  for  the  farm-land  bank. 

But  the  rural  bank  does  not  tie  up  any  of  its  current  funds  in  permanent 
mortgages.  Thus  the  rural  bank  safely  supplies  each  farmer's  needs  for  sav- 
ings, deposits,  and  personal  loans,  and  assists  him  in  getting  a  mortgage  loan. 
Many  small  State  banks,  having  $5,000  capital  or  so,  probably  will  be  reorgan- 
ized as  national  rural  banks.  Federal,  postal  savings,  and  other  public  funds 
may  be  deposited  in  the  rural  bank. 

6.  May  own  a  national  bank :  Not  less  than  5  nor  more  than  10  rural  banks 
may  invest  not  more  than  50  per  cent  of  their  capital  in  shares  of  a  regular 
joint-stock  national  bank  having  not  less  than  $25,000  capital  and  being  a 
member  of  its  Federal  reserve  bank.  Such  rural  banks  must  own  collectively 
at  least  60  per  cent  of  said  stock,  so  as  to  control;  balance  may  be  owned  by 
natural  persons. 

7.  Rediscount  privileges:  Such  national  bank  so  owned,  or  any  other  national 
bank,  may  rediscount  for  a  rural  bank  good  notes  said  rural  bank  receives  in 
due  course  of  business  from  its  members,  but  only  when  the  notes  are  indorsed 
by  said  rural  bank.  Such  prime  paper,  when  indorsed  by  said  national  bank, 
shall  be  entitled  to  rediscount  by  it  at  its  Federal  reserve  bank. 

Tins  converts  the  farmers'  short-time  or  seasonal  notes  into  three-name  paper, 
secured  by  the  collective  assets  of  the  rural  bank  and  indorsed  by  the  national 
bank.  If  existing  nationals  do  not  take  reasonable  care  of  paper  for  the  rural 
banks,  then  the  rurals  may  collectively  acquire  a  controlling  interest  in  a 
national  bank  of  tbeir  own.  thus  insuring  their  connection  with  the  Federal 
reserve. 

GENERAL    PROVISIONS. 

8.  Depositaries:  Any  national  rural  bank,  or  any  national  farm-land  bank, 
shall  be  a  legal  depositary  for  Federal  postal  savings,  or  other  public  funds, 
or  for  the  funds  of  courts,  trustees,  corporations,  or  individuals  responsible 
to  Federal  law ;  State  law  to  coincide. 

The  act  of  each  State  legislature  pertaining  to  the  national  farm-land  bank 
for  that  State  shall  likewise  make  said  bank  a  legal  depositary  for  State. 
county,  city,  township,  or  public  funds,  or  trust  funds  under  the  laws  of  that 
State.  Said  State  law  shall  also  coincide  with  the  Federal  act  with  respect 
to  sections  9  and  10  following : 

9.  Land  bank  bonds  legal  investment  for  Federal,  postal  savings,  or  other 
public  funds,  or  for  the  funds  of  courts,  trustees,  corporations,  or  individuals 
responsible  to  Federal  law;  State  law  to  coincide. 

10.  Taxation :  The  shares  and  funds  of  national  rural  banks  shall  be  subject 
to  the  same  taxation  as  national  banks.  But  the  shares  of  farm-land  banks, 
their  bonds,  mortgage  notes,  and  mortgages,  also  the  income  therefrom,  shall 


RURAL   CREDITS.  967 

be  free  from  any  and  all  taxation  whatsoever;  and  this  shall  be  confirmed  by 
State  law. 

11.  Penalties  for  malfeasance  same  as  for  national  banks. 

12.  An  appropriation  sufficient  for  these  purposes:  (rt)  for  deputy  comp- 
troller of  national  rural  banks  to  employ  agents  to  go  out  and  organize  rural 
banks  where  requested,  to  see  that  they  start  right,  and  to  supervise  them 
thereafter;  (b)  for  deputy  comptroller  of  farm-land  banks  to  do  likewise;  (c) 
to  defray  all  organizing  expenses  of  both  kinds  of  banks. 

Part  2. — National  farm-land  banks  for  mortgage  credits. 

13.  One  State  shall  be  the  unit  of  territory  for  each  national  farm-land  bank; 
Federal  reserve  board  may  authorize  more  in  any  State  if  it  thinks  same  es- 
sential to  the  public  welfare. 

14.  Capital  stock  to  begin  with  at  least  $500,000.  increasing  as  desired :  shares 
$100  par  value,  double  liability. 

15.  Each  member  shall  have  but  one  vote  irrespective  of  number  of  shares 
owned,  no  proxies.  Not  over  5  per  cent  of  the  stock  may  be  owned  by  any  one 
member,  except  the  State  or  any  political  subdivision  thereof. 

16.  Members  (shareholders)  may  be  (c)  natural  persons,  (b)  the  State  or 
any  political  subdivision  thereof,  or  (c)  corporations,  but  (b)  and  (c)  must 
register  their  representative,  by  whom  alone  may  they  act  or  vote.  Borrowers 
on  mortgage  shall  be  divided  into  suitable  groups,  each  group  to  have  one 
voting  member. 

The  foregoing  insures  at  least  one  strong  mortgage  bank  in  each  State 
under  national  law.  It  will  be  able  to  powerfully  influence  mortgage  rates 
and  terms  throughout  the  State,  thus  controlling  the  situation  for  borrowrs  and 
lenders,  while  stimulating  competition  throughout  the  mortgage  business,  all 
under  Federal  supervision.  Its  utility  and  service  will  be  to  mortgage  finance 
in  its  State  what  the  Federal  reserve  bank  is  to  commercial  banking  for  its 
reserve  district. 

Each  member  of  the  farm-land  bank  having  but  one  vote,  and  the  shares 
being  widely  scattered,  no  one  interest  can  control.  The  State  may  be  a  share- 
holder, and  thus  exercise  its  oversight. 

17.  Dividends  on  capital  may  be  paid  out  of  earnings  up  to  6  per  cent,  which 
may  increase  to  7  per  cent  when  surplus  (called  "land  reserve")  reaches  25 
per  cent  of  capital,  and  may  not  exceed  S  per  cent  after  land  reserve  reaches 
50  per  cent  of  capital. 

This  compares  with  6  per  cent  dividends  permitted  to  the  shares  in  the  Fed- 
eral reserve  banks.  The  farm-land  bank  beins  relatively  a  new  institution 
and  its  captial  stock  guaranteeing  its  bonds,  the  return  thereon  may  be  7  or 
8  per  cent  if  success  warrants.  These  provisions,  and  the  next  paragraph, 
insure  that  the  necessary  capital  will  be  subscribed  forthwith,  perhaps  at  a 
premium  over  par,  such  premium  to  go  into  the  land  reserve. 

38.  Any  share  may  be  called  in  and  retired  at  its  market  price  not  exceeding 
$200  per  share  out  of  the  earnings  in  excess  of  the  required  land  reserve,  pro- 
vided that  combined  capital  and  land  reserve  always  shall  be  not  less  than  5 
per  cent  of  its  mortgage  bonds  outstanding. 

19.  Land  reserve:  Thus  eventually  the  capital  stock  may  be  all  retired,  its 
place  being  taken  by  the  accumulated  land  reserve.  Thereafter,  as  no  interest 
will  have  to  be  paid  on  shares,  all  the  earnings  will  be  available  for  additions 
to  the  land  reserve,  or  for  premiums  to  borrowers  and  bondholders. 

20.  Profit-sharing  premiums :  Earnings  in  excess  of  interest  on  capital  and 
in  excess  of  desired  additions  to  the  required  land  reserve  shall  be  apportioned 
three-fourths  to  borrowers  and  one-fourth  to  bondholders,  being  due  and  payable 
as  a  profit-sharing  premium  when  a  mortgage  or  bond  is  paid  off. 

At  the  end  of,  say,  20  years,  such  premium  accruing  to  the  borrower  may 
amount  to  as  much  as  10  or  12  per  cent  upon  his  mortgage  and  will  corre- 
spondingly reduce  the  principal  to  be  paid  and  shorten  the  time  of  liquidating. 
The  premium  payable  to  the  bondholder  may  be  as  much  as  Si  or  4  per  cent 
within  the  same  period  and  will  be  a  powerful  incentive  to  investors  to  buy 
national  land-bank  bonds  and  to  hold  them  to  maturity.  This  will  create  a 
fine  market  for  the  bonds,  insuring  their  stability  and  availability. 

21.  Organization:  When  the  Federal  Reserve  Board  finds  that  the  laws  of 
any  State  afford  reasonable  protection  to  mortgagors  and  mortgagees  and 
comply  with  the  requirements  in  sections  8,  9,  10  hereof,  it  shall  appoint  an 
organizing  agent  for  that  State,  shall  invite  the  governor  to  appoint  another, 


968  RURAL   CREDITS. 

and  these  two  shall  select  a  third.  This  committee  shall  proceed  to  organize 
the  farm-land  hank,  offering  the  stock  at  public  or  private  sale  for  not  less 
than  par.  and  shall  call  the  first  meeting  of  members  to  adopt  by-laws  and  to 
elect  a  board  of  not  less  than  9  nor  more  than  15  trustees,  suitably  representa- 
tive of  the  various  sections  and  interests  of  the  members.  The  trustees  shall 
choose  the  officers  by  whom  the  bank  shall  be  administered. 

This  insures  that  each  national  farm-land  bank  shall  be  owned,  officered,  and 
conducted  in  harmony  with  its  purpose — to  loan  money  as  cheaply  as  possible 
on  farm  mortgages  upon  easy  but  rigid  terms  of  gradual  repayment,  instead 
of  being  run  for  big  returns  on  its  shares. 

22.  Standard  rules,  application  blanks,  and  mortgage  forms  shall  be  adopted 
by  the  farm-land  bank.  Any  mortgage  offered  that  complies  therewith  may  be 
accepted,  being  paid  for  in  cash  or  in  said  farm-land  bank's  national  land-bank 
bonds. 

Any  individual,  any  rural  national  bank,  any  other  bank  or  corporation  may 
offer  a  mortgage  or  mortgages  to  the  farm-land  bank,  which  may  accept  the 
same  if  found  satisfactory.  Therefore  all  existing  agencies  in  the  farm- 
mortgage  business  may  compete  in  serving  the  farmer,  under  regulations  as  to 
rates  and  terms  established  by  the  farm-land  bank.  And  the  borrowers  thus 
cooperate  through  the  farm-land  bank  so  to  control  the  situation  as  to  get 
money  at  rates  and  terms  reasonably  attractive  and  absolutely  safe  to  both 
lenders  and  borrowers. 

23.  The  rate  of  interest  charged  borrowers  on  mortgage  by  the  farm-land 
bank  shall  not  exceed  by  more  than  one  point,  or  1  per  cent,  the  interest  guar- 
anteed upon  the  national  land-bank  bonds  in  the  series  secured  thereby. 

For  instance,  if  the  national  farm-land  bank  of  New  York  can  sell  at  par  its 
national  land-bank  bonds  bearing  4  per  cent,  then  the  interest  charged  the 
borrower  shall  not  exceed  5  per  cent  and  maybe  less.  The  rate  vsjill  fluctuate 
slightly  from  year  to  year,  as  is  the  case  with  Federal  or  State  bonds,  accord- 
ing to  conditions  of  the  money  markets  and  of  the  offering. 

24.  Loans  shall  be  only  upon  first  mortgage  on  real  estate  within  said  State 
at  not  to  exceed  50  per  cent  of  the  appraised  value  of  improved  lands  and 
buildings  thereon,  or  not  to  exceed  40  per  cent  upon  unimproved  land.  Ap- 
praisal must  be  made  by  or  subject  to  approval  of  the  farm-land  bank.  The 
borrower  shall  pay  an  annuity  to  include  interest,  installment  upon  principal 
(amortization  sufficient  to  liquidate  loan  within  a  specified  period),  and  con- 
tribution toward  expenses  of  bank.  The  profit-sharing  premium  accruing  upon 
each  loan  shall  be  credited  upon  the  principal  thereof,  to  be  paid  only  when 
(with  the  last  payment  upon  principal)  the  mortgage  is  liquidated  in  full. 
Loans  may  run  for  less  than  five  years,  but  bonds  may  be  issued  only  upon 
mortgages  having  not  less  than  5  nor  more  than  35  years  to  run.  Borrowers 
shall  not  be  required  to  pay  more  than  the  agreed-upon  amortization,  but  shall 
have  the  right  to  pay  off  in  larger  installments  or  in  whole  at  any  interest  date. 
In  such  case  the  profit-sharing  dividend  accrued  upon  such  loan,  or  upon  the 
bonds  secured  thereby,  shall  become  due,  being  payable  upon  surrender  of  the 
papers. 

25.  Bonds:  For  each  $100  of  mortgage  loans  made  by  it.  a  farm-land  bank 
may  issue  its  national  land-bank  bonds  to  not  exceeding  an  equal  amount.  Its 
aggregate  bonds  outstanding  shall  never  exceed  20  times  the  total  of  its  capital 
stock  and  land  reserve  combined.  Bonds  shall  be  issued  in  series  of  specific 
maturities,  but  upon  due  notice  shall  be  callable  for  retirement  at  par.  plus 
any  profit-sharing  premiums  accrued   thereon. 

This  last  clause  enables  bonds  to  be  retired  out  of  the  income  from  amorti- 
zation upon  the  mortgages  securing  said  bonds.  The  bonds  outstanding  always 
have  back  of  them  100  per  cent  security  in  the  form  of  gilt-edge  mortgages 
and  guaranteed  by  the  capital  and  land  reserve  of  the  issuing  bank. 

26.  Federal  cotrustee:  The  Federal  Reserve  Board  shall  appoint  a  Federa' 
cotrustee  for  each  farm-land  bank  to  represent  the  Government  and  the  bond 
holders  in  the  joint  possession  and  control  of  the  bank's  inorrga'ges  which 
secure  its  outstanding  bonds.  The  Federal  cotrustee  shall  supervise  the  appli- 
cation of  all  receipts  to  their  appropriate  accounts  and  shall  verify  that  at 
all  times  the  bonds  outstanding  do  not  exceed  the  mortgaged  security  held 
against  them,  and  do  not  in  any  other  way  violate  any  provisions  of  law. 

This  guarantees  that  the  Government  at  all  times  shall  see  to  it  that  each 
farm-land  bank  is  honestly  run  in  behalf  of  all  parties  in  interest.  Through 
its  Federal  cotrustee  the  Government  may  supervise  each  transaction.  The 
Federal  cotrustee  is  analogous  to  the  class  C  directors  of  each  Federal  reserve 
bank,  who  also  are  designated  by  the  Federal  Reserve  Board. 


EUEAL   CKEDITS.  969 

LETTER  OF  FREDERICK  H.  ALLEN,  NEW  YORK,  N.  Y. 

The  following  communication,  addressed  to  the  chairman  of  the 
Committee  on  Banking  and  Currency  of  the  House  of  Representa- 
tives, was  directed  to  be  incorporated  in  the  record : 

New  York,  March  J[,  191Jf. 
Hon.  Carter  Glass, 

Chairman  Committee  on  Banking  and  Currency, 

House  of  Representatives,  Washington,  D.  C. 

Dear  Sir:  As  a  member  of  the  permanent  American  commission  which  in- 
vested agricultural  conditions  in  Europe  last  summer  I  desire  to  make  a  state- 
ment with  reference  to  the  proposed  bill  to  establish  a  national  farm-land  bank 
system. 

The  first  and  one  of  the  most  important  features  is  that  such  banks  can  be 
incorporated  with  a  capital  stock  of  $10,000.  As  I  view  it,  one  of  the  objects  of 
the  bill  is  to  enable  farmers  to  secure  loans  upon  their  farms  at  a  cheaper  rate 
of  interest  than  they  are  now  able  to  do,  in  order  thereby  to  cut  down  one  of 
the  expenses  of  production,  and  I  feel  that  no  bank  without  quite  a  considerable 
capital,  which  could  thereby  secure  an  expert  management,  could  sell  the  deben- 
tures in  the  markets  where  money  is  cheapest;  that  is  to  say,  in  the  Eastern 
States.  Tbe  capital  should  be  sufficiently  large  to  make  its  guaranty  of  value, 
because  of  the  size  of  tbe  fund  behind  the  debentures  and  because  of  the  reputa- 
tion of  the  men  who  manage  it.  Either  this  or  that  they  should  have  simply  a 
nominal  capital,  such  as  is  the  case  with  the  building  and  loan  associations, 
and  be  distinctly  associations  of  borrowers.  I  fear  that  the  creation  of  a  lot 
of  little  banks  might  lead  to  such  inexpert  management  that  the  failure  of  a 
number  of  them  might  discredit  the  whole  idea.  Think  for  one  moment  of  a 
bank  having  $10,000  capital  which  would  be  able  to  issue  debentures  to  15  times 
the  amount  of  that  capital.  Granting  that  the  $10,000  could  make  6  per  cent, 
that  is  $600,  and  tbat  it  was  able  to  issue  the  full  amount  of  debentures  allowed, 
viz.  $150,000.  Upon  this  it  can  make  an  administration  charge  of  1  per  cent, 
$1,500.  As,  under  the  bill,  deposits  are  allowed  up  to  50  per  cent  of  the  capital 
and  surplus,  the  deposits  in  this  case  could  be  $5,000.  Suppose  it  could  make 
4  per  cent  on  its  deposits,  which  would  be  very  liberal,  this  would  amount  to 
$200,  and  as  under  section  41  it  can  receive  up  to  50  per  cent  of  its  capital  and 
surplus  in  Government  deposits,  it  might  make  a  further  profit  of  $200  on  these. 
Thus  we  have  a  total  of  possible  earnings  of  $2,500.  Out  of  this  would  first 
have  to  come  the  expenses,  which  would  certainly  include  some  kind  of  office; 
the  expenses  of  the  appraisement  committee ;  the  expenses  of  the  company's 
lawyer  for  passing  on  the  titles;  the  expenses  of  the  fiscal  agent,  which,  as 
provided  by  the  bill,  shall  be  paid  by  the  bank;  the  expenses  of  a  bookkeeper 
and  treasurer ;  possible  expenses  on  account  of  losses,  etc. ;  and  incidentals  such 
as  printing,  postage,  etc.  Moreover,  out  of  the  fund  would  have  to  come  any 
moneys  to  be  set  aside  for  reserve  and  an  accumulated  surplus,  so  that,  to  my 
mind,  it  is  impossible  for  any  such  small  banks  to  operate  with  success. 

Should,  however,  the  small  bank  be  permitted,  the  are*a  of  its  operations 
should  be  restricted  to  a  county  or  magisterial  district,  or  some  comparatively 
small  area,  so  that  their  loans  could  only  be  made  where  the  appraisement  com- 
mittee could  have  some  idea  of  real  values  (the  area  might  be  computed  in 
accordance  with  the  density  of  population).  Further,  should  the  plan  of  small 
banks  be  adopted,  it  would  seem  to  me  that  it  should  only  be  done  with  the 
proviso  that  a  certain  minimum  number  should  be  established  in  any  one 
State,  and  that  they  should  be  required  to  subscribe  a  certain  amount  of  their 
capital  and  surplus  for  the  formation  of  a  State  farm  land  bank,  which  should 
have  large  enough  capital  to  make  its  bonds  salable. 

The  plan  of  small  banks  has  been  adopted  in  Europe  in  the  case  of  banks 
formed  for  short-term  loans,  but  in  the  case  of  banks  formed  for  long-term 
mortgage  loans,  the  European  experience  has  led  to  the  creation  of  large  banks. 
For  instance,  the  Credit  Foncier  in  France  has  a  capital  of  225,000,000  francs 
and  operates  over  the  whole  of  that  country.  In  Germany  the  land-mortgage 
banks  are  all  of  very  considerable  size.  There  are  23  of  the  landschaften, 
each  one  restricted  to  some  political  subdivision  of  the  Empire,  and  all  of 
them  of  good  size.  The  total  loans  of  the  landschaften  amount  to  £170,000,000. 
Besides  these  there  are  a  number  of  joint-stock  mortgage  banks  for  long-time 


970  KUKAL    CBHDITS. 

loans,  but  these  loan  more  particularly  on  city  property.  In  Italy  and  Spain 
the  land-mortgage  banks  are  also  powerful  institutions,  so  that  European 
experience  would  seem  to  discredit  the  idea  of  small  land-mortgage  banks. 

Section  16,  specific  poioers. — I  do  not  believe  in  the  idea  that  such  banks 
should  accept  and  pay  Interest  <>n  deposits,  even  if  the  amount  he  restricted, 
because  the  principle  of  a  bank  of  deposit  is  to  have  its  loans  in  such  a  condi- 
tion that  it  may  quickly  liquidate  them  to  pay  its  depositors,  and  the  idea 
of  a  land-mortgage  bank  is  to  make  loans  which  can  not  be  recalled  quickly. 
Moreover,  when  a  bank  is  allowed  to  receive  deposits  the  tendency  is  for  the 
managers  to  pay  more  attention  to  this  feature  of  the  business  than  to  the  ques- 
tion of  long-time  loans.  I  might  cite  as  an  example  of  this  the  United  States 
Mortgage  &  Trust  Co.,  of  this  State. 

Specific  potvers,  No.  3. — Provision  should  be  made  for  maintenance  of  the 
properly,  with  power  to  demand  partial  repayment  in  case  of  depreciation. 
This  matter  is  referred  to  later  on. 

Paragraph  (c)  penalty. — Whoever  shall  knowingly  issue,  in  behalf  of  such 
mortgage  banks,  bonds  in  excess  of  cover  shall  be  punished  by  fine  and  im- 
prisonment. 

Paragraph  (c). — After  the  words  "collateral  trust  bonds"  insert  the  words 
"  in  denominations  of  $100,  $500,  and  $1,000." 

Section  16,  paragraph  (d),  specific  limitations.— As  I  view  it.  20  per  cent 
paid-in  capital  and  surplus  is  too  much;  10  per  cent  would  be  enough. 

Section  17. — I  should  add  to  the  last  clause.  "  except  with  the  consent  of 
the  commissioner."  (Sometimes  some  parts  of  the  country  have  known  ex- 
tended periods  of  drought  which  might  force  the  bank  to  dispose  of  property 
at  a  loss  if  they  were  compelled  to  do  so  within  five  years.) 

If  the  principle  of  a  Stale  farmland  bank  is  adopted  in  connection  with 
the  small  banks,  the  duties  of  the  Federal  fiduciary  agent  could  be  performed 
by  the  State  bank  without  the  expenses  connected  with  such  agent,  which 
would  be  heavy  upon  the  small  bank.  Mortgages  made  by  the  small  bank 
could  be  deposited  with  the  State  bank,  which  could  either  guarantee  the 
debentures  of  the  small  bank  or  issue  its  own  debentures  upon  the  security 
deposited  with  it.  It  would  certainly  be  only  the  debentures  of  the  State 
bank  that  could  have  any  extended  market. 

If,  however,  the  idea  of  the  agent  be  adopted,  I  would  call  your  attention 
to  paragi'aph  1  of  section  19,  that  no  national-bank  bond  issued  without  his 
signature  shall  be  binding  upon  said  bank.  Many  innocent  purchasers  might 
buy  these  bonds  without  being  aware  of  this  provision  in  the  law.  and  in  the 
case  of  a  bank,  which  was  operated  dishonestly,  they  would  have  no  recourse 
against  the  bank,  so  that  a  clause  should  be  put  in  making  it  a  criminal 
offense  against  the  officers  of  the  bank  to  issue  these  bonds  without  the  signa- 
ture of  the  agent  in  order  to  have  protection  for  the  buyers. 

Clause  3. — There  should  be  a  penalty  clause  against  the  bank  officers  making 
entries  without  securing  the  approval  of  the  agent  in  writing. 

Section  30. — There  is  no  provision  for  the  election  of  a  treasurer.  It  should 
be  provided  that  whoever  acts  in  this  capacity  should  give  a  bond. 

Section  31f,  paragraph  1,  privileges. — I  do  not  believe  in  the  deposit  of  postal 
savings  funds  in  such  banks.  It  is  enough  that  these  funds  can  be  used  to  pur- 
chase the  bonds  of  such  banks. 

Section  39,  appraisement  committee. — It  should  be  provided  that  an  appraise- 
ment of  the  property  should  be  secured,  not  only  by  the  committee,  but  by  at 
least  one  freeholder  living  in  the  neighborhood  of  the  applicant  for  a  loan,  and 
qualified  to  know  the  value  of  the  property,  and  the  committee  should  take  into 
consideration  the  salable  value  and  character  of  the  land  and  the  revenue 
derived  therefrom.  The  appraisal  shall  be  open  to  the  inspection  of  any 
stockholder. 

Section  J/2. — Provision  should  be  made,  in  case  the  borrower  fails  to  pay  the 
premiums  on  insurance  policies,  that  the  bank  may  call  for  the  entire  loan 
within  three  months  after  failure  to  pay.  Provision  should  also  be  made  that 
in  case  the  borrower  reconstructs  his  buildings  within  one  year  after  their 
destruction  by  fire  or  otherwise,  that  the  bank  shall  pay  back  to  him  the  in- 
surance money. 

Section  J/3. — I  have  already  stated  that  in  case  the  small-bank  idea  is  adopted, 
it  should  be  limited  in  its  operations  to  a  small  area,  and  the  loan  agencies 
should  be  confined  within  this  area. 

Section  .'/G. — The  borrower  should  be  entitled  to  pay  off  the  amount  of  his 
mortgage,  or  any  portion  thereof,  in  cash,  as  well  as  by  presenting  the  national 


RUKAL   CREDITS.  971 

loan-bank  bonds.  It  might  be  difficult  for  him  to  get  these  bonds,  whereas 
the  bank  has  the  privilege  of  calling  them.  Again,  should  the  borrower  wish 
to  sell  a  part  of  his  land,  he  should  be  enabled  to  do  so  by  tendering  to  the 
bank  the  amount  he  receives  upon  such  sale,  and  the  bank  should  then  cancel 
an  equal  amount  of  bonds.  Instead  of  calling  in  bonds  where  payments  have 
been  made,  the  bank  should  also  have  the  privilege  of  substituting  other  col- 
lateral. In  case  of  bankruptcy  proceedings  against  the  bank  the  claim  of 
bondholders  on  the  mortgages  entered  in  the  mortgage  register  should  have 
preference  over  any  other  creditors  of  the  bank. 

In  Europe  the  banks  are  usually  forbidden  to  loan  upon  mines,  pits,  and 
quarries.  Such  properties  decrease  in  value  as  the  limit  of  their  production  is 
approached. 

A  provision  should  be  inculded  in  regard  to  foreclosure,  viz:  When  any  bor- 
rower fails  to  pay  his  interest,  etc.,  the  bank  may  begin  foreclosure  proceedings 
against  him  within  two  or  three  months  after  the  interest,  etc.,  is  due.  unless 
some  unavoidable  incident,  such  as  fire,  failure  of  crops,  destruction  by  hail, 
etc.,  has  given  a  valid  reason  for  extending  the  time  of  such  payment. 

The  borrower  should  be  compelled  to  make  application  for  his  loan  in  writing 
and  state  the  purpose  for  which  the  loan  is  desired,  and  the  committee  should 
be  satisfied  that  the  loan  promises  to  benefit  the  borrower. 

Provision  should  be  made  that  in  case  the  property  depreciates  partial  re- 
payment may  be  rendered,  and  loans  on  farm  lands  should  contain  provisions 
for  proper  soil  conservation. 

The  appraisement  committee  should  be  allowed  to  inspect  the  mortgaged 
premises  from  time  to  time.  The  expense  of  foreclosure  should  be  borne  by  the 
mortgaged  property. 

Passing  from  details  to  the  general  principles  of  the  bill,  mortgage  banks, 
under  whatever  plan  may  be  adopted,  should  be,  in  my  opinion,  allowed  to 
make  long-term  loans  upon  urban  as  well  as  upon  rural  property. 

It  certainly  is  true  that  in  many  parts  of  the  country  urban  property  is  loaned 
upon  more  easily  and  at  a  lower  rate  than  farm  property,  and  a  company  hav- 
ing mortgages  on  both  kinds  as  security  for  its  debentures  could  dispose  of 
these  debentures  at  a  better  price  than  when  restricted  to  rural  properties  alone 
and  would  thereby  be  enabled  to  reduce  the  rate  of  interest  on  farm  mortgages, 
the  mixed  security  giving  better  value  to  the  debentures  as  a  whole.  I  beg  to 
remain. 

Yours,  very  truly, 

Frederick  H.  Allen. 

(Thereupon,  at  4  o'clock  p.  m.,  the  subcommittee  adjourned  sine 
die.) 


TST 


RURAL     CREDITS 


JOINT  HEARINGS 


BEFORE    THE 


SUBCOMMITTEES  OF  THE 
COMMITTEES  ON  BANKING  AND  CURRENCY 

OF  THE  SENATE  AND  OF  THE 
HOUSE  OF  REPRESENTATIVES 

CHARGED  WITH  THE  INVESTIGATION 
OF  RURAL  CREDITS 


Sixty-third  Congress,  Second  Session 


Volume  II — Part  1 


PRINTED  FOR  THE  USE  OF  THE  SENATE  COMMITTEE 
ON  BANKING  AND  CURRENCY 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1914 


SUBCOMMITTEE  OF  THE  COMMITTEE  ON  BANKING  AND  CURRENCY, 
UNITED  STATES   SENATE. 

HENRY   F.    HOLLIS,   New    Hampshire,    Chairman. 

BLAIR  LEE,  Maryland. 

COE  I.   CRAWFORD,   South   Dakota. 

SUBCOMMITTEE  OF  THE  COMMITTEE  ON  BANKING  AND  CURRENCY, 
HOUSE  OF  REPRESENTATIVES. 

ROBERT   J.   BULKLEY,    Ohio,    Chairman. 
WILLIAM   G.  BROWN,   West  Virginia.  J.  WILLARD  RAGSDALE,   South  Carolina. 

CLAUDE  U.  STONE,  Illinois.  EVERIS  A.  HAYES,  California. 

HARRY  H.  SELDOMRIDGE,   Colorado.  FRANK  P.  WOODS,  Iowa. 

CLAUDE  WEAVER,  Oklahoma.  EDMUND  PLATT,  New  York. 

2 


EUEAL  CBEBITS. 


THURSDAY,  JULY  23,   1914. 

United  States  Senate, 

Washington,  D.  0. 

The  subcommittees  assembled  at  10.30  o'clock  a.  m.,  Hon.  Henry  F. 
Hollis  presiding. 

Present :  Senators  Lee  and  Crawford  and  Representatives  Brown, 
Woods,  and  Piatt. 

Senator  Hollis.  I  will  say  that  this  meeting  is  called  so  that  Mr. 
David  Lubin  may  ask  some  questions  of  some  of  the  gentlemen  pres- 
ent who  have  made  studies  of  rural  credits  in  this  country,  in  order 
to  get  their  opinion  as  to  which  type  of  land-mortgage  bond  will  sell 
best  in  the  market.  It  is  conceded  on  all  hands  that  the  success  of 
the  system  depends  upon  the  goodness  of  the  bond;  that  is,  its  in- 
trinsic value,  as  well  as  its  curreucy  in  the  market  and  how  freely  it 
will  be  bought  all  over  this  country  and  in  foreign  countries.  That 
seems  to  be  conceded. 

Under  the  bill  that  has  been  recommended  by  the  subcommittees 
the  scheme  is  roughly  this :  To  have  local  units  called  "  farm  loan 
associations,"  whose  sole  function  will  be  to  issue  loans  on  first  mort- 
gages on  farm  lands  for  certain  specified  purposes.  These  local  units 
will  be  somewhat  like  building  and  loan  associations  in  their  scope. 
They  will  not  have  regular  banking  rooms;  they  will  not  take  de- 
posits ;  they  will  not  do  a  checking  business.  They  ought  to  do  busi- 
ness on  a  very  economical  plan.  Very  likely  the  office  will  be  in  a 
grocery  store  or  a  lodge  room  or  something  of  that  kind.  They  will 
not  need  to  meet  very  often ;  perhaps  once  or  twice  a  month.  Their 
sole  function  will  be  to  make  only  good  loans  and  then  to  "redis- 
count "  those  loans,  so  to  speak,  with  a  Federal  land  bank. 

The  plan  is  to  have  a  Federal  land  bank  in  each  Federal  reserve 
city,  so  there  will  be  a  dozen  of  them.  These  land  banks  will  obtain 
their  capital  by  having  10  per  cent  of  the  capital  of  the  farm  loan 
associations.  They  are  to  have  a  capital  of  not  less  than  $500,000 
each.  Their  function  is  to  take  farm  loans  from  the  local  associa- 
tions and  then  make  those  farm  loans  the  basis  for  an  issue  of  farm- 
loan  bonds.  The  local  associations  and  the  land  bank  are  to  divide 
between  them  1  per  cent  annually  on  the  outstanding  loans,  so  that 
we  know  that  the  expenses  are  limited  to  1  per  cent.  Future  experi- 
ence may  prove  that  that  is  too  much,  but  we  believe  that  it  is  at 
least  all  that  it  ought  to  be. 

Now,  that  is  roughly  the  plan.  We  hope  to  make  the  bonds  sell  on 
the  same  basis  all  over  the  country,  but  that  may  prove  impracticable. 

3 


4  KURAL    CREDITS. 

One  feature  of  our  plan  which  is  objected  to  by  what  might  be 
called  the  orthodox  school  of  economists  is  what  is  called  the  Gov- 
ernment-aid feature;  and  that  provides  merely  that  the  Federal  Re- 
serve Board  may,  at  its  discretion,  require  the  Treasury  Department 
to  purchase  a  certain  amount  of  farm  loan  bonds  yearly,  not  exceed- 
ing $50,000,000  in  any  one  year.  It  is  believed  by  the  friends  of  this 
bill  that  that  will  give  the  bonds  a  standing  in  the  money  markets  of 
the  world ;  that  people  will  say,  "  Why,  if  the  Government  has 
looked  after  these  bonds  so  carefully  that  it  is  willing  to  purchase 
them  and  invest  in  them,  that  is  a  good  recommendation  to  other 
people." 

There  is  a  very  large  contingent  in  this  country,  including  the 
granges,  that  have  wanted  direct  Government  loans;  that  is,  loans 
from  the  Government  direct  to  the  farmer  at  a  low  percentage. 
They  have  wanted  the  Government  to  borrow  money  at  3£  per  cent 
and  lend  it  directly  to  the  farmer  at  4  per  cent. 

And  we  had  that  ver}7  considerable  element  in  mind  when  we 
agreed  on  this  Government-aid  feature;  because  we  knew  that  they 
would  not  be  satisfied  with  anything  less  than  we  have  put  into  the 
bill ;  and  since  the  bill  has  been  introduced  the  legislative  committee 
of  the  National  Grange  has  approved  the  bill  with  that  feature  in  it. 
And  we  fear  that  if  we  withdraw  the  Government  aid  entirely,  we 
will  meet  the  active  opposition  of  the  granges  all  over  the  country. 

It  was  Mr.  Lubin's  idea  while  he  was  here  m  Washington  to  out- 
line to  experts  in  this  matter  the  landschaften  system  in  Germany; 
and  either  to  outline  himself  or  permit  us  to  outline  to  the  same  per- 
sons, our  plan  under  Senate  bill  5542 ;  and  to  ask  those  experts  which 
bond,  in  their  opinion,  would  sell  best  in  the  market. 

Now,  having  made  that  preliminary  statement,  I  will  turn  the  mat- 
ter over  to  Mr.  Lubin.  But  I  will  say  first  that  most  of  those  whom 
we  invited  to  come  here  as  experts  on  the  marketing  of  such  bonds 
have  not  been  able  to  come,  owing  to  the  fact  that  these  large  finan- 
cial institutions  are  shorthanded  at  this  time  through  letting  a  num- 
ber of  their  men  go  on  their  summer  vacations.  But  Mr.  Woodruff, 
representing  the  Prudential  Insurance  Co.,  is  here;  and  also  Messrs. 
Thompson  and  Carver,  representing  the  Secretary  of  Agriculture. 

Mr.  Lubin,  I  will  ask  you  now  to  proceed. 

STATEMENT  OF  MR.  DAVID  LUBIN,  DELEGATE  OF  THE  UNITED 
STATES,  INTERNATIONAL  INSTITUTE  OF  AGRICULTURE,  ROME, 
ITALY. 

Mr.  Lubin.  Did  I  understand  you  to  say,  Mr.  Chairman,  that  you 
would  present  the  landschaft  proposition? 

Senator  Hollis.  No;  that  you  would  do  that. 

Mr.  Lubin.  Well,  the  landschaft  proposition  is  a  simple  matter.  It 
has  been  in  operation  in  Germany  during  the  past  145  or  147  years. 
I  think  it  is  147  years. 

It  was  started  by  a  man  named  Buring.  The  matter  was  presented 
to  the  Reichstag — or  what  was  then  the  Reichstag — but  it  did  not 
appeal  to  them;  in  fact,  it  was  thrown  out  on  several  occasions.  But 
the  matter  came  to  the  ears  of  Frederick  the  Great  and  he  took  this 
man  and  his  idea  up,  believing  that  the  scheme  was  entirely  prac- 
ticable.   At  that  time  the  finances  of  Germany  were  in  bad  shape.    I 


RURAL    CREDITS.  5 

think  they  had  had  extensive  wars  which  had  left  Germany  in  bad 
shape.  Its  agricultural  conditions  were  bad,  and  anything  that  would 
relieve  agriculture  was  welcomed  at  that  time.  And  Frederick  the 
Great  saw  sufficient  merit  in  this  system  to  put  it  into  operation,  and 
he  had  laws  enacted  to  put  it  into  operation,  and  it  is  in  operation 
to-day. 

I  have  here  (indicating]  recent  quotations  on  the  landschaft  bonds. 
I  have  the  financial  supplement  of  the  Vossische-Zeitung  of  Ber- 
lin, giving  the  stock-exchange  quotations.  Let  us  compare  a  few 
of  these  quotations  with  those  given  in  the  same  paper  on  the  Gov- 
ernment bonds  of  Germany  on  the  same  day.  These  quotations  are 
published  daily. 

Senator  Hollis.  Are  these  quotations  for  1914? 

Mr.  Lubin.  At  the  time  when  the  American  commission  was  there; 
that  was  June,  1913,  was  it  not? 

Senator  Hollis.  Yes;  1*913. 

Mr.  Lubin.  These  are  the  quotations  on  German  Government 
bonds  and  German  landschaft  bonds  at  4  per  cent,  3^  per  cent,  and 
3  per  cent,  respectively ;  those  are  different  issues  or  different  series 
of  bonds.  The  Government  4  per  cent  bonds  brought  96  marks ;  the 
landschaft  bonds  brought  100  marks  for  the  4  per  cent.  The  3|  per 
cent  Government  bonds  were  quoted  at  84.80  marks;  the  landschaft 
3^  per  cent  bonds  at  96  marks.  The  Government  3  per  cent  bonds 
sold  at  74.80  marks;  the  landschaft  bonds  at  80.50  marks. 

Of  course,  when  these  farmers  want  to  cancel  their  debts  they  go 
out  and  buy  these  bonds,  and  the  bond  may  run  up  to  100  marks 
when  they  have  sold  it  for  87  marks;  but,  as  a  rule,  the  farmer  buys 
it  back  for  about  the  price  he  sold  it  for.  If  the  bond  goes  up,  why, 
he  has  lost ;  that  is  all ;  his  company  is  better  than  he  thought  it  was ; 
that  is  all. 

Now,  this  is  an  exceedingly  simple  proposition.  It  does  not  require 
a  financier  to  understand  its  operation ;  any  ordinary  farmer  can 
understand  it,  and  it  is  a  proposition  that  any  ordinary  set  of  farmers 
can  carry  out,  not  merely  because  the  farmers  are  competent  and 
willing  and  even  zealous,  but  mainly  because  they  can  not  help  them- 
selves and  could  not  help  themselves  from  carrying  it  out,  even  if 
they  did  not  want  to  carry  it  out  they  would  have  to  carry  it  out,  and 
if  they  did  not  want  to  do  what  the  laws  says  they  should,  you  would 
find  it  out  right  then  and  there. 

Substantially  the  system  is  this :  We  will  suppose  this  [indicating] 
is  a  piece  of  land ;  here  are  one,  two,  three,  four,  and  five  pieces ;  they 
need  not  necessarily  be  confined  within  that  district;  one  man  can 
live  in  here  [indicating]  and  one  over  there  [indicating]  and  two  or 
three  over  here  [indicating].    But  here  is  that  land. 

Now,  there  can  be  100  farmers,  50  farmers,  500  farmers,  or  as 
many  as  you  please,  in  this  merger,  as  we  will  call  it;  and  these 
people  go  to  the  Government  and  say,  "  Give  us  a  charter."  The 
Government  says  to  them,  "  Yes ;  we  can  issue  charters  here.  Are 
you  in  a  position  to  comply  with  the  laws?"  The  fine  print  in  this 
book  sets  forth  what  the  laws  are.  The  applicants  say,  "  Yes,"  and 
the  Government  gives  them  a  charter. 

These  people  are  then  ready  to  proceed.  They  then  have  an  elec- 
tion, and  they  have  seven  directors,  of  whom  they  elect  six.  The 
King — not  the   Government,  but  the   King — directly  appoints  the 


b  RURAL    CREDITS. 

seventh  director;  and  the  seven  directors  are  then  sworn  in  as  Ger- 
man officials,  to  obey  the  German  law,  perform-  their  duties,  etc. 

Then  they  proceed  to  business.  This  man,  we  will  say,  has  10 
acres  of  land,  and  this  other  man  has  10,000  acres.  This  man  puts 
in  his  mortgage  in  the  landschaft,  and  they  proceed  to  issue  bonds 
on  it;  and  that  bond  is  taken  to  the  open  market  and  sold  at  these 
prices  which  are  quoted  here  [indicating]  on  the  bourse;  and  this 
farmer  receives  money  for  his  bond ;  he  puts  his  money  in  his  pocket. 
That  finishes  the  whole  transaction — that  part  of  the  transaction; 
there  is  no  bank — nothing.    The  farmer  has  got  his  money ;  there  it  is. 

Senator  Hollis.  Pardon  me,  Mr.  Lubin.  This  matter  is  not  so 
familiar  to  some  of  us  as  it  is  to  you.  As  I  understand  the  process, 
the  man  who  wishes  to  borrow  on  his  farm  goes  to  the  landschaft 
and  delivers  whatever  kind  of  mortgage  or  title  they  require,  and 
then  he  receives  from  the  landschaft  a  bond? 

Mr.  Lubin.  Yes. 

Senator  Hollis.  To  the  amount  nominally  of  the  loan  that  he 
makes? 

Mr.  Lubin.  Yes. 

Senator  Hollis.  Then  he  himself  takes  that  bond  and  sells  it  in 
the  market,  and  that  is  where  he  gets  his  cash  ? 

Mr.  Lubin.  Well,  not  necessarily.  He  has  certain  ways  of  get- 
ting rid  of  that  bond.  Sometimes  he  makes  this  landschaft  the 
messenger  to  sell  his  bond  in  the  open  market.  Sometimes  he  does 
not  want  the  landschaft  to  be  the  messenger,  as  the  open  market 
can  be  reached  as  readily  by  himself.  According  to  the  law  of 
Germany,  the  widows'  and  orphans'  funds  must  be  invested  in  these 
bonds;  and  frequently  they  will  call  upon  the  farmers  to  hurry  up 
and  send  in  their  mortgages,  in  order  that  trust  funds  may  be  invested 
in  these  bonds. 

Senator  Hollis.  Mr.  Lubin,  is  that  not,  in  an  indirect  way,  the 
Government  aid  which  the  Government  supplies,  but  for  which  the 
Government  is  not  responsible,  requiring  widows'  and  orphans* 
funds  to  be  invested  in  this  form  of  investment? 

Mr.  Lubin.  Well,  we  will  get  to  that  in  a  little  while,  if  you  please. 

Senator  Hollis.  All  right ;  I  did  not  mean  to  interrupt  you  ? 

Mr.  Platt.  It  is  not  true,  is  it,  that  the  Government  requires  the 
widows'  and  orphans'  trust  funds  to  be  so  invested  ?  It  merely  per- 
mits that,  does  it  not  ? 

Mr.  Lubin.  That  is  the  law. 

Mr.  Platt.  But  it  does  not  mean  that  those  bonds  are  the  exclu- 
sive investment  for  such  funds,  does  it? 

Mr,  Lubin.  Well,  I  will  not  say  positively  that  they  must  be  ex- 
clusively so  invested;  that  if  a  widow's  or  orphan's  fund  is  $10,000 
absolutely  every  cent  of  it  must  go  for  those  bonds ;  but  the  widows' 
and  orphans'  funds  by  law  must  be  invested  in  those  bonds. 

Xow.  we  will  get  a  little  further  with  these  bonds.  These  bonds, 
as  may  be  seen  from  the  quotations  I  read,  float  just  the  same  as  an 
aeroplane  floats;  these  bonds  float  in  the  open  market.  And  the 
value  of  any  rural-credit  system  must  depend,  after  all,  upon  two 
conditions:  One,  that  the  thing  will  float  without  being  held  up 
at  all.  An  aeroplane  that  has  to  be  held  up  when  it  is  3,000  feet  in 
the  air.  with  a  lot  of  men  underneath  to  hold  it  up  so  that  it  will 
not  fall  down  is  not  worth  much.     You  have  got  to  have  bonds  that 


RURAL   CREDITS.  7 

will  float  in  the  market;  that  is  the  test.  The  test  is  not  how  bril- 
liant the  scheme  may  appear  to  be;  not  what  a  grand  scheme  some 
young  man  or  old  man  had  brought  before  the  committee.  The 
test  is  not  even  that  it  seems  to  be  practicable  and  logical.  The  real 
test  is,  can  that  bond  be  floated  at  all  times  without  any  necessity 
for  being  supported  ? 

Mr.  Brown.  Whether  it  is  self-supporting? 

Mr.  Lubin.  Yes;  whether  it  is  self-supporting.  A  good  many 
slurs  have  been  thrown  at  the  landschaft  system  from  various 
quarters,  of  which  I  have  copies  in  my  book  of  clippings.  In  the 
first  place,  they  claim  that  it  is  undesirable;  that  it  is  a  system  in 
operation  by  paupers;  whereas,  as  a  matter  of  fact,  some  among 
the  wealthiest  farmers  in  all  the  world  are  members  of  landschaften, 
and  can  these  be  called  paupers?  They  really  need  the  Raiffeisen 
system,  which  provides  loans  for  small  amounts  on  the  unlimited 
liability  of  all  its  members.  They  get  $30  for  a  cow,  and  they  have 
to  ask  a  series  of  questions,  which,  if  they  were  asked  of  a  farmer  in 
Texas,  would  be  likely  to  result  in  the  asker  being  shot  dead  on 
the  spur  of  the  moment.  [Laughter.]  They  would  not  be  likely 
to  answer  such  questions  in  Texas;  they  might  in  Germany. 

The  landschaft  deals  with  people  who  own  10,000  acres  of  land;  it 
also  deals  with  people  who  own  5  acres  of  land;  it  deals  with  the 
owners  of  the  land ;  and  it  is  a  financial  proposition  and  not  a  benevo- 
lent proposition. 

Mr.  Brown.  Pardon  me,  Mr.  Lubin,  let  me  ask  this  question :  The 
landschaft  deals  exclusively  with  the  landowner,  does  it  not? 

Mr.  Lubin.  Yes,  sir;  the  landschaft  is  composed  of  landowners — 
the  committee 

Mr.  Brown  (interposing).  Yes;  I  understand. 

Mr.  Lubin.  Now,  the  question  comes  up,  What  magic  is  there  in 
that  man's  land,  or  in  this  10,000-acre  tract  or  this  5-acre  tract, 
which  makes  that  landschaft  bond  float?  Does  it  float  because  a 
landschaft  organization  has  issued  it?  Does  it  float  because  the 
Government  says  that  the  widows'  and  orphans'  funds  shall  be  in- 
vested in  it?  What  magic  is  it  that  makes  this  landschaft  bond 
float? 

Now,  I  try  to  make  this  point  so  clear,  not  because  I  am  so  very 
bright,  but  because  I  have  been  in  and  near  the  field  where  it  is  in 
operation  for  the  past  10  years. 

Mr.  Carver.  Mr.  Chairman,  may  I  ask  Mr.  Lubin  a  question? 

Senator  Hollis.  Yes;  certainly. 

Mr.  Carver.  Would  you  advocate  a  rule  in  this  country  requiring 
trust  funds  to  be  invested  in  landschaft  bonds,  to  the  exclusion  of 
National,  State,  and  municipal  bonds? 

Mr.  Lubin.  I  would  not  say  that  just  now.  I  will  get  off  the 
track  if  I  do  not  finish  this  point  I  was  discussing  just  now. 

Mr.  Platt.  That  is  not  the  case,  is  it,  in  Germany  ? 

Mr.  Carver.  I  do  not  understand  that  it  is. 

Mr.  Lubin.  I  want  first  to  show  how  this  bond  floats,  and  how  it 
keeps  floating;  what  magic  is  there  that  makes  it  float?  Now, 
whether  you  have  the  landschaft  system,  or  whether  you  have  the 
bill  that  is  now  before  the  committee  (S.  5542),  or  any  bill  that  you 
could  mention,  if  you  are  going  to  have  a  bond  in  the  open  market 
that  will  float  at  all,  you  have  got  to  have  the  very  points  embodied 


8  RURAL    CREDITS. 

that  I  am  going  to  explain  now ;  and  if  you  have  the  security  in  the 
bond  I  am  going  to  explain,  you  might  just  as  well  have  the  land- 
schaft,  because  it  is  the  simplest;  for  with  the  landschaft  the  farmer 
gets  the  money  in  his  pocket  without  any  bank  at  all,  and  he  gets 
it  at  3,  3f,  or  4  per  cent;  there  are  those  three  different  issues;  and 
the  farmer  chooses  which  one  he  will  want;  and  he  fills  in  his  paper 
to  show  what  kind  he  wants,  3,  3|,  or  4  per  cent  bonds,  and  he  gets 
the  kind  he  wants,  and  there  is  no  toll-gathering  bank  between  him 
and  his  loan. 

What  makes  this  bond  float?  It  is  the  integrity  of  the  bond. 
What  makes  the  integrity  in  the  bond?  As  near  as  I  can  under- 
stand— these  laws  on  the  landschaft.  By  reason  of  forming  a  land- 
schaft you  practically  outlaw  the  land  of  that  landschaft  from  all 
existing  land  laws  in  Germany  upon  the  subject  and  create  a  new 
law  that  governs  the  land ;  the  law  that  governs  the  landschaft. 
There  is,  as  it  were,  a  new  tenure  created.  That  tenure  is  that,  when 
that  landschaft  takes  the  mortgage  of  a  farmer  and  gives  him  the 
bonds,  that  mortgage  becomes  a  judgment  against  the  land.  It  is  a 
judgment;  there  is  no  going  to  court;  there  is  no  pleading;  there  is  no 
question  about  a  comma  in  a  legal  document  being  out  of  place; 
there  is  no  question  of  their  having  found  in  a  trunk  over  there  a 
new  will  or  that  the  bo}7  with  red  hair  and  not  the  old  man  over 
there  is  the  proper  owner  of  that  property. 

That  is  a  very  peculiar  law.  I  do  not  know  whether  it  is  in  opera- 
tion anywhere  else  in  the  world.  But  they  have  got  it  under  the 
landschaften  system.  If  you  want  a  charter,  you  have  got  to  get 
that  power;  that  charter  which  the  Government  gives  you  to  estab- 
lish a  landschaft  contains  that  power — that  it  outlaws  practically  all 
other  laws  relating  to  the  land  and  puts  into  operation  that  peculiar 
law  which  gives  this  landschaft  the  right  to  take  this  land  without  the 
necessity  of  recourse  to  law  if  the  farmer  refuses  to  pay  his  mortgage. 

Senator  Crawford.  Well,  do  you  think  it  is  right  to  bar  all  equities 
against  the  land  like  that;  to  shut  them  out  absolutely,  no  matter 
whether  they  are  just  or  unjust? 

Mr.  Lubin.  I  am  not  speaking  now  about  the  equity  in  a  case.  Of 
course,  the  equity  is  certainly  right  here.  But  I  am  speaking  of  the 
fact  that  this  landschaft  bond  floats  without  anybody  holding  it  up. 
Now,  that  is  one  proposition. 

Next  in  importance  comes  the  appraisement  of  the  land.  Take  an 
average  farmer  and  ask  him  how  much  his  land  is  worth,  and  you 
will  be  told,  if  he  wants  big  money,  that  his  land  is  worth  $100  an 
acre;  he  will  tell  you  how  many  onions  he  might  raise  on  it;  there 
might  be  gold  underneath,  or  coal ;  and  there  will  be  a  lot  of  things 
which  will  make  it  valuable  according  to  his  view;  his  land  is  an 
awfully  big  thing. 

Well,  probably  it  is  not  in  fact  so  big  after  all.  It  is  the  appraise- 
ment which  must  determine  that  question.  Now,  whose  appraisement 
are  you  going  to  take?  In  Germany  they  take  the  appraisement  of 
those  seven  directors  of  the  landschaft,  and  then  they  take  another 
appraisement  by  another  committee;  the  burgomaster,  and  probably 
the  sheriff  and  county  officials:  and  the  appraisements  are  private; 
they  do  not  exchange  the  results  of  their  appraisements.  Then,  they 
have  the  leading  men  of  the  university,  constituting  another  apprais- 
ing committee,  etc. — a  third  committee ;  and  then  this  man  who  owns 


RURAL    CREDITS. 


that  land  has  to  go  on  the  stand  and  be  examined.  They  will  ask 
him,  "  What  were  you  average  net  earnings  during  the  last  10  years? 
What  did  you  do  this  year,  and  what  did  you  do  that  year?  "  The 
farmer  has  to  answer  a  whole  lot  of  questions.  In  substance,  the 
trial  in  the  court  is  held  before  the  farmer  gets  his  money,  not  after 
he  gets  his  money.  After  he  gets  his  money  that  land,  in  substance, 
belongs  to  that  landschaft;  and  they  can  take  it  any  time  if  this 
farmer  does  not  pay  his  interest. 

It  may  be  said,  "Well,  that  would  be  a  heartless  proposition,  to 
seize  this  man's  land,"  because  they  can  do  so  without  recourse  to 
law.  Well,  let  us  see  how  the  case  stands:  There,  on  the  one  hand, 
is  an  average  money  lender ;  the  success  of  his  business  depends  upon 
how  much  he  can  earn,  and  so  he  prays  that  this  farmer  who  bor- 
rowed from  him  shall  not  be  able  to  pay  him,  so  that  he  can  take 
this  $7,000  piece  of  land,  on  which  there  is  a  loan  of  probably  $1,500, 
and  foreclose  that  man  and  sell  the  land  and  keep  the  money. 

The  landschaft,  on  the  other  hand,  if  this  farmer  refuses  to  pay, 
<;all  him  in  and  reason  with  him.  They  say,  "  Your  interest  at  3£ 
or  4  per  cent  is  reasonable ;  why  do  you  not  pay  your  interest  ?  "  And 
if  this  farmer  tells  a  real  fine,  pathetic  story,  and  it  is  a  true  one, 
these  men  may  chip  in  the  interest,  which  is  nominal,  and  tide  him 
over  another  year.  In  other  words,  they  are  not  sharks ;  they  are  his 
neighbors.  If  this  farmer  is  a  villainous  scoundrel,  then  they  fore- 
close him ;  but  then  they  have  got  to  give  him  back  any  residue  after 
the  land  is  sold  and  the  amount  due  paid;  they  give  him  back  the 
balance  of  the  money,  because  they  are  not  a  money-making  concern. 
There  is  no  money  made  here  at  all.  The  only  money  collected  is 
to  run  this  association;  and  its  office  is  probably  in  a  bedroom,  and 
there  is  a  bureau  with  all  the  papers  in  there ;  so  that  the  expenditure 
is  merely  nominal.  Probably  if  a  director  lives  out  very  far  from 
the  office  and  can  not  afford  to  come  to  the  meetings,  they  might  give 
him  mileage;  but  those  are  the  kind  of  expenditures  they  have.  They 
may  have  one  man  employed  in  the  office,  if  it  is  a  big  landschaft,  to 
whom  they  pay  a  nominal  fee  for  being  secretary  of  that  institution. 
That  is  all  there  is  to  it. 

Now,  the  question  is,  what  is  the  merit  of  this  landschaft?  The 
merit  is  that  the  appraisement  has  been  done  thoroughly  and  con- 
scientiously. In  the  proposed  adaptation  of  the  landschaft  system  to 
the  United  States,  I  have  made  one  amendment  or  modification ;  the 
rest  is  the  same  as  it  is  in  Germany.  The  modification  that  I  refer 
to  is  one  of  publicity,  which  I  shall  bring  up  further  on.  Before 
doing  so  I  will  speak  of  the  cause  of  the  proposed  modification.  I  do 
not  trust  those  seven  men  to  appraise  the  land;  because  they  might 
be  all  assembled  around  a  table  in  a  poker  game,  and  they  might  say, 
"  We  will  appraise  that  land  at  $100  an  acre,"  although  it  might  not 
be  worth  more  than  $4  an  acre ;  and  there  will  be  a  lot  of  bonds  issued 
in  one  State,  say  Pennsylvania  or  Kansas,  for  example,  which  will  be 
sold  out  in  Oregon  or  Florida,  which  maybe  is  a  very  good  trick  so 
far  as  these  gentlemen  are  concerned.  They  may  thus  float  bonds 
on  land  for  $100  an  acre  that  is  worth  $4  an  acre. 

And  the  borrowers  can  say,  "  Well,  you  can  foreclose  this  afternoon 
if  you  want  to."  Well,  what  are  you  going  to  foreclose  in  such  a 
case,  where  there  is  $100  an  acre  borrowed  on  land  that  is  worth  $4? 
There  is  nothing  to  foreclose  on ;  you  have  been  humbugged,  cheated, 


10  RURAL    CREDITS. 

robbed.  So  I  do  not  trust  that  kind  of  proposition;  such  appraise- 
ments may  do  for  Prussia,  but  it  would  not  do  here.  Here  we  must 
have  a  system  where  you  "  can  not  beat  the  game." 

Now,  one  of  the  strongest  ways  of  getting  this  integrity  into  these 
bonds  is,  first,  to  have  the  widows'  and  orphans'  trust  funds  invested 
in  them ;  because  such  trickery  as  I  have  spoken  of  would  not  be 
tolerated  if  the  money  to  purchase  the  bonds  was  to  largely  come 
from  widows'  and  orphans'  funds. 

And  now  as  to  the  publicity  in  appraisements.  I  would  like  to 
have  a  hearing  committee  in  ever}'  landschaft  district;  and  the  ap- 
praisements should  be  printed  and  hung  up  in  the  post  office,  the 
butcher  shop,  the  grocery  store,  the  courthouse,  and  other  public  places, 
prior  to  the  hearings.  The  public  should  have  a  right  to  attend  the 
hearings  on  the  appraisals.  Suppose  a  farmer  has  put  his  land  in 
at  a  valuation  of  $40  an  acre.  Some  of  the  "  oldest  inhabitants " 
would  say,  "  If  it  is  worth  that  much,  how  does  it  come  that  last  year 
he  sold  so  many  acres  of  that  land  for  such-and-such  a  price  ?  That 
man  is  lying."  That  would  be  the  result  of  publicity:  it  would 
force  out  the  truth. 

Then  I  would  suggest  having  another  hearing  committee,  for  the 
larger  phase  of  the  business,  at  Washington. 

Nov.  if  we  are  in  earnest  and  really  want  a  rural-credit  system 
in  the  United  States,  one  that  will  not  work  so  that  its  bonds  will  go 
up  high  at  the  start  and  then  suddenly  come  down  like  a  rock;  like 
a  calamity  that  we  had  some  30  years  ago,  when  they  took  land  and 
converted  it  into  bonds,  and  all  of  a  sudden  the  thing  was  dead — 
you  can  ask  Mr.  L.  M.  Shaw  about  that :  he  is  now  in  Philadelphia ; 
lie  was  Secretary  of  the  Treasury  at  that  time. 

Senator  Hollis.  He  was  Secretary  of  the  Treasury. 

Mr.  Lubin.  Yes.  He  can  tell  you  about  that  experience;  how 
many  families  were  ruined  and  how  many  institutions  broke  down. 

Now,  as  to  the  publicity  of  these  hearings  upon  appraisals,  you 
take  a  large  concern  like  a  life  insurance  company ;  they  want  a  liquid 
asset,  and  they  want  a  good  asset,  a  paper  that  they  can  keep  in  their 
vault :  a  paper  that  in  time  of  panic  they  can  pass  out  and  that  will 
go  from  hand  to  hand,  just  the  same  as  gold.  Those  people  will  see 
that  those  hearings  are  pretty  well  attended  and  properly  conducted, 
because  it  will  be  an  open  proposition:  it  will  not  be  only  those  7 
men.  but  it  may  be  700  men  in  that  district  that  would  go  to  that 
hearing  any  nay.  "  What  kind  of  appraisement  are  they  giving  us 
on  this  thing?"  In  other  words,  they  can  hire  an  attorney,  and  it 
will  pay  them  to  do  that:  and  the  holders  of  widows'  and  orphans' 
trust  funds  can  hire  attorneys  for  that  purpose,  and  as  a  result  of  all 
this  those  bonds  will  float  and  they  will  probably  be  the  best  value 
in  the  United  States. 

The  history  of  these  bonds  in  Germany  has  proved  that  when  war 
or  panic  came  along — especially  war — the  Government  bonds  went 
down,  but  these  landschaft  bonds  remained  where  they  were;  they 
remained  stationary. 

Now,  whether  you  adopt  this  system,  or  whether  you  adopt  any 
system— I  do  not  mean  the  Raiffeisen  or  the  Schulz-Delitzsche ;  but  I 
mean  on  mortgage  credit  you  have  got  to  have  the  very  same  security 
on  that  land,  so  that  all  questions  of  title  are  removed  absolutely, 
because  the  farmer  wants  money  for  3.  3$,  or  4  per  cent,  and  the  peo- 


RURAL    CREDITS.  11 

pie  who  are  expected  to  buy  rural  credit  bonds  at  3  per  cent,  3|  per 
cent,  or  4  per  cent  these  people  are  not  money  sharks  who  will  take  a 
risk  for  8,  10,  or  12  per  cent;  but  they  are  the  common  people,  the  car- 
penter, the  shoemaker,  the  butcher,  or,  if  you  please,  the  great  in- 
surance company,  and  those  who  place  the  money  of  the  widows  and 
the  orphans.  There  should  be  no  risk  whatsoever  on  that,  and  there- 
fore the  borrower  has  to  come  into  that  noose,  so  that  if  he  does  not 
pay  the  landschaft  can  at  once  get  his  land  and  settle  promptly  for 
one  hundred  cents  on  the  dollar. 

Now,  you  may  say,  "  What  a  miserable,  heartless  proposition  this 
is !  "  All  right.  Now,  we  will  imagine  the  case  of  the  money  shark; 
what  a  nice,  pleasant  gentleman  he  is !  When  that  farmer  can  not 
pay  up,  of  course  he  goes  over  and  says,  "  I  am  awfully  sorry  your 
chickens  do  not  hatch,  or  your  trees  did  not  bear,  etc.,  or  that  you 
took  too  many  drinks."  Will  he  do  that?  No.  When  this  farmer 
can  not  pay  up,  he  is  foreclosed,  and  he  loses  his  property.  These 
landschaft  people,  if  that  farmer  can  not  pay  up,  take  him  before 
them  and  they  try  him,  and  if  he  is  all  right,  they  pay  the  interest 
for  that  year. 

Now,  I  answered  a  question  in  a  certain  way  to  Dr.  Carver,  and  I 
answered  it  the  other  day  to  Secretary  Houston.  He  said,  "  Is  this 
a  proposition  whereby,  practically,  A  pays  for  B  and  B  for  C,  etc. — 
that  is,  as  to  responsibility?  In  other  words,  that  this  man  is  respon- 
sible for  that  man's  debt?"  And  I  said,  "Yes";  but  that  does 
not  happen  to  be  the  case.  I  said,  "  Yes  " ;  but  it  is  not  that  kind  of  a 
"  Yes  "  that  I  intended  to  say. 

Now,  for  a  fact,  the  landschaft  is  responsible  to  the  world  for  that 
piece  of  land,  or  for  the  debt  on  it.  Therefore  all  these  men  are 
responsible  to  the  bondholder.  Now,  B,  the  buyer  of  the  bond,  has 
for  his  security  not  a  little  tract  of  land ;  he  has  not  got  that  identical 
tract.  As  to  that  identical  tract,  the  landshaft  has  the  mortgage,  but 
that  man  has  got  all  the  mortgaged  land  of  the  landschaft  as  security. 
Therefore  the  bond  floats  without  any  trouble  whatever.  There  is 
no  question  about  the  bond.  He  has  got  probably  $5,000,000  worth 
of  property  as  security  for  a  $2,000  loan,  and  that  i§  gilt-edged. 

"  Well,  then,"  you  say,  "  in  the  landschaft  every  man  is  responsible 
for  every  other  man."  But  he  is  not,  because  this  landschaft  has 
taken  so  much  pains  in  its  appraisement  that  they  have  got  $5,000 
worth  of  property  on  bonds  for  $2,500,  so  that  they  do  not  have  to  put 
their  hands  in  their  pockets  at  all.  Therefore  they  are  not  respon- 
sible in  reality.    Similarly,  they  are  one  for  the  other 

Senator  Hollis.  Mr.  Lubin,  I  understand  that  there  has  been  sub- 
stantially no  loss  under  the  landschaft  system. 

Mr.  Lubin.  None. 

Senator  Hollis.  There  has  been  no  loss  ? 

Mr.  Lubin.  None. 

Senator  Hollis.  They  have  been  operating  under  that  law  which 
gives  them  a  first  lien  and  wipes  out  all  previously  existing  liens, 
and  under  their  system  of  appraisal  the  loans  have  all  been  good? 

Mr.  Lubin.  Every  one  of  them.  I  have  never  known  of  a  case  of 
failure.  There  have  been  such  cases  under  the  Kaiffeisen  and  the 
Schulz-Delitzsche  systems  and  other  kinds  of  banks,  but  not  under 
the  landschaft  system. 


12  RURAL    CREDITS. 

Senator  Lee.  May  I  ask  a  question  ?  It  seems  perfectly  clear  that 
the  landowner  would  have  an  interest  in  getting  his  title  cleared  up 
in  a  comprehensive  way ;  that  might  be  very  desirable  under  the  con- 
ditions in  Germany.  But  I  wish  you  would  make  it  clear  to  the 
committee  what  would  be  the  interest  of  the  individual  landowner 
who  is  responsible  and  capable  and  who  can  get  his  money  in  the 
local  market  at  a  certain  fixed  rate — what  is  his  interest  in  going  in 
and  becoming  responsible  for  the  average  of  the  men  who  make  up 
the  combination  or  association? 

Mr.  Lubin.  That  is  in  different  words,  but  is  precisely  the  same 
question  that  was  asked  me  by  Secreary  Houston  and  by  Dr.  Carver, 
and  they  asked  it  in  this  form :  "Are  they  responsible  for  the  debts 
of  the  others?"     I  said  "  Yes." 

Well,  I  felt  differently,  but  I  said  "  Yes,"  because  I  had  to  say 
"  Yes  "  or  "  No."  Now,  the  correct  answer  was  not  "  Yes  "  and  it  was 
not  "  No."  Do  you  not  see  that  the  landschaft  is  responsible,  which 
means  the  entire  association  ?  But  this  man  has  given  $5,000  in  value 
to  them  and  he  has  received  only  $2,500 ;  and  the  appraisement  was 
just  and  right.  The  land  is  worth  $5,000  in  the  open  market,  at  auc- 
iion;  but  he  has  received  only  $2,500  from  the  landschaft. 

Mr.  Brown.  May  I  ask  this  question,  then,  Mr.  Lubin?  What 
interest  is  it  to  the  landowner  who  does  not  want  to  borrow  money 
or  who,  having  borrowed  money  and  repaid  it — what  interest  is  it  to 
him  to  remain  in  this  institution  and  let  his  land  stand  responsible 
for  the  debts  of  the  others?  Of  course  there  is  no  responsibility 
from  your  standpoint ;  there  can  be  no  responsibility  owing  to  the 
security  upon  the  individual  debts. 

Mr.  Lubin.  I  do  not  think  he  is  responsible. 

Mr.  Brown.  But  what  inducement  is  there  for  him  to  remain  re- 
sponsible in  that  case? 

Mr.  Lubin.  He  is  no  longer  a  member  of  the  association.  He  is 
a  member  only  when  he  has  a  mortgage  in  it. 

Senator  Hollis.  Gentlemen,  we  have  to  adjourn  at  12;  and  Mr. 
Woodruff,  of  the  Prudential  Insurance  Co.,  is  the  only  witness  here 
from  outside  of  the  city,  and  I  would  like  to  ask  Mr.  Woodruff  a  few 
questions,  and  then  let  Mr.  Lubin  ask  a  few  questions  that  he  wanted 
to  ask. 

Mr.  Woodruff's  full  name  is  A.  M.  Woodruff;  where  do  vou  live, 
Mr.  Woodruff? 

STATEMENT  OF  MR.  A.  M.  WOODRUFF,  ASSISTANT  SECRETARY 
PRUDENTIAL  INSURANCE  CO.,  NEWARK,  N.  J. 

Mr.  Woodruff.  Newark,  N.  J. 

Senator  Hollis.  And  you  are  assistant  seceretary  of  the  Pruden- 
tial Life  Insurance  Co.? 

Mr.  Woodruff.  I  am ;  yes,  sir. 

Senator  Hollis.  And  you  have  supervision  of  the  mortgage  loan 
department  of  the  Prudential  Co.? 

Mr.  Woodruff.  I  have. 

Senator  Hollis.  Now,  I  am  not  trying  to  probe  into  any  secrets 
of  the  company's  business;  and  if  we  ask  any  questions  that  you  think 
you  can  not  properly  answer,  just  say  so.  I  would  like  to  ask  you 
]ust  a  few  general  questions. 


RURAL    CREDITS.  13 

Can  you  tell  approximately  what  percentage  of  the  Prudential  in- 
vestments are  in  land  mortgages? 

Mr.  Woodruff.  About  33^  per  cent  of  our  assets  are  secured  by 
mortgages. 

Senator  Hollis.  Yes. 

Mr.  Woodruff.  About  two-thirds  of  our  mortgages  are  farm 
loans. 

Senator  Hollis.  Yes;  and,  roughly  speaking,  what  part  of  the 
country  do  they  cover? 

Mr.  Woodruff.  We  loan  from  central  Ohio  to  central  Kansas; 
from  southern  Minnesota — about  half  of  the  State  of  Minnesota — 
down  through  Tennessee,  and  somewhat  in  Georgia  and  Oklahoma. 

Senator  Hollis.  Yes. 

Mr.  Woodruff.  We  are  rather  developing  the  southern  field. 

Senator  Hollis.  You  have  a  separate  department  to  look  after 
those  loans,  have  you  ? 

Mr.  Woodruff.  We  have ;  yes,  sir. 

Senator  Hollis.  And  you  have  your  own  agents  to  look  after  the 
appraisals,  and  who  pass  those  loans,  and  that  is  a  recognized  and 
normal  expense  of  the  business?  What  I  mean  by  that  is,  you  have 
your  own  men  instead  of  doing  it  through  other  companies  ? 

Mr.  Woodruff.  If  you  will  permit  me,  I  would  like  to  explain  our 
system. 

Senator  Hollis.  Yes ;  we  should  be  glad  to  have  you  do  so. 

Mr.  Woodruff.  The  applications  are  presented  to  us  through  what 
we  consider  a  State  correspondent,  they  in  turn  receiving  them  from 
a  county  correspondent.  Those  applications  are  presented  to  us  at 
a  net  rate,  we  will  say  5,  5|,  or  6  per  cent,  the  rate  that  we  nominate 
that  we  will  consider  on  an  application  for  that  State.  All  expenses 
over  and  above  the  5  per  cent  rate  (or  whatever  rate  it  may  be)  in 
securing  the  loan  must  be  paid  by  the  applicant. 

Senator  Hollis.    Yes. 

Mr.  Woodruff.  And  we  have  nothing  to  do  with  them ;  we  do  not 
control  that  at  all ;  it  is  controlled  by  competition.  What  we  are  in- 
terested in  is  to  get  the  desirable  security  at  a  given  rate. 

Now,  up  to  that  point  we  are  at  no  charge  whatever.  The  State 
correspondent  and  the  county  correspondent  are  really  the  agents  of 
the  borrower  and  are  compensated  by  the  borrower. 

To  safeguard  our  investment,  we  maintain  an  inspection  system, 
inspecting  every  case  of  $10,000  or  over  before  we  grant  the  loan,  and 
every  case  of  less  than  $10,000  before  we  renew  the  loan;  securing 
from  our  State  correspondent  a  contract  that  they  will  pay  on  ac- 
count of  any  loan  in  which  our  inspection  shows  the  value  of  the  land 
not  to  be  double  the  amount  of  our  loan.  We  keep  up  our  grade  by 
that  contract,  the  State  correspondents  knowing  that  if  they  send  us 
an  undesirable  security  they  will  be  called  upon  in  the  course  of 
time  to  make  a  payment  on  account  of  the  loan. 

Senator  Hollis.  Well,  of  course,  the  laws  in  the  different  States 
vary  considerably  ? 

Mr.  Woodruff.  Very  materially. 

Senator  Hollis.  And  I  want  to  ask  you  if  you  have  had  many 
titles  that  have  proved  to  be  bad  ? 


14  RURAL    CREDITS. 

Mr.  Woodruff.  Comparatively  few.  I  think  it  would  be  safe  to 
say  that  not  2  per  cent  of  the  titles  that  are  presented  to  us  are 
turned  down  as  undesirable;  they  are  always  subject  to  correction. 

Senator  Hollis.  What  I  mean  is  this:  Of  the  loans  that  you 
actually  make ;  of  course,  now  and  then  there  will  be  a  bad  title  turn 
up — or  in  your  experience  have  you  never  run  across  a  bad  title  on 
a  loan  which  you  have  made? 

Mr.  Woodruff.  In  our  experience  we  have  never  suffered  a  loss  on 
account  of  a  bad  title. 

Senator  Hollis.  I  think  that  is  a  very  good  record. 

Mr.  Platt.  Yes ;  that  is  certainly  a  good  record. 

Mr.  Brown.  Yes ;  very  good. 

Senator  Hollis.  You  see,  under  the  different  State  laws,  and  hav- 
ing your  applications  presented  by  so  many  different  people,  I  think 
it  is  very  material  that  under  the  system  you  have  been  able  to  in- 
augurate you  have  never  had  any  loss  on  account  of  bad  title. 

Mr.  Woodruff.  I  may  say  that  we  have  had  bad  titles  in  the  case 
of  a  portion  of  our  security  in  a  given  case,  and  we  would  have  lost 
on  that  portion  of  our  security,  but  the  remainder  of  the  security  has 
been  sufficient  to  see  us  through  safely. 

Senator  Hollis.  In  your  foreclosures,  have  you  had  a  substantial 
number  of  cases  where  the  security  proved  to  be  of  less  value  than  the 
amount  of  the  loan,  with  interest? 

Mr.  Woodruff.  We  have  never  had  such  a  case. 

Senator  Hollis.  You  have  never  had  such  a  case?  Then  under 
your  system,  as  you  have  conducted  it,  safety  has  been  obtained  ? 

Mr.  Woodruff.  Yes ;  we  feel  that  it  has  so  far. 

Senator  Hollis.  Will  you  tell  us  how  long  your  company  has  been 
doing  business  in  substantially  this  way  ? 

Mr.  Woodruff.  They  started  in  1898,  and  have  gradually  de- 
veloped ;  they  started  in  Missouri,  gradually  widening  out  from  that 
State  into  other  States. 

Senator  Hollis.  Yes.  Now,  Mr.  Woodruff,  does  any  reason  occur 
to  you  why  equal  safety  could  not  be  obtained  by  local  appraisal, 
and  local  supervision  by  the  local  association,  and  an  appraisal 
and  supervision  by  the  central  land  bank?  In  the  case  I  put  to 
you  the  central  land  bank  would  correspond  to  your  company;  the 
local  association  would  correspond  to  these  agents  who  offer  the 
loans. 

Do  you  see  any  reason  why,  under  the  system  I  have  outlined, 
equal  safety  might  not  be  obtained  if  it  were  properly  looked  after  ? 

Mr.  Woodruff.  No,  sir ;  I  do  not. 

Senator  Hollis.  And  Senator  Lee  suggests  in  addition  to  that  that 
there  would  be  inspection  and  examination  under  the  Federal  Re- 
serve Board,  as  there  is  in  the  case  of  national  banks,  to  look  after 
that  end  of  it. 

Mr.  Woodruff.  I  think  that  last  statement  is  absolutely  essential. 

Senator  Hollis.  Yes. 

Mr.  Woodruff.  If  you  will  permit  me,  I  will  make  just  ont  state- 
ment in  regard  to  our  experience. 

Senator  Hollis.  Certainly ;  go  ahead. 

Mr.  Woodruff.  Our  experience  has  shown  that  locally  the  local 
people  almost  always  have  exaggerated  ideas  as  to  value.  We  have 
the  greatest  difficulty  in  keeping  our  values  down  to  the  productive 


RURAL    CREDITS.  15 

qualities  of  the  land.  It  is  the  almost  invariable  desire  to  place  the 
farm-loan  values  upon  selling  values,  which  we  do  not  recognize. 
We  do  not  loan  upon  selling  values ;  we  loan  upon  productive  values ; 
and  both  the  farmer,  the  applicant,  the  local  people,  and  the  State 
correspondents  to  a  large  extent  are  influenced  very  largely  by  sell- 
ing values. 

For  that  reason  we  have  found  it  almost  absolutely  necessary  to 
have  an  entirely  independent  salaried  inspection,  which  can  arrive 
at  a  conclusion  in  regard  to  the  productive  quality  of  the  security, 
making  it  comparatively  safe  from  a  marketable  standpoint,  if  for 
any  reason  we  want  to  foreclose. 

Senator  Hollis.  Now,  this  is  Mr.  Lubin's  conference,  and  I  want 
to  suggest  to  the  rest  of  those  present  that  Mr.  Lubin  be  given  the 
right  of  way,  as  we  only  have  35  minutes. 

Mr.  Lubin,  will  you  now  ask  Mr.  Woodruff  any  questions  which 
you  desire  him  to  answer? 

Mr.  Lubin.  I  would  like  to  ask  Mr.  Woodruff,  if  his  company  had 
the  choice  of  buying  bonds  in  the  open  market,  which  of  the  two 
bonds  they  would  buy,  the  landschaft,  as  explained  a  little  while  ago, 
where  the  National  Government  would  make  such  laws  that  there 
would  be  no  question  of  the  title  at  all,  and  where  there  would  be  no 
foreclosure,  but  there  would  practically  be  a  judgment  the  moment 
the  mortgage  was  deposited  with  the  landschaft;  it  would  then  be  a 
judgment.  I  will  go  further  than  that;  I  would  not  allow  the  land- 
schaft to  hold  the  mortgage;  I  would  have  a  central  office  here  in 
Washington,  in  the  United  States  Treasury,  to  hold  the  mortgages 
passed  through  the  landschaft,  the  landschaft  to  hold  duplicates  of 
them ;  I  would  give  the  shadow  on  this  proposition  to  the  landschaft 
officials,  but  the  substance — the  mortgages  and  the  blank  bonds — I 
would  have  in  the  Treasury  Department  under  Federal  authority.  I 
would  take  away  the  bond  blanks,  so  that  they  could  not  issue  bonds ; 
otherwise  they  might  be  issued  galore,  and  then  probably  take  a  few 
drinks  and  issue  more  of  them,  and  then  float  them  all  over  the  coun- 
try ;  and  who  could  tell  the  difference  ?  I  would  let  the  Federal  office 
here  in  Washington  issue  those  bonds,  and  then  let  the  landschaft 
countersign  them  and  turn  them  over  to  the  borrower. 

I  would  have  the  same  thing  done  with  the  payment  of  interest, 
so  that  the  record  would  be  here  in  Washington. 

Now,  assuming  those  things  were  done,  and  the  publicity  given  to 
the  appraisement,  etc.,  where  your  company  would  have  the  right, 
through  its  attorney  and  in  every  place,  to  go  into  a  landschaft  and 
look  over  these  lists,  appraisements,  etc. ;  and  assuming  this  bond  of 
the  landschaft  to  be  in  the  market,  as  well  as  this  other  bond  that  is 
proposed  in  the  bill,  which  would  the  Prudential  buy  ? 

Mr.  Woodruff.  If  the  title  to  the  landschaften  security  was  guar- 
anteed by  the  Government  or  by  the  State,  and  if  the  security  back 
of  that  bond  was  a  given  area  of  farm  land  which  was  of  unquestion- 
able value,  at  an  even  rate  I  think  the  debenture  bond  would  be 
preferable. 

Senator  Hollis.  To  make  the  record  clear,  do  you  mean  the  land- 
schaft bond? 

Mr.  Woodruff.  Yes;  I  mean  the  landschaft  bond;  it  would  be 
equivalent  to  a  municipal  bond. 


16  RURAL    CREDITS. 

Mr.  Lubin.  Oh,  I  beg  your  pardon;  there  is  no  such  proposition 
as  Government  security ;  there  is  no  Government  guaranty  or  security. 
That  is,  the  Government  by  its  laws  is  empowered  to  and  will  per- 
form the  functions  safeguarding  the  bonds;  but  it  gives  no  guaranty; 
this  landschaft  is  a  guaranty;  all  this  land  is  a  guaranty;  but  not 
the  Government. 

Mr.  Platt.  Well,  the  law  under  which  the  landschaft  is  organized 
guarantees  the  title,  or,  rather,  makes  the  mortgage  practically  a 
guaranty. 

Mr.  Lubin.  It  does  not  guarantee  the  title  in  this  way,  that  the 
Government  says,  "  We,  the  people  of  the  United  States,  do  hereby 
guarantee  that  piece  of  land,  and  if  it  is  not  good  we  will  pay  for  it." 

Mr.  Platt.  It  makes  that  land  absolutely  guaranteed  as  to  title. 

Mr.  Lubin.  Morally,  but  not  legally;  no.  The  Government  does 
not  pay  anything  in  any  case.  It  is  like  you  drop  a  letter  in  the 
post-office  letter  box  and  the  letter  is  lost.  The  Government  will 
take  steps  to  recover  the  letter,  but  it  does  not  give  you  $10  if  there 
was  a  $10  bill  in  it. 

Senator  Hollis.  Now,  Mr.  Lubin,  if  you  will  permit  me 

Mr.  Lubin  (interposing).  I  beg  your  pardon,  the  question  was  not 
answered.     Which  of  those  bonds  would  you  prefer? 

Mr.  Woodruff.  I  would  prefer  the  landscaft  bond,  provided  the 
two  "  if  s  "  were  carried  out,  both  the  security  as  to  the  title,  backed 
by  either  the  Government  or  the  State,  not  guaranteeing  the  bond, 
but  protecting  the  title  to  the  security,  and  then  provided  the  security 
back  of  that  bond  was  of  unquestionable  value. 

Mr.  Lubin.  I  can  only  give  a  description  of  how  it  is  done;  I 
have  done  so.  Now,  this  bond  has  been  described  and  that  bond  has 
been  described.  Under  these  conditions  as  described,  which  of  the 
two  bonds  would  you  take  if  you  were  compelled  to  buy  one  of  them 
for  your  company? 

Mr.  Woodruff.  At  a  given  rate,  I  should  say  the  landschaft  bond 
would  be  preferable — at  the  same  rate. 

Mr.  Lubin.  Yes;  that  is  all. 

Senator  Hollis.  Mr.  Lubin,  if  you  will  permit  me,  we  are  seeking 
the  truth  in  this  proposition.  Of  course,  you  want  to  help  and  Mr. 
Woodruff  wants  to  help  and  I  want  to  help. 

Noav,  in  my  opinion,  it  is  impossible  for  the  Government  to  give  such 
a  title — the  National  Government — in  the  various  States;  and  I  think 
it  is  almost  impossible  to  persuade  the  States  to  pass  such  a  law  as 
would  give  an  indefensible  title.  You  have  thought  of  that,  of 
course  ? 

Mr.  Lubin.  Would  you  like  to  ask  that  as  a  question? 

Senator  Hollis.  Yes ;  I  want  your  comments  on  that. 

Mr.  Lubin.  Well,  if  that  is  asked  in  the  form  of  a  question,  I  will 
say  this:  The  Government  of  the  United  States  has  no  power  to 
coerce  any  State  to  adopt  this  law  or  repeal  that  law  in  relation  to  a 
title.  I  do  not  think  that  a  State  has  any  power  to  coerce  the  United 
States  along  the  same  lines. 

But  the  United  States,  I  think,  has  ample  power  to  pass  an  act 
which  will  say,  "  Under  this  act  we  will  issue  charters ;  whatever 

States  desire  charters  may  have  them,  provided  that  section of 

this  act  shall  be  complied  with  ";  that  is,  put  it  in  operation. 


RURAL   CREDITS.  17 

Well,  this  law  is  passed,  and  they  find  that  there  is  only  one  State 
in  the  Union  which  can  operate  under  this  law,  and  that  is  Iowa. 
Iowa  starts  a  landschaft  and  issues  its  bonds;  it  becomes  known  to 
the  people.  The  bonds  are  sold;  immediately  subscribed  for; 
taken  up. 

The  result  is  that  Michigan,  for  instance,  wants  the  same  law;  they 
want  the  same  charter ;  they  apply  to  the  United  States  Government 
for  a  charter.  The  Government  says  to  them,  "  We  can  not  give  you 
one;  your  State  has  to  pass  those  laws  in  order  to  get  a  charter." 

And  in  this  way  the  United  States  can  wait  patiently  until  all  the 
States  of  the  Union  are  in  line,  and  if  they  want  charters,  they  can 
get  them,  but  they  must  comply  with  the  law,  and  there  is  no  compul- 
sion at  all ;  whenever  the  States  do  this  they  can  get  the  charter. 

That  is  the  answer. 

Senator  Hollis.  That  idea,  Mr.  Lubin,  was  in  the  Fletcher-Moss 
bill.  Have  you  read  that  bill  ?  It  probably  came  from  your  sugges- 
tion. That  was  one  of  the  conditions  laid  down  in  the  Fletcher- 
Moss  bill. 

I  would  like  to  ask  Mr.  Woodruff  one  or  two  questions. 

Senator  Lee.  Would  you  allow  me  first  to  ask  Mr.  Lubin  a  ques- 
tion, Mr.  Chairman? 

Senator  Hollis.  Yes;  certainly. 

Senator  Lee.  Mr.  Lubin,  how  would  you  get  rid  of  the  constitu- 
tional limitation  on  the  power  of  the  States  which  prohibits  them 
from  passing  any  law  which  would  violate  a  contract?  Assuming 
that  there  is  a  cloud  upon  the  title  to  land  which  results  from  a  con- 
tractual liability,  how  could  the  States  pass  laws  which  would  clear 
up  that  title  and  thus  meet  the  requirements  of  the  Federal  Govern- 
ment which  you  suggest  ? 

Mr.  Lubin.  Well,  that  is  a  very  hard  question;  that  would  take 
probably  a  finer  lawyer  than  I  am  to  answer ;  I  would  not  feel  com- 
petent to  answer  that  question ;  I  do  not  know. 

Senator  Hollis.  Mr.  Woodruff,  how  much  do  your  mortgages  net 
the  company  as  an  investment? 

Mr.  Woodrufe.  About  5.07  per  cent. 

Senator  Hollis.  5.07  per  cent? 

Mr.  Woodruff.  Yes. 

Senator  Hollis.  If  our  system  should  go  into  successful  operation, 
and  we  should  succeed  in  floating  our  bonds,  so  that  we  could  loan  to 
the  farmers  at  5  per  cent,  you  see  that  we  would  make  practically  all 
the  farm  loans  in  the  country  and  eventually  would  drive  you  out  of 
that  investment  field.  Then  you  would  have  to  either  invest  in  some- 
thing else  or  buy  our  bonds? 

Mr.  Platt.  They  would  not  have  to  do  that  under  this  bill,  because 
you  limit  the  loan  to  any  one  borrower  to  $4,000. 

Senator  Hollis.  Yes;  that  would  leave  the  larger  ones  free.  Do 
you  require  any  limitation,  Mr.  Woodruff,  upon  the  purposes  for 
which  the  money  shall  be  spent  ? 

Mr.  Woodruff.  No;  except  that  we  do  not  encourage  the  specu- 
lative borrower.  We  do  not  inquire  as  to  whether  the  money  is  actu- 
ally going  to  be  used  upon  the  farm  or  not.  As  a  matter  of  fact,  the 
majority  of  our  loans  go  to  purchase  additional  lands. 

55137— vol  2,  pt  1—14 2 


18  RURAL   CREDITS. 

Senator  Hollis.  If  we  should  succeed  in  making  our  system  a  suc- 
cess, and  should  float  our  bonds  at  4  per  cent,  do  you  think  that 
would  prove  an  attractive  investment  to  your  company,  provided  you 
should  be  driven  out  of  the  5.07  per  cent  mortgage  loan  market? 

Mr.  Woodruff.  I  should  very  gravely  doubt  it  for  this  reason,  if 
you  will  permit  me  to  say  so:  We  make  our  farm-loan  mortgages  to  a 
certain  extent  to  encourage  the  State — encourage  the  individual ;  we 
want  the  individual  to  come  in  personal  touch  with  the  company;  we 
have  an  indirect  advertisement  in  that  way. 

Senator  Hollis.  Yes. 

Mr.  Woodruff.  The  investment  feature  is  not  the  only  feature  that 
prompts  us  to  make  farm-loan  investments. 

Senator  Hollis.  But  that  is  a  pretty  good  rate  for  an  almost  abso- 
lutely safe  investment,  is  it  not? 

Mr.  Woodruff.  Yes. 

Senator  Hollis.  That  is  an  attractive  rate,  is  it  not? 

Mr.  Woodruff.  Yes;  an  attractive  rate. 

Senator  Hollis.  As  shown  by  the  amount  of  your  investment  in 
those  loans? 

Mr.  Platt.  Do  you  say  you  make  your  loans  from  Ohio  to  southern 
Minnesota  ? 

Mr.  Woodruff.  Yes. 

Mr.  Platt.  You  do  not  loan,  then,  I  take  it,  in  New  York  "and 
Pennsylvania  '. 

Mr.  Woodruff.  No,  sir. 

Mr.  Platt.  Is  that  because  farm  loans  are  made  at  lower  rates  in 
New  York  and  Pennsylvania,  or  because  the  security  is  not  so  good? 

Mr.  Woodruff.  Because  the  farms  are  not  marketable.  They  vary 
greatly  in  value,  and  in  the  event  of  their  being  offered  for  sale  they 
do  not  meet  with  a  ready  purchaser. 

Mr.  Platt.  I  think  there  is  some  truth  in  that,  but  the  farmers  in 
New  York  and  Penns}dvania  do  borrow  at  a  lower  rate  than  else- 
where. 

Mr.  Woodruff.  They  do  from  local  institutions,  where  the  security 
is  known;  but  from  long  distances  it  would  be  difficult  to  borrow  on 
a  security  of  that  character — I  mean  that  is  not  readily  marketable. 

Senator  Hollis.  Senator  Crawford,  would  you  like  to  ask  any 
questions  of  Mr.  Woodruff? 

Senator  Crawford.  No. 

Senator  Hollis.  Senator  Lee?     Mr.  Brown? 

Mr.  Brown.  Nothing  more,  I  believe. 

Senator  Hollis.  Dr.  Carver? 

Mr.  Carver.  Yes.  You  expressed  a  preference,  Mr.  Woodruff,  for 
the  landschaft  bonds,  as  compared  with  the  bonds  issued  under  this 
bill,  of  course,  at  the  same  rate  of  interest;  you  put  in  a  proviso — a 
couple  of  "  ifs."  I  suppose  if  those  "  ifs  "  applied  to  both  bonds,  you 
would  not  have  any  reason  for  preferring  the  landschaft  bond  to  the 
bond  issued  under  this  bill? 

Mr.  Woodruff.  If  you  will  allow  me  to  express  my  personal  judg- 
ment in  the  matter,  I  do  not  see  how  you  are  going  to  get  your 
farmers  in  the  United  States  to  organize  landschaft  organizations, 
for  the  reason  that  there  are  too  many  opportunities  for  them  to  se- 
cure  funds  at  a  reasonable  rate  outside  of  such  an  organization; 
and  the  farmers  of  the  United  States  are  very  slow,  or  would  be 


RURAL    CREDITS.  19 

very  slow,  I  think,  to  obligate  their  security  to  protect  their  neigh- 
bors' indebtedness. 

Mr.  Carver.  Well,  under  this  bill,  as  I  remember  it,  there  is  a 
double  liability,  as  in  the  case  of  an  ordinary  bank;  so  that  if  they 
go  in  under  this  bill  they  would  have  some  considerable  responsi- 
bility for  their  neighbors' /debts. 

Mr.  Woodruff.  To  answer  your  question  as  to  the  two  proposi- 
tions. I  should  say  that  the  bond  issued  under  this  bill,  from  our 
standpoint,  would  be  preferable. 

Mr.  Carver.  To  the  landschaft  bonds? 

Mr.  Woodruff.  To  the  landschaft  bonds,  if  the  two  "  ifs  "  were 
covered. 

Mr.  Lubin.  If  the  two  "  ifs  "  were  covered.  But  if  they  were  not 
it  would  create  a  lot  of  banks  for  the  farmers,  and  how  can  the 
farmers  run  banks?  In  the  first  place,  you  said  that  the  interest 
is  5 

Mr.  Woodruff  (interposing).  5.07  per  cent. 

Mr.  Lubin.  5.07  per  cent.  Now,  is  that  the  interest  that  the 
farmer  pays  or  is  it  the  net  interest  that  you  receive  ? 

Mr.  Woodruff.  It  is  the  net  interest  that  we  receive  from  the 
farmer. 

Mr.  Lubin.  Is  that  the  net  interest  that  the  farmer  pays  ? 

Mr.  Woodruff.  Oh,  no. 

Mr.  Lubin.  What  does  the  farmer  pay  ? 

Mr.  Woodruff.  We  do  not  know;  but  probably  in  the  neighbor- 
hood of  6  per  cent.    In  the  South  more  than  that. 

Mr.  Lubin.  That  is,  you  have,  as  it  were,  a  toll  before  passing 
over ;  there  is  a  middle  course  that  deals  with  the  farmer  direct,  and 
that  middle  course  is  compensated  by  a  certain  compensation. 

Mr.  Brown.  Paid  by  the  farmer. 

Mr.  Lubin.  Yes.  Therefore,  if  I  understand  right,  the  farmer 
does  not  receive  the  money  at  5.07  per  cent,  but  you  receive  5.07 
per  cent. 

Senator  Crawford.  Yes;  there  is  a  commission  mortgage  in  there. 

Mr.  Lubin.  Yes;  there  is  a  commission  man. 

Senator  Crawford.  There  are  the  abstracting  expenses,  and  the 
attorney's  fees,  and  so  on. 

Mr.  Lubin.  Yes;  and  there  is  a  middleman,  is  there  not,  between 
you  and  the  farmer? 

Mr.  Woodruff.  There  must  of  necessity  be. 

Mr.  Lubin.  Well,  then,  there  is  one  thing  that  should  not  be  over- 
looked. If  you  are  receiving  a  landschaft  bond,  yofi  have  got  a 
finished  product;  in  the  other  case  you  have  got  a  good  deal  of  keen, 
inside  business  to  attend  to,  and  you  have  got  to  go  to  the  bank  to 
see  if  the  thing  is  straight;  whereas  in  the  landschaft  bond,  if 
the  two  "  ifs  "  are  there,  it  is  a  finished  product ;  and  you  still  insist 
that  you  prefer  the  bank  of  the  farmer  here  to  this  finished  product 
that  would  be  floating?    Which  of  the  two  would  you  prefer? 

Mr.  Woodruff.  It  is  a  pretty  hard  question  to  answer. 

Mr.  Brown.  May  I  ask  a  question?  Mr.  Woodruff,  do  you  know 
absolutely  what  rate  per  cent  the  farmer  pays  on  your  mortgages? 

Mr.  Woodruff.  No,  sir;  we  do  not. 


20  KUKAL    CREDITS. 

Senator  Hollis.  The  mortgages  actually  run  to  you;  you  are 
named  in  the  mortgages;  you  do  not  take  an  assignment  of  them,  do 
you? 

Mr.  Woodruff.  The  mortgage  runs  to  us,  and  the  rate  that  we  re- 
ceive is  named  in  the  mortgage,  which  is  a  matter  of  record. 

Senator  Crawford.  There  is  probably  another  mortgage,  how- 
ever— a  commission  mortgage. 

Mr.  Woodruff.  A  commission  mortgage. 

Senator  Crawford.  And  the  rate  which  the  farmer  pays  is  71  to  8 
per  cent.  Of  course,  you  do  not  know  anything  about  that;  you 
simply  get  your  5.07  per  cent  interest.  But  between  you  and  that 
borrower  there  is  a  margin  that  makes  his  rate  of  interest  run  up  to 
7  per  cent,  probably. 

Mr.  Woodruff.  His  transaction  has  got  to  go  through  at  least  two 
parties,  and  they  have  to  be  compensated  for  their  services. 

Senator  Crawford.  Certainly. 

Senator  Hollis.  But.  on  the  other  hand,  you  do  this  to  establish 
cordial  relations  with  the  people  of  those  sections;  and  if  the  rate 
ran  too  high  you  would  know  that  and  would  disapprove  of  it. 

Mr.  Woodruff.  Yes:  and  then  there  is  competition  between  the 
different  corporations  who  desire  to  secure  farm  loans  which  has  a 
tenoTency  to  keep  the  rate  down. 

Senator  Hollis.  Mr.  Thompson,  have  vou  any  questions  to  ask 
Mr.  Woodruff? 

Mr.  Thompson.  No. 

Senator  Hollis.  Do  you  want  to  ask  Mr.  Lubin  any  questions? 
We  have  15  minutes  in  which  to  discuss  the  matter;  and  it  is  open  to 
an}7one  to  ask  questions  of  anyone  else. 

Mr.  Thompson.  Mr.  Lubin  made  the  statement  a  moment  ago,  in 
comparing  the  landschaft  with  the  system  provided  in  this  bill 
(S.  55512),  that  in  the  one  case  the  farmers  would  be  having  banks 
to  deal  with.  Do  you  understand.  Mr.  Lubin,  that  the  loan  associa- 
tions provided  here,  the  local  associations  as  contrasted  with  the 
landschaft  as  such,  are  in  the  nature  of  banking  institutions  with 
banking  machinery  ? 

Mr.  Lubin.  Does  this  call  for  banking  machinery? 

Mr.  Thompson.  I  mean  the  local  associations  among  farmers;  do 
you  think  of  them  as  banks  or  in  the  nature  of  banks? 

Mr.  Lubin.  Well,  you  can  not  go  only  upon  one  branch  of  the 
proposition :  one  part  is  not  the  whole. 

Mi-.  Thompson.  You  are  thinking  of  the  central  district  selling 
agencv  '. 

Mr.  Lubin.  For  the  landschaft?  Are  you  speaking  of  the  land- 
schaft ? 

Mr.  Thompson.  I  am  speaking  of  this  bill. 

Mr.  Lubin.  On  this?  I  am  taking  the  whole  proposition.  So  far 
as  the  landschaft  is  concerned  you  have  no  bank  whatever.  The 
farmer  gets  his  money  and  it  is 'finished.  That  is  the  end.  He  pays 
his  interest,  or  it  is  paid  through  here,  and  it  is  finished.  He  gets 
his  mortgage  for  50  or  75  years  od  this  plan  here,  and  he  can  pay  his 
mortgage  in  two  weeks:  and  if  he  buys  his  bond  in. the  open  market 
he  has  chared  himself  out:  so  he  is  at  liberty  to  move:  it  is  mobile; 
this  i>  a  mobile  piece  of  paper;  the  debt  is  a  mobile  debt:  the  thing 
is  absolutely  mobile  any  moment. 


RURAL    CREDITS.  21 

Mr.  Thompson.  You  assume,  then,  that  the  selling  problem  in  con- 
nection with  the  bonds  takes  care  of  itself  largely? 

Mr.  Lubin.  Yes;  it  is  like  subscribing  to  Government  bonds.  If 
this  thing  were  done  to-morrow  as  it  is  in  Germany,  with  the  addi- 
tional provision  for  publicity,  these  bonds  would  be  oversubscribed 
and  run  up  to  hundreds  of  millions  of  dollars  in  a  week. 

Mr.  Thompson.  I  have  no  other  questions. 

Mr.  Brown.  May  I  ask  one  more  question,  Mr.  Chairman? 

Senator  Hollis.  Certainly. 

Mr.  Brown.  Do  I  understand,  then,  Mr.  Lubin,  that  these  bonds 
have  no  security  other  than  the  mortgaged  lands  ? 

Mr.  Lubin.  They  have  got  the  security  of  the  whole  tract  of  land 
mortgaged  to  the  landschaft,  but  with  efficient  appraisement  any 
one  parcel  of  land  mortgaged  is  sufficient. 

Mr.  Brown.  Yes:  but  all  of  that  land  is  mortgaged  in  order  to  get 
into  the  landschaft  proposition,  as  I  understand? 

Mr.  Lubin.  No  ;  let  us  see.  Suppose  you  start  the  landschaft  and 
there  is  only  one  man  in  it,  who  has  5  acres.  He  puts  in  a  prop- 
osition for  a  bond.  The  whole  landschaft  is  5  acres;  you  can  not 
float  any  more  bonds  than  on  those  5  acres,  probably  $2,000 ;  you  can 
not  float  any  more. 

Mr.  Brown.  What  security  has  that  bond  other  than  the  land  that 
is  mortgaged? 

Mr.  Lubin.  It  has  not  any  other. 

Mr.  Brown.  Well,  that  is  what  I  wanted  to  get  at, 

Mr.  Platt.  Is  that  always  true  ?  Have  not  some  of  the  landschaft 
associations  accumulated  funds? 

Mr.  Lubin.  No;  they  accumulate  nothing.  They  may  accumulate 
$50;  they  have  to  assess  themselves  to  pay  for  paper,  or  for  a  bag 
or  trunk,  a  spittoon,  or  a  hatrack ;  they  may  accumulate  $50,  but  that 
is  all  the  money  they  have,  it  is  their  petty  cash,  they  do  not  do  any 
banking. 

Senator  Hollis.  You  see  they  do  not  have  any  funds  to  turn  over 
to  the  borrower;  all  they  turn  over  to  him  is  the  bond,  which  in  effect 
says  that  he  has  turned  certain  land  over  to  them,  which  they  hold 
for  the  bonds. 

Mr.  Platt.  But  the  landschaft  receives  the  amortization  payments; 
what  does  it  do  with  those? 

Senator  Hollis.  Yes;  that  is  true;  what  do  they  do  with  that 
money,  Mr.  Lubin  ? 

Mr.  Lubin.  I  have  never  found  any  mistake  or  any  failure 

Mr.  Platt  (interposing).  What  do  they  do  with  the  money,  the 
landschaft,  when  the  money  is  paid  in  for  amortization  payments? 

Mr.  Lubin.  They  buy  back  the  bonds. 

Mr.  Platt.  Yes.^  In  other  words,  the  landschaft  uses  the  amorti- 
zation payments  and  interest  to  pay  the  interest  on  the  bonds,  and  if 
there  is  a  surplus,  what  is  dc  ne  with  that? 

Mr.  Lubin.  They  have  no  surplus ;  there  is  never  any  surplus. 

Mr.  Platt.  Suppose  they  are  loaning  out  money  at  4  per  cent, 
and  the  interest  they  have  to  pay  is  only  3  per  cent,  what  do  they  do 
with  the  difference? 

Mr.  Lubin.  They  lo  not  make  any  profit  at  all. 


22  KUEAL   CEEDITS. 

Mr.  Platt.  But  the  interest  payments  and  the  amortization  pay- 
ments come  into  the  landschaf t  itself,  and  they  have  got  the  money ; 
what  do  they  do  with  it? 

Mr.  Lrnix.  Oh,  you  mean  the  interest?  When  the  bond  is  issued 
you  have  printed  on  it  that  it  is  a  3  per  cent  bond  or  a  3|-  or  4  per 
cent  bond.  There  are  the  different  issues;  and  you  print  the  rate 
right  on  the  bond.     Those  bonds  are  then  sold ;  the  rates  do  not  vary. 

Senator  Hollis.  The  borrower  walks  up  with  his  interest  and  his 
amortization  payment  and  gives  it  to  the  landschaft,  and  the  land- 
schaft  gives  that  whole  amount  over  to  the  holder  of  the  bond;  is 
that  correct? 

Mr.  Lubin.  That  is  it. 

Senator  Hollis.  There  U  nothing  retained  by  the  landschaft  in  the 
way  of  profit  ? 

Mr.  Lubin.  Xo.  Suppose  the  man  has  sold  this  bond  for  $92,  but 
within  a  week  after  that  he  wants  to  cancel  all  his  indebtedness.  He 
takes  out  a  50-year  indebtedness;  but  suppose  he  has  a  fortune  left 
him.  So  he  goes  into  the  market  to  buy  the  bonds  back,  and  they 
are  worth  $3  a  share  more  than  when  he  sold  them.  That  man  will 
lose  that  $3  a  share. 

Mr.  Brown.  Suppose  the  bonds  have  fallen  in  the  market? 

Mr.  Lubin.  Then  he  gains. 

Mr.  Platt.  Prof.  Carver,  as  a  matter  of  fact,  have  not  a  number 
of  the  landschaf ts  accumulated  surplus  funds? 

Mr.  Carver.  Well,  as  I  understand  it  as  Mr.  Lubin  does,  that  they 
keep  no  funds. 

Mr.  Lubin.  Thej^  have  got  nothing  there. 

Mr.  Carver.  The  amortization  payments  as  they  come  in  are  used 
to  pay  up  the  interest  on  the  bonds  or  go  into  the  market  and  buy 
the  bonds. 

Mr.  Platt.  Well,  they  can  not  make  the  things  exactly  balance. 
Suppose  they  bonds  have  gone  down ;  they  can  get  them  more  cheaply. 

Mr.  Lubin.  But  the  landschaft  does  not  buy  the  bonds  for  itself. 
It  buys  them  for  those  farmers. 

Mr.  Carver.  But,  Mr.  Lubin.  I  think  the  point  is  that  the  amorti- 
zation payments  as  they  come  in  more  than  pay  the  interest  on  the 
outstanding  bonds;  otherwise  there  would  be  no  amortization. 

Mr.  Lubin.  Yes ;  that  is  true. 

Mr.  Carver.  Now,  what  they  do  with  that  surplus  is  to  buy  in 
bonds. 

Mr.  Lubin.  Yes,  buy  in  bonds;  they  have  no  cash. 

Mr.  Carver.  As  soon  as  they  have  $100  amortization  payments 
they  go  and  buy  up  bonds. 

Senator  Crawford.  Suppose  the  man  who  owns  the  bond  does  not 
want  to  sell  it? 

Mr.  Carver.  They  are  always  for  sale  on  the  market,  like  Govern- 
ment bonds. 

Senator  Crawford.  Suppose  you  can  buy  them,  but  have  to  pay  a 
premium  on  them  ? 

Mr.  Carver.  In  that  case  they  defer  it. 

Senator  Crawford.  What  do  they  do  in  the  meantime? 

Mr.  Carvir.  In  that  case  they  put  the  money  in  the  bank,  like  an 
individual. 


RURAL    CREDITS.  23 

Senator  Crawford.  Then  they  must  have  funds  on  hand  ? 

Mr.  Carver.  They  must  have  funds  on  hand ;  but  there  is  no  accu- 
mulation or  surplus;  it  is  like  a  working  balance. 

Mr.  Platt.  As  I  recall,  some  of  the  statements  made  to  the  com- 
mittee were  to  the  effect  that  some  of  these  older  landschafts  had 
considerable  funds  on  hand ;  but  whether  they  belonged  to  the  pres- 
ent borrowers  or  men  who  borrowed  years  ago  I  do  not  know. 

Mr.  Lubin.  I  want  to  say  that  there  are  some  so-called  landschaft 
banks;  but  these  are  not  part  of  the  real  landschaft;  they  are  out- 
side, and  are  run  by  some  members  of  a  landschaft  as  a  side  issue. 
They  are  not  part  of  the  landschaft  system  at  all.  They  are  really, 
as  it  were,  clearing  houses. 

Mr.  Platt.  Yes. 

Mr.  Lubin.  Now,  these  clearing  houses  are  not  a  part  of  the  land- 
schaft at  all;  they  do  that  voluntarily.  A  certain  number  of  land- 
schafts have  a  clearing  house.  But  it  is  not  under  the  Government 
law  relating  to  landschafts.  It  is  the  same  as  if  they  should  say, 
"  Let  us  chip  in  and  have  p  grocery  store  on  that  corner."  It  does 
not  concern  the  landschaft. 

Mr.  Platt.  Yes;  I  understand. 

Mr.  Lubin.  They  have  money,  and  they  do  a  lot  of  things  and 
do  some  kind  of  banking  which  that  association  allows  them  to  do ; 
but  they  use  this  money  more  for  distributing  products — handling 
products,  etc. 

Mr.  Platt.  Yes. 

Mr.  Lubin.  That  has  really  nothing  at  all  to  do  with  the  landschaft 
proper. 

Mr.  Carver.  It  seems  to  me  that  the  essential  difference  between 
the  landschaft  system  and  the  system  which  is  proposd  here  is  simply 
in  the  selling  of  the  bonds.  Under  the  landschaft  system,  the  farmer 
who  gives  the  mortgage  gets  the  bond  and  sells  it  himself;  whereas 
the  pending  bill  (S.  5542),  introduced  by  Senator  Hollis,  has  pro- 
vided machinery  through  which  these  bonds  shall  be  sold  by  this 
central  reserve — I  forget  the  title 

Senator  Hollis.  Federal  land  banks. 

Mr.  Carver.  Federal  land  banks;  and  they  do  the  selling  instead 
of  the  farmers.    That  seems  to  me  to  be  the  essential  difference. 

Senator  Hollis.  Moreover,  they  have  a  capital  back  of  them. 

Mr.  Lubin.  I  beg  to  make  this  statement  in  connection  with  the 
landschaft;  it  is  not  necessary  for  this  farmer  to  run  around  to  the 
grocery  store  or  butcher  shop,  etc.,  and  say  to  the  people  there,  "  Do 
you  want  to  buy  a  bond?  "  He  can  go  to  this  landschaft  and  leave 
the  bond  there ;  they  do  the  selling  for  him,  if  he  wants  to  do  it  that 
way.  Or  they  take  it  to  a  broker  who  deals  in  that  sort  of  thing; 
or  he  takes  it  on  the  bourse  himself,  if  he  wants  to ;  but  it  is  not  in- 
cumbent on  him  to  go  around  and  sell  his  own  bond. 

Mr.  Platt.  Mr.  Lubin,  there  are  a  great  many  of  these  landschaft 
?ssociations,  are  there  not? 

Mr.  Lubin.  Yes. 

Mr.  Platt.  Do  all  of  the  bonds  of  the  landschafts  sell  on  an 
equality? 

Mr.  Lubin.  No. 


24  RURAL    CREDITS. 

Mr.  Platt.  One  landschaft's  bonds  may  be  selling  better  than 
those  of  another,  even  though  they  pay  the  same  rate  ? 

Mr.  Lubin.  Yes;  there  is  no  compulsion  about  it. 

Mr.  Brown.  Even  if  they  bear  the  same  rate  of  interest? 

Mr.  Lubin.  Yes;  there  is  no  compulsion. 

Senator  Hollis.  We  thank  you,  gentlemen,  for  attending  the 
meeting. 

(Thereupon,  at  12  o'clock  noon,  the  subcommittees  adjourned.) 


■* 


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